Font size:
Print
Investment Friendliness Index
NITI Aayog to Rank States on Investment
Context: Government policy think tank Niti Aayog is set to launch a new Investment Friendliness Index during the April–June quarter of FY25, aimed at ranking Indian states on their attractiveness to private investors.
More on News
- The index will evaluate both opportunities and risks, offering a comprehensive picture of each state’s investment climate, according to sources familiar with the development.
- The initiative, announced by Union Finance Minister Nirmala Sitharaman in the 2025–26 Union Budget, is part of the Central government’s broader strategy to deregulate and liberalise India’s investment ecosystem.
- The index is expected to foster inter-state competition, drive regulatory reforms, and help states identify and eliminate hurdles that deter private sector investment.
Index to Measure Opportunities, Risks, and Policy Support
- Indicators: The Investment Friendliness Index will feature four or more sub-indicators to allow a detailed assessment of each state’s performance. These will include:
- Policy environment and investment incentives
- Infrastructure availability
- Business climate and innovation
- Resource accessibility
- Ground Realities: The index will capture the on-ground realities faced by investors and point out specific state-level regulations that may hinder investment.
- Niti Aayog has reportedly concluded stakeholder consultations involving state governments, industry associations, and policy experts to finalise the framework and methodology.
Driving State-Level Reform Through Competition
- The core idea behind the index is to incentivise states to enhance their investment-readiness by identifying bottlenecks, adopting best practices, and aligning with investor expectations.
- This aligns with the Centre’s broader economic reform agenda, which emphasises cooperative federalism and performance-based competition among states.
- By spotlighting both opportunity and risk dimensions, the index is expected to help states improve not just their marketing pitch, but also the actual regulatory conditions on the ground.
Complementing Existing Indices and Economic Reports
The new index adds to Niti Aayog’s expanding suite of performance-based rankings, which already include:
- Health Index: Tracks healthcare outcomes and governance
- School Education Quality Index (SEQI): Evaluates school-level education performance
- State Energy and Climate Index: Measures sustainability, access, and efficiency in energy
- Export Preparedness Index: Ranks states on export ecosystem and readiness
- Currently, RBI’s annual reports on state finances and debt levels are commonly used for comparative insights into fiscal health.
- However, these focus primarily on financial metrics.
- The Investment Friendliness Index will provide a broader lens, incorporating infrastructure quality, administrative efficiency, and innovation capacity.
Experts Caution on Implementation
- Economists have welcomed the initiative but caution that effective implementation and transparency will determine its impact.
- Manoranjan Sharma, Chief Economist at Infomerics Valuation & Rating Ltd, noted, “A comparative index could help improve regulations and investment flows. But to maximise its effectiveness, it should be broad-based and include dimensions like social justice, environmental sustainability, and balanced regional growth.”
- Sharma added that aligning the index with long-term developmental goals would make it a powerful tool for inclusive and sustainable economic progress.
