Analysts polled by Reuters had forecast industrial output to fall 2% for the month.
"A contraction of industrial production by 4.3% in September is serious and indicative of a significant slowdown as both investment and consumption demand have collapsed," said Rupa Rege Nitsure, chief economist of L&T Finance Holdings.
The industrial output figure is the latest in a series of worrying economic data in Asia's third largest economy.
Earlier in the day, a government data showed that India's power demand fell at the fastest pace in at least 12 years in October, signalling a continued decline in the industrial output. Electricity has about 8% weighting in the country's index for industrial production.
The South Asian country needs electricity to fuel its expanding economy but a third decline in power consumption in as many months points to tapering industrial activity in a nation that aims to become a $5 trillion economy by 2024. Economists say that weak series of data could mean economic growth for July-September period will remain near April-June quarter levels of 5%, which was a six-year low. The Indian government is likely to release April-September economic growth figures by the end of this month.