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Indian business activity falls to 4-year low: HSBC

Why India's government needs to step in

Indian manufacturing and service sector activity fell for a third successive month in September, posting the steepest decline since March 2009, according to a HSBC report published on Wednesday.

The country's Purchasing Mangers' Index (PMI) — a closely watched indicator of a country's business strength — was 46.1 in September, down from 47.6 in the previous month. A reading above 50 signals an expansion in activity, while a reading below this level indicates a contraction.

(Read more: Gold bulls brace for austere Indian festive season)

In the report, HSBC said the downturn reflected weakness in India's service sector economy, with manufacturing activity also deteriorating, but at a slower rate than in August.

Bright spots in India's equity market

The bank's report came one day after the International Monetary Fund sharply downgraded its growth outlook for India in its world economic report. The body now forecasts India will grow by 3.8 percent this year and 5.1 percent in 2014.

(Read more: IMF cuts growth forecast for emerging world)

Also on Tuesday, the OECD (Organisation for Economic Co-operation and Development) warned that middle-income Asian countries, such as India, China, Indonesia and Malaysia must implement structural reforms over the medium term in order to achieve their growth potential.

—By CNBC's Katy Barnato

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