Investment Friendliness Index (IFI)

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Recently, NITI Aayog Vice-Chairman Ashok Kumar Lahiri stated that India must significantly increase its investment rate to sustain high economic growth in the coming decades. In this context, NITI Aayog launched the Investment Friendliness Index (IFI) to help States improve their investment ecosystem and attract greater domestic and foreign investments.

Why Higher Investment is Important for India

Investment as the Engine of Economic Growth

Investment plays a central role in economic development because it increases productive capacity, creates employment opportunities, raises household incomes, and stimulates overall demand in the economy. Since the economic reforms of 1991, more than half of India's GDP growth has been driven by investment, making it one of the most important contributors to long-term economic expansion.

India has recorded an average real GDP growth of around 6.1% between FY1992 and FY2025, making it the fastest-growing major economy in the world. According to the World Bank, India must maintain an average annual growth rate of about 7.8% over the next two decades to achieve the goal of becoming a high-income economy by 2047.

Significance of Public Investment

Stimulating Economic Activity

Public investment in roads, railways, ports, airports, power, digital infrastructure, education, and healthcare generates economic activity by creating employment, increasing incomes, and boosting consumption. Large infrastructure projects also produce a multiplier effect, benefiting sectors such as steel, cement, logistics, construction, and manufacturing.

Encouraging Private Investment

Government investment improves infrastructure quality, ensures policy certainty, and enhances the ease of doing business, thereby encouraging domestic and foreign companies to invest. This process, known as the crowding-in effect, enables public investment to attract additional private investment into productive sectors.

Enhancing Productivity

Investment in transport networks, logistics, energy systems, digital infrastructure, and human capital reduces production costs, improves operational efficiency, and increases the competitiveness of Indian industries in domestic as well as international markets.

Promoting Balanced Regional Development

Public investment in backward and underdeveloped regions improves connectivity, supports industrialisation, expands access to public services, and reduces regional disparities, thereby promoting inclusive economic growth across the country.

Generating Employment

Infrastructure development creates large-scale employment opportunities for both skilled and unskilled workers, particularly in sectors such as construction, manufacturing, transport, and logistics.

Improving Global Competitiveness

A modern infrastructure network, efficient governance, and a stable policy environment make India a more attractive destination for foreign direct investment (FDI), global manufacturing, and international supply chains.

Challenges to Higher Investment

Low Investment Rate

India's investment rate is around 25% of GDP, which is considerably lower than the investment levels achieved by East Asian economies during their rapid growth periods. For example, China invested nearly 50% of its GDP during its high-growth phase.

Wide Differences Among States

Investment conditions vary significantly across States because of differences in infrastructure quality, governance standards, regulatory efficiency, and policy implementation capacity. These disparities create an uneven investment environment across the country.

Slowdown in Private Investment

Private investment has remained relatively weak because of global economic uncertainty, sluggish demand, and increased risk aversion among investors.

Infrastructure Financing Constraints

Large infrastructure projects require substantial long-term financing, while governments face fiscal constraints that limit their ability to invest continuously.

Regulatory and Procedural Bottlenecks

Investment projects are frequently delayed because of problems related to land acquisition, environmental clearances, contract enforcement, and complex regulatory procedures, increasing both costs and uncertainty.

Global Economic Uncertainty

Factors such as geopolitical tensions, protectionist trade policies, and global supply chain disruptions continue to affect investor confidence and international capital flows.

Investment Friendliness Index (IFI)

About the Index

The Investment Friendliness Index (IFI) is a diagnostic assessment framework launched by NITI Aayog in 2025 to evaluate the investment ecosystem of 28 States and 8 Union Territories. Rather than functioning as a simple ranking exercise, the Index helps governments identify their strengths and weaknesses and undertake targeted policy reforms to improve their investment climate.

The Index also promotes cooperative and competitive federalism by encouraging States to adopt best practices from one another.

Objective of the Index

The primary objective of the Investment Friendliness Index is to improve the overall investment climate, strengthen ease of doing business, encourage policy reforms, and attract greater domestic as well as foreign investment, thereby supporting faster economic growth.

Assessment Framework

The assessment is carried out on a 100-point scale, combining primary surveys of investors with secondary government data to provide a comprehensive picture of the investment ecosystem in each State and Union Territory.

Eight Pillars of Assessment

The Index evaluates investment performance on the basis of Infrastructure, Business Climate, Resources, Government Policy, Regulatory Ease, Institutional Environment, Financial Health, and Environmental Resilience. Together, these pillars measure the overall attractiveness of a State as an investment destination.

Classification of States

For meaningful comparison, the Index classifies regions into Large States, Hilly and North-Eastern States, and City States and Union Territories.

Top Performing States (2025)

In the inaugural edition, Gujarat, Maharashtra, Tamil Nadu, Goa, and Odisha emerged as the overall best-performing States.

Among the Large States, Gujarat, Maharashtra, and Tamil Nadu secured the highest positions.

Among the Hilly and North-Eastern States, Uttarakhand, Assam, and Himachal Pradesh performed the best.

Among the City States and Union Territories, Goa, Delhi, and Chandigarh emerged as the leading performers.

Major Government Initiatives Supporting Investment

National Infrastructure Pipeline (NIP)

The National Infrastructure Pipeline (NIP) is a long-term investment programme aimed at developing transport, energy, urban infrastructure, and social infrastructure to strengthen India's economic foundation.

PM Gati Shakti National Master Plan

The PM Gati Shakti National Master Plan integrates infrastructure planning through a GIS-based digital platform, improving coordination among ministries and promoting seamless multimodal connectivity.

National Monetisation Pipeline (NMP)

The National Monetisation Pipeline (NMP) seeks to unlock the value of existing brownfield public assets and utilise the proceeds to finance the creation of new infrastructure assets.

Production Linked Incentive (PLI) Scheme

The Production Linked Incentive (PLI) Scheme provides performance-based financial incentives to promote investment in strategic manufacturing sectors, strengthen domestic production, and improve export competitiveness.

Ease of Doing Business Reforms

The Government has implemented several reforms, including digital approvals, single-window clearance systems, faceless tax administration, and labour reforms, to simplify business operations and improve investor confidence.

Capital Expenditure Push

Recent Union Budgets have consistently prioritised capital expenditure, recognising infrastructure investment as one of the most effective ways to accelerate economic growth and employment generation.

Way Forward

India must continue to increase both public and private investment to sustain rapid economic growth over the coming decades. Improving the quality of public expenditure, ensuring timely completion of infrastructure projects, and strengthening asset utilisation will maximise the impact of public investment.

The Investment Friendliness Index should be used as a policy tool to help States adopt best practices and strengthen cooperative federalism. At the same time, investor confidence must be enhanced through stable policies, simpler regulations, faster contract enforcement, and greater transparency.

The country should also expand infrastructure financing through Development Finance Institutions (DFIs), municipal bonds, and Public-Private Partnerships (PPPs). Greater investment in green infrastructure, digital public infrastructure, innovation, and aspirational districts will ensure that India's future growth remains sustainable, balanced, and inclusive.