NITI Aayog Investment Friendliness Index: Benchmarking State-Level Investment Ecosystems
(Source: PIB Editorial)
Topic: GS 2 (Governance, Federalism, Government Policies, NITI Aayog) · GS 3 (Indian Economy, Investment, Infrastructure, Competitive Federalism, Inclusive Growth)
Why in news:
NITI Aayog released the Investment Friendliness Index (IFI) to assess how effectively States and Union Territories create an enabling environment for investment. The index aims to strengthen competitive and cooperative federalism by encouraging States to improve governance, infrastructure and ease of doing business while supporting the vision of Viksit Bharat @2047.
Key Details
- NITI Aayog released the Investment Friendliness Index (IFI) on 17 July 2026.
- The index assesses all 36 States and Union Territories using 84 indicators across eight pillars.
- Gujarat, Maharashtra, Tamil Nadu, Goa and Odisha emerged as the top-performing States/UTs.
- No State or UT scored above 60 out of 100, indicating significant scope for improvement.
- The index was mandated during the 9th Governing Council Meeting (2024) and formalised in the Union Budget 2025–26.
- The framework seeks to improve investment competitiveness through data-driven policy reforms rather than merely ranking States.
What is the Investment Friendliness Index (IFI)?
- The Investment Friendliness Index is a comprehensive framework developed by NITI Aayog to measure the quality of the investment ecosystem across States and Union Territories.
- It evaluates how effectively governments facilitate investments through policies, infrastructure, regulatory systems and institutional support.
- The index aims to encourage healthy competition among States while identifying sector-specific reforms required to attract private investment.
- It also serves as a policy tool for improving India’s overall investment climate and accelerating economic growth.
Framework and Methodology
- The IFI evaluates States and UTs using 84 indicators grouped under eight pillars:
- Infrastructure
- Business Climate
- Resources
- Government Policy
- Regulatory Ease
- Institutional Environment
- Financial Health
- Environmental Resilience
- The assessment combines government data with investor perception surveys to capture both policy design and on-ground business experience.
- States and UTs are classified into three peer groups:
- Large States
- Hilly & North-Eastern States
- City States & Union Territories
- The peer-group approach ensures fair comparison among jurisdictions with similar geographical and economic characteristics.
Major Findings of the Index
- Gujarat secured the highest score (56.6) among large States, followed by Maharashtra and Tamil Nadu.
- Goa emerged as the best-performing City State/UT, while Uttarakhand topped the Hilly and North-Eastern States category.
- Fifteen States were classified as “Frontrunners”, while several others were placed in Emerging Performer and Aspiring categories.
- No State crossed the 60-mark, highlighting persistent structural gaps in India’s investment ecosystem.
- Gujarat performed strongly in infrastructure and financial health, Maharashtra in business climate, Odisha in resource availability and Tamil Nadu in environmental resilience.
Significance for India’s Economy
- A competitive investment ecosystem is essential for increasing private investment and sustaining high economic growth.
- The index promotes evidence-based policy reforms instead of relying solely on perception-based rankings.
- Better investment climates encourage industrialisation, employment generation, infrastructure development and innovation.
- The framework supports the objective of increasing India’s investment rate, which currently stands at around 25% of GDP.
- Improved State-level competitiveness contributes directly to the goal of achieving Viksit Bharat @2047.
Role in Competitive and Cooperative Federalism
- The IFI strengthens competitive federalism by encouraging States to adopt best practices and improve governance.
- It also reinforces cooperative federalism by enabling knowledge sharing and policy learning among States.
- State-specific profiles identify reform priorities instead of merely assigning ranks.
- The framework encourages collaboration between the Centre and States for investment promotion and economic development.
Challenges
- The fact that no State scored above 60 indicates significant structural deficiencies in India’s investment environment.
- Perception-based indicators may sometimes reflect investor sentiment rather than actual policy outcomes.
- Important issues such as land acquisition delays, judicial efficiency and labour market flexibility remain only partially captured.
- Public disclosure of pillar-wise weightages remains limited, reducing methodological transparency.
- Excessive focus on rankings may encourage cosmetic reforms instead of long-term institutional improvements.
Conclusion
The Investment Friendliness Index marks an important step towards creating a transparent, data-driven and reform-oriented investment ecosystem in India. By promoting both competitive and cooperative federalism, the framework encourages States to strengthen governance, improve infrastructure and build investor confidence. Sustained policy reforms, greater transparency and continuous institutional improvements will be essential for attracting higher private investment and achieving the vision of Viksit Bharat @2047.
Descriptive Question:
“Competitive federalism has emerged as an important driver of investment-led growth in India. Discuss the significance of NITI Aayog’s Investment Friendliness Index in promoting reforms and improving the investment climate across States.” (10 Marks, 150 Words)