During the 9th Governing Council Meeting of NITI Aayog held in July 2024, the Hon'ble Prime Minister tasked NITI Aayog with preparing an Investment-Friendly Charter comprising key policies, programmes, and processes required to attract investments.
Subsequently, the Union Budget 2025–26 announced the development of an
Investment Friendliness Index to strengthen the spirit of competitive and
cooperative federalism by promoting reforms and fostering a conducive
investment ecosystem across States.
NITI Aayog has released the report titled "Investment Friendliness
Index (IFI)", which presents a structured and data-driven framework for
assessing how effectively States and Union Territories create, enable, and
sustain an environment conducive to investments.
Framework and Methodology of Investment Friendliness Index
The Investment Friendliness Index covers all 28 states and 8 Union Territories and evaluates investment attractiveness across the following eight pillars:
- Infrastructure
- Business climate
- Resources
- Government policy
- Regulatory Ease
- Institutional Environment
- Financial Health; and
- Environmental Resilience
The Investment Friendliness Index (IFI) framework has been developed through a rigorous and consultative process involving an extensive review of global and domestic investment benchmarking methodologies. The framework comprises 84 indicators, incorporating both secondary data and perception-based measures derived from a primary survey of investors.
Key Results and State Categorization
- Based on overall scores, States and Union Territories have been classified into four performance categories:
- Top Performers (scores above 50)
- Frontrunners (45–50)
- Emerging Performers (≥40 – <45)
- Aspiring States (below 40)
Key Findings of the Investment Friendliness Index (IFI) 2026 Report
- Top Performers: Gujarat (56.6) ranked first, followed by Maharashtra (53.7), Tamil Nadu (53.3), Goa (53.1), and Odisha (52.4).
- Category-Specific Toppers:
- Large States: Gujarat, Maharashtra, and Tamil Nadu.
- Hilly and North-Eastern States: Uttarakhand emerged as the highest-ranked, followed by Assam and Himachal Pradesh.
- Union Territories and City States: Delhi and Chandigarh.
- Drivers of Success: Gujarat leads on efficient port turnaround times, a competitive and reliable power sector, high manufacturing exports (~31% of India's merchandise exports) and the lowest fiscal deficit-to-GSDP ratio (2.81%) among states (as of fiscal 2024).
- Maharashtra leads on business climate with highest share of private equity/venture capital (PE/VC) investment (35% of the national total) and the largest number of Atal Tinkering Labs.
- Tamil Nadu leads on infrastructure and business climate, backed by near-100% memorandum of understanding (MoU) conversion and strong export performance.
- Goa tops resources and regulatory ease among city states/UTs, aided by high skilling/healthcare spend and a high renewable share in its power mix.
Why Does India Need a State-Level Investment Index?
- Achieving Viksit Bharat: India has recorded robust economic growth over the past three decades, with real GDP growing at an average annual rate of 6.1% between FY1992 and FY2025.
- However, according to the WB's India Country Economic Memorandum (2025), India must sustain around 7.8% average real GDP growth over the next two decades to achieve high-income economy status by 2047 under the Viksit Bharat vision, necessitating significantly higher investment.
- Investment as the Main Growth Driver: The RBI's KLEMS database shows that capital formation has contributed more than half of India's economic growth since the 1991 economic reforms, highlighting the need to accelerate investment.
- Low Investment Rate: India's investment rate stood at 29.9% of GDP in FY25, well below the 40%+ investment rates achieved by countries such as Japan, South Korea, and China during their rapid industrialisation.
- Addressing Regional Imbalances: Nearly 85% of FDI inflows are concentrated in Maharashtra, Karnataka, Gujarat, Delhi, and Tamil Nadu, while the Northeastern states receive less than 1%, underscoring the need to improve investment competitiveness across all states.
- Greater Role for States: With the Centre's fiscal space becoming more selective despite higher public capital expenditure, private investment and state-led reforms will play a larger role in driving future growth.
- A State-Level Investment Index can encourage competitive federalism and improve the investment climate across states.
