Investment friendliness index in August, to come with benefits

New Delhi: The Niti Aayog will launch the first edition of its investment friendliness index in August, paving the way for companies to zero in on a state for investment based on the availability of skilled manpower, requisite infrastructure and ease of operation and compliance, said a senior government official.

The index will also help incentivise states to improve their ranking, which in turn will improve India's overall investment climate, the official told ET.

The Aayog has sourced data from all states and union territories and will follow a transparent methodology to arrive at the ranking of the states.


"The focus of the government is to ensure that all regions in the county grow simultaneously and not just a few pockets or states. An overall investment friendly climate across the country will give a significant boost to the national manufacturing mission," said the official, who did not wish to be identified.

Southern and western states in India have taken a lead over other parts of the country in attracting investment, particularly for manufacturing of automobiles, electronics and mobile phones.

According to a paper by the Economic Advisory Council to the Prime Minister (EAC-PM), southern states have significantly outpaced others since economic liberalisation in 1991, with the five states-Karnataka, Andhra Pradesh, Telangana, Kerala and Tamil Nadu-collectively accounting for about 30% of India's gross domestic product in 2023-24.

As part of the exercise to develop the index, the Aayog has reached out to industry across sectors to identify the key factors which make executives decide on a location for a unit.

Finance minister Nirmala Sitharaman had said while presenting the budget for 2025-26 that the government would launch an Investment Friendliness Index of states in 2025 to further the spirit of competitive cooperative federalism.

The announcement came after Prime Minister Narendra Modi's directive to the Aayog in 2024 to develop an investor-friendly charter for states.

It is expected that the performance of the states will be measured around two primary dimensions of opportunity and risk, with both these having at least four sub indicators.

The sub-indicators under the opportunity dimension, which could have a weightage of 65%, will include state government's policy and incentives, infrastructure, business climate and innovation and available resources with the states.

The risk dimension, on the other hand, with a weightage of 35%, will include pillars such as natural risk, regulatory risk, financial risk and institutional effectiveness. In addition, in all four sub-categories of opportunities and risks, a few perception-based indicators will be included to measure how investors perceive and prioritise opportunities and risks, and to assess the quality of investor experience on certain rules and regulations.