For years, investors looking to set up a factory, data centre or logistics hub in India have relied on consultants, state investment agencies and months of due diligence to decide where to invest.
NITI Aayog's first-ever Investment Friendliness Index (IFI) seeks to change that.
Released on 17 July, the index evaluates all 28 states and eight Union Territories across 84 indicators under eight pillars, creating what is effectively a single reference framework for comparing investment readiness across India.
It is also being seen as India's attempt to build an equivalent of Vietnam's Provincial Competitiveness Index (PCI), a state-level ranking widely used by investors to compare provinces.
The timing is significant. As India pushes to become a developed economy by 2047, the report says the country will need to sustain average real GDP growth of 7.8% over the next two decades, requiring a much higher investment rate than at present.
Can the Investment Friendliness Index become the benchmark investors rely on—complementing assessments by Invest India, consulting firms and investment advisors—or will it remain another government ranking?
Mint explains.
Why has NITI Aayog launched the index now?
The launch reflects a shift in India's investment strategy.
While the Centre has spent the past decade improving the national investment climate through reforms such as GST, lower corporate tax rates, the Insolvency and Bankruptcy Code (IBC) and production-linked incentive (PLI) schemes, investment decisions are ultimately made at the state level.
A company planning to invest in India still has to choose between Gujarat and Tamil Nadu, Maharashtra and Karnataka, or Uttar Pradesh and Telangana. That decision depends on industrial infrastructure, logistics, land availability, skilled labour, policy stability and regulatory efficiency.
According to NITI Aayog, the Investment Friendliness Index provides a transparent, evidence-based comparison of these factors, helping investors evaluate states on a common platform while giving governments a roadmap for reforms. The report describes the exercise as a strategic reform tool to deepen competitive and cooperative federalism.
How is it different from earlier investment rankings?
India has no shortage of investment assessments. Investors already rely on reports prepared by Invest India, global consulting firms, real estate advisers, state investment promotion agencies and their own commercial due diligence before committing capital.
The IFI attempts to bring these considerations into a single government-backed framework. States are assessed across eight pillars, including infrastructure, business climate, resources, government policy, regulatory ease, financial health, institutional environment and environmental resilience.
To develop the framework, NITI Aayog and its knowledge partner Crisil shortlisted 84 indicators from an initial pool of 953, combining official datasets with stakeholder feedback.
Over the past two decades, the PCI has become a widely used reference for businesses evaluating Vietnam's provinces and is credited with improving governance and investor confidence.
Why could the index matter for investors?
One of the biggest challenges for global investors is not deciding whether to invest in India but deciding where within India to invest.
Differences in infrastructure, governance, logistics and administrative efficiency mean investors often spend months working with consultants, conducting site visits and engaging with multiple state governments before narrowing down potential locations.
According to Divakar Vijayasarathy, founder and chief executive officer of DVS Advisory Group, the new index addresses one of the biggest structural gaps in India's investment ecosystem.
"For any investor, opportunity is only half the equation, clarity is the other half. India's scale is both its biggest advantage and its biggest decision-making challenge: 36 states, each with different languages and strengths, means every entrepreneur has to answer 'where' before they can even get to 'how much'. A government-endorsed, state-by-state benchmark collapses that search from months of due diligence into a single reference point. It doesn't just inform investors—it de-risks the decision itself, and that's what actually moves capital faster," said Vijayasarathy.
Where does the index fall short?
Despite its broad methodology, the index remains state-centric rather than sector-centric.
While each state's profile highlights its key industries, the framework does not answer a question many investors ask first: Which state is best suited for my sector?
A semiconductor manufacturer, pharmaceutical company, renewable energy developer and data centre operator all evaluate different factors before selecting an investment destination. Yet the index provides only an overall state ranking rather than sector-specific comparisons.
Vijayasarathy believes future editions would become significantly more useful if they included a sector-by-state matrix combining overall investment friendliness with industry-specific strengths. Such a framework would allow investors to identify the most suitable states for specific sectors, making the index more actionable.
Can it become India's answer to Vietnam's PCI?
That will depend less on the rankings themselves and more on whether investors begin using them.
The first edition is unlikely to replace the commercial due diligence undertaken by multinational companies or the reports produced by consulting firms and investment advisers.
But if the rankings are updated regularly, remain methodologically transparent and evolve to include sector-specific insights, they could become India's equivalent of Vietnam's PCI—a trusted starting point for investors evaluating locations within the country.
If not, the Investment Friendliness Index risks joining a long list of government rankings that generate attention at launch but have only a limited influence on where investment eventually flows.
The rankings also come as the Centre seeks to strengthen the investment climate across states to sustain foreign capital inflows. Against a target of attracting $100 billion in foreign direct investment (FDI), gross inflows touched a record $94.53 billion in FY26, up from $71.28 billion in FY24.
Among the large states, Gujarat topped the rankings with a score of 56.6, followed by Maharashtra (53.7), Tamil Nadu (53.3) and Odisha (52.4). Uttarakhand emerged as the best-performing hilly and northeastern state, while Goa led the Union territories and city states category.
Uttar Pradesh ranked 19th with a score of 45, while Jharkhand and Bihar were placed 25th and 26th, respectively.