What are the Challenges in Attracting Investments Across States?
Macro-Level Challenges
- Sharp Regional FDI Divergence: The top five states (Maharashtra, Karnataka, Gujarat, Delhi and Tamil Nadu) account for nearly 85% of India's FDI inflows.
- The difference between the top scorer (Gujarat, 56.6) and the lowest (Lakshadweep, 24.5) is over 32 points, reflecting deep structural disparities in infrastructure and economic base.
- Persistent Investor Pain Points: Despite improvements in digital infrastructure and logistics, investors continue to flag long approval timelines, difficulties in land access, and shortage of skilled labour, particularly in high-value manufacturing sectors.
- Incentives Alone Are Not Enough: While states increasingly compete through fiscal incentives, the report emphasizes that a transparent, predictable, and stable regulatory environment is far more important for attracting sustained private investment.
- Even Top Performers Have Scope for Reform: No state crossed 60 out of 100 in the Investment Index, with Gujarat scoring the highest at 56.6, indicating that investment ecosystem gaps exist even in the best-performing states.
Recurring Issues Identified in State Profiles
- Human Capital Constraints: Shortage of skilled labour and talent migration continue to impede investment across several states, particularly J&K, Chhattisgarh, Rajasthan, Tripura, Nagaland, and Uttar Pradesh (Kanpur).
- Weak Single-Window Clearance Mechanisms: In J&K, the digital single-window system is frequently bypassed, with manual complaint registration continuing despite online provisions.
- Safety and Law-and-Order Concerns: In Bihar, investor confidence is affected by perceived security concerns and limited air connectivity to Tier-II and Tier-III cities.
- Fiscal Stress: Bihar's outstanding liabilities-to-GSDP ratio is nearly 500 basis points above the national average, while J&K's Gross Fiscal Deficit is around 9% of GSDP and interest payments account for about 7.13% of GSDP, almost double the average for hilly and northeastern states.
- Digital Infrastructure Gaps: Jammu & Kashmir's 4G/5G penetration remains low, with a Base Transceiver Station (BTS) density of only 0.82 per sq. km, while several states continue to face weak last-mile digital connectivity.
- Environmental Risks: Uttar Pradesh's industrial clusters such as Noida, Ghaziabad, and Muzaffarnagar experience AQI levels of 200– 600 for much of the year, while several states also face recurring flood risks requiring long-term drainage and water-management solutions, affecting industrial productivity and livability.
- Logistics Bottlenecks: Investors repeatedly highlighted poor road quality, weak last-mile connectivity between industrial parks and ports/airports, and inadequate warehousing and cold-storage infrastructure as major constraints.
- Lack of Tier-II/III airport connectivity in Bihar, need for an operational airport in Sikkim, congestion at Chennai Airport, and inadequate airport infrastructure in Odisha and Chandigarh hinder investment.
- Slow Incentive Disbursement: Delays in incentive payments and weak inter-departmental coordination were highlighted in Andhra Pradesh and Telangana.
Infographics Based on NITI Aayog released a report on “Investment Friendliness Index”
Q. Consider the following statements regarding the Investment Friendliness Index 2026:
1. It was released by NITI Aayog to assess investment readiness of States and Union Territories.
2. It evaluates all 28 States and 8 Union Territories across eight pillars.
3. It uses both secondary data and investor perception-based inputs.
4. It classifies Top Performers as those scoring below 40.
Which of the statements given above are correct?
(a) 1, 2 and 3 only
(b) 1 and 4 only
(c) 2, 3 and 4 only
(d) 1, 2, 3 and 4
Correct Answer: (a) 1, 2 and 3 only
Explanation
- Statement 1 is correct: The Index was released by NITI Aayog to benchmark investment friendliness across States and UTs.
- Statement 2 is correct: It covers all 28 States and 8 Union Territories.
- Statement 3 is correct: The framework uses 84 indicators, including secondary data and investor perception survey inputs.
- Statement 4 is incorrect: Top Performers are those scoring above 50. States scoring below 40 are classified as Aspiring States.
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