The HSBC India Services Purchasing Managers' Index, compiled by S&P Global, increased to 59.3 in December from 58.4 in November, which is the highest level since August.

Strong underlying demand was identified by companies as the primary factor behind output growth in the services sector. In some instances, survey members indicated that recent efforts to expand capacities allowed them to accept more work.

The overall level of positive sentiment remained above its long-run average, with service providers exuding confidence that output would increase over the course of the coming 12 months. Expanded capacities, new customer enquiries and budget allocation towards marketing were some of the positive factors propelling growth.

Although services companies continued to see their business expenses rising in December, the rate of inflation softened from November's 15-month high. Reflecting a further increase in input costs, service providers raised their own fees again in December.

The combination of new business growth, upbeat forecasts and rising capacity pressures supported another round of job creation across the services sector. Firms continued to add workers at one of the strongest paces since the survey started in 2005. But the hiring was a tad lower than November's 19-year high.

There was a solid increase in international orders placed with service providers during December which augurs well for employment and growth in the months ahead.

"Forward-looking indicators such as new business and future activity suggested that the strong performance will likely continue in the near future," noted Ines Lam, economist at HSBC.

The robust growth in services activity also offset a decline in manufacturing growth and boosted the overall Composite PMI to 59.2 during December from 58.6 in November, boosting the overall economic growth rate.