Set for a launch in the ongoing April-June quarter, the index is meant to further the Centre’s deregulation push by helping states identify and address regulatory hurdles that deter private investment.
Apart from assessing the primary scope of opportunity and risk from investing in a state, the Investment Friendliness Index will also gauge a state government’s policy and incentives, infrastructure, business climate and innovation, and resources available, the two people said, requesting anonymity.
NITI Aayog has mostly concluded consultations with key industry bodies, state governments, and policy experts to finalise the framework and methodology, they added.
“The index will capture on-ground realities faced by investors and highlight specific state-level regulations that may impede investments,” one of them said.
“The index is expected to encourage states to compete for investments and improve ground-level regulations to facilitate easier investment. States will seek to emulate top performers, adopt their best practices, and implement improvements,” this person added.
Currently, the Reserve Bank of India’s annual report on state finances, fiscal health, and debt levels is often used to compare financial prudence across states.
Union finance minister Nirmala Sitharaman announced the Investment Friendliness Index in her Union Budget for 2025-26, in February, to encourage states to proactively attract investments and drive economic growth amid rising inter-state rivalry.
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Comprehensive. But granular enough?
NITI Aayog already publishes several indices to track key aspects of state-level performance.
Its Health Index measures overall health outcomes, governance, and key inputs and outputs; the School Education Quality Index evaluates school education performance; the State Energy & Climate Index which assesses energy efficiency, access, and environmental sustainability; and its Export Preparedness Index ranks states on export readiness and ecosystem.
The Investment Friendliness Index aims for a more comprehensive assessment.
Manoranjan Sharma, chief economist at Infomerics Valuation & Rating Ltd, said an index comparing states on key parameters could help improve regulations and attract more investment. But he added that its effectiveness would depend on its implementation, as the proof of the pudding is in the eating.
“The Central government could make this Index more broad-based and encompassing by including factors like social justice, environmental impact, long-term sustainability, and regional growth,” said Sharma, who previously was chief economist at Canara Bank.
“Balanced regional development requires customized initiatives rather than a uniform broad-brush approach oblivious to granular ground-level needs and requirements, credible and transparent data, careful monitoring and evaluation, closer public-private partnerships, and factoring in the interests of all stakeholders to make a perceptible difference,” he added.
Spokespersons of the ministry of finance and NITI Aayog didn’t respond to Mint’s queries emailed on Tuesday.
A focused deregulation
In January, the Economic Survey 2024-25 highlighted systematic deregulation as a key driver of economic growth.
Chief economic adviser V. Anantha Nageswaran stressed in the report that simplifying or repealing some regulations would make it progressively easier to address the remaining ones, underscoring the need for a focused policy shift towards deregulation.
To that end, the Union government has been urging states to implement reforms to boost investment and enhance the ease of doing business, linking access to a portion of its 50-year interest-free loan scheme to specific recommended reforms.
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“Unlocking India’s investment potential hinges on addressing regulatory bottlenecks at the state level,” said the second of the two persons mentioned earlier. “A data-driven index that captures ground realities can empower states to compete constructively, align with best practices, and create an environment where private capital thrives.”
The Central government has also set up a commission to review and streamline regulations, licences, certifications, and permissions in the non-financial sector to reduce the compliance burden and foster a more business-friendly environment.
Led by Union cabinet secretary T.V. Somanathan, the commission will drive policies aimed at advancing the ease of doing business and accelerating growth amid a challenging global environment.
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