The HSBC Markit Purchasing Managers' Index, based on a survey of 500 companies, rose to 58.5 in Feb, its strongest reading since Jun 2008, from 57.7 in Jan 2010.
A PMI reading above 50 shows expansion, while a reading below that threshold level indicates a decline.
Robert Prior-Wandesforde, Senior Asian Economist at HSBC, said, "At 58.5, the headline index is consistent with ongoing double-digit gains in industrial production which in turn is likely to mean that spare capacity is being eaten into rapidly."
The new orders index rose to 64.0 from Jan's 62.9.
"While new export orders grew less strongly in Feb than Jan this didn't prevent the overall new orders series from hitting a high in the current upturn," said Prior-Wandesforde.
He further said, "The same was also true of output growth, which has rarely shown such strength since the series began in Apr 2005."
In the Union Budget 2010-11 released on Friday, Feb 26, the government said that economy will grow faster than the 7.2 percent it forecast for this fiscal year ending on Mar 31.