Indian exports have suffered a sharp decline on weakness in foreign demand caused by tepid global growth. Merchandise exports plunged 20.7 percent in August, the quickest pace of decline in five months, marking the nine straight months of falling numbers.
Adding to this, a swift deprecation in the rupee, which has fallen almost 4 percent against the U.S. dollar in the past three months, has increased companies' import bills and made foreign loans more expensive to service.
The MNI India Business Sentiment Indicator is now 4.4 percent below the level seen at the start of 2015, and down 13.8 percent compared with September last year.
Read More Two weeks, three reform setbacks for India's Modi
Prime Minister Narendra Modi's sweeping election victory last May had fuelled a substantial rise in confidence, with expectations his government's pro-business policies would improve the business climate.
But progress on reforms has been slow, largely due to a lack of political support for the changes. Plans to relax rigid labor-market regulations, make it easier for businesses to acquire land and the implementation a nationwide goods and services tax (GST) have all hit roadblocks in the past month.
Read MoreIndia FinMin: I want an RBI rate cut
With reform momentum stalling, a cut in interest rates could be the only boost for business confidence this year.
"RBI [Reserve Bank of India] action to lower rates this year has helped to reduce the extent of the downturn in business confidence, but with inflation low there is clear scope for the central bank to cut the key rate further at its late September meeting," Uglow said. "Such a move seems even more likely given the decision by the U.S. Federal Reserve to stand pat this month."
The RBI is scheduled to hold its next monetary policy meeting on September 29. The central bank has reduced its key policy rate a total of 75 basis points this year, standing pat at its last policy review in August. The repo rate, the level at which the central bank lends money to commercial banks, currently stands at 7.25 percent.