NITI releases Investment Friendliness Index for States

The Investment Friendliness Index: what happened?

Think of where a factory actually gets built. The Centre sets the big policy frame, but land, power, roads, approvals and the attitude of the local office are mostly State matters. So the real race for investment is run by States. NITI Aayog’s new Index measures how well each State and UT runs that race, and tells it where it is falling behind.

• The report “Investment Friendliness Index (IFI)” covers all 28 States and 8 UTs.
• It uses eight pillars and 84 indicators, combining secondary data with perception measures from a primary survey of investors.
• States are put in four groups by overall score: Top Performers (above 50), Frontrunners (45 to 50), Emerging Performers (40 and above) and Aspiring States.
• 5 States are Top Performers, 15 are Frontrunners, and eight States/UTs sit in each of the last two groups.

Where did the Investment Friendliness Index come from?

• At the 9th Governing Council Meeting of NITI Aayog in July 2024, the Prime Minister asked NITI to prepare an Investment-Friendly Charter: the policies, programmes and processes needed to attract investment.
• The Union Budget 2025-26 then announced an Investment Friendliness Index to promote competitive and cooperative federalism.
• NITI links it to Viksit Bharat @2047 and to “Viksit Rajya@2047”: a developed India needs developed States.

What are the eight pillars of the Index?

• Infrastructure
• Business climate
• Resources
• Government policy
• Regulatory Ease
• Institutional Environment
• Financial Health
• Environmental Resilience
• The release names the factors behind them: industrial land, physical and digital infrastructure, regulatory efficiency, institutional capacity and policy predictability.

Why are States also compared in peer groups?

• A small hill State and a large industrial State do not start from the same place.
• So the Index also ranks States within three peer groups: Large States; Hilly and North-Eastern States; and Union Territories and City States.
• This, the report says, accounts for differences in geography, economic scale and administrative context, so comparisons are fairer.

Which part of the Constitution makes investment a State matter?

• Seventh Schedule, List II (State List), Entry 24: “Industries subject to the provisions of entries 7 and 52 of List I.”
• List I, Entry 52: “Industries, the control of which by the Union is declared by Parliament by law to be expedient in the public interest.”
• So, apart from industries Parliament takes over by law, industry is a State subject. That is why a State-level index makes sense.

What do the results show?

How are States categorised?

The release text is cut off after the Emerging band; the Aspiring band is not stated in it.

Why does the Investment Friendliness Index matter?

What are the challenges in the Investment Friendliness Index?

• 16 of the 36 States/UTs are in the bottom two groups, so the gap between leaders and laggards is wide.
• Part of the score comes from investor perception, which can move with sentiment and not only with reform.
• A ranking can become a one-time headline; the report itself says the Index should be a reform instrument, not merely a periodic assessment.
• Small States and UTs differ hugely in scale; peer groups help, but the overall list still places them side by side.

What should be done next on the Investment Friendliness Index?

• Each State should turn its State Profile into a time-bound reform plan.
• Repeat the Index regularly so progress, not just rank, is visible.
• Build Centre-State-industry forums to spread the practices of the Top Performers.
• Link the Investment-Friendly Charter to the indicators States score poorly on.

What can Prelims ask on the Investment Friendliness Index?

• IFI: released by NITI Aayog, 17 July 2026; announced in Union Budget 2025-26.
• 8 pillars, 84 indicators; includes Financial Health and Environmental Resilience.
• Covers 28 States and 8 UTs.
• Top Performers: Gujarat, Maharashtra, Tamil Nadu, Goa, Odisha.
• Hilly and NE topper: Uttarakhand; UT and City State topper: Goa.
• Industries: List II Entry 24, subject to List I Entries 7 and 52.

How to write about the Investment Friendliness Index in Mains

Practice question (15 marks, 250 words): Competitive federalism can push States to reform faster than central direction alone. Discuss with reference to NITI Aayog’s Investment Friendliness Index.

• Intro: IFI released July 2026; 28 States, 8 UTs, 84 indicators.
• Why States matter: industry is in List II; land, approvals, infrastructure are State-led.
• How the Index pushes reform: benchmarking, peer groups, State Profiles.
• Limits: perception data, scale differences, one-off use.
• Way forward: reform plans, regular editions, peer learning; conclude with cooperative plus competitive federalism.