Why in News?
Gujarat has topped NITI Aayog‘s first-ever Investment Friendliness Index (IFI) 2026, followed by Maharashtra and Tamil Nadu.
Key Facts for Prelims: Investment Friendliness Index
- Released by: NITI Aayog — first edition
- Coverage: All 28 States and 8 Union Territories
- Purpose: Assesses the ability of states to attract and sustain investment, rather than being a mere ranking exercise
- Top three: Gujarat, Maharashtra, Tamil Nadu
- Number of pillars: Eight, with differing weightages
Eight Pillars and Weightages
| Pillar | Weightage |
|---|---|
| Infrastructure | 25% |
| Business Climate | 20% |
| Resources | 15% |
| Regulatory Ease | 12% |
| Government Policy | 10% |
| Financial Health | 7% |
| Institutional Environment | 6% |
| Environmental Resilience | 5% |
Four Categories of States
- Top Performers: Five states
- Frontrunners: 15 states, including Delhi, Uttar Pradesh, Andhra Pradesh
- Emerging Performers: Eight states and UTs, including Punjab, West Bengal, Bihar, Jammu and Kashmir
- Aspiring States: Eight, including Mizoram, Arunachal Pradesh, Manipur
Static Exam Link: NITI Aayog and Other Indices
- NITI Aayog: Established 1 January 2015, replacing the Planning Commission. Created by an executive resolution — neither constitutional nor statutory
- Chairperson: Prime Minister, with a Vice-Chairperson and a CEO
- Other NITI Aayog indices: SDG India Index, Composite Water Management Index, India Innovation Index, Health Index, Export Preparedness Index, Fiscal Health Index, National Multidimensional Poverty Index
- Distinguish: The Business Reform Action Plan (BRAP) state ranking is by DPIIT; the country-level Ease of Doing Business ranking was by the World Bank (discontinued in 2021)
Why the Investment Friendliness Index Matters
The Investment Friendliness Index is best understood as a competitive federalism instrument. Since land, electricity, labour administration and local clearances are largely state subjects or concurrent matters, the real determinants of where a factory is built lie with state governments rather than the Union. Publishing a comparative index creates reputational pressure on states to fix the specific bottlenecks that investors report.
The choice of pillars is itself instructive. Giving infrastructure the highest weight reflects evidence that reliable power, road and port connectivity and ready industrial land matter more to investors than headline incentives. Including environmental resilience, even at a small weight, acknowledges that climate risk now affects the viability of industrial locations. Financial health captures whether a state has the fiscal room to honour the commitments it makes.
Aspirants should be careful to distinguish this index from similar-sounding exercises. The Business Reform Action Plan ranking is a DPIIT exercise focused on implementation of specific reform measures. The World Bank’s Ease of Doing Business ranking was a country-level exercise, discontinued in 2021. NITI Aayog’s own family of indices, covering SDGs, water, innovation, health, exports and fiscal health, follows the same design philosophy of ranking states to spur reform.
Quick Revision Table: Investment Friendliness Index
| Parameter | Detail |
|---|---|
| Released By | NITI Aayog (first edition) |
| Coverage | 28 States and 8 UTs |
| Number of Pillars | Eight |
| Highest-weight Pillar | Infrastructure (25%) |
| Lowest-weight Pillar | Environmental Resilience (5%) |
| Rank 1 | Gujarat |
| Rank 2 and 3 | Maharashtra, Tamil Nadu |
| Categories | Top Performers, Frontrunners, Emerging Performers, Aspiring States |
Trap / Confusing Points
| Confusion | Correct Fact |
|---|---|
| The Investment Friendliness Index is released by DPIIT | It is a NITI Aayog report; DPIIT releases the BRAP state rankings |
| Business climate carries the highest weight | Infrastructure (25%) is highest; business climate is second at 20% |
| Only major states were assessed | All 28 states and 8 UTs were assessed |
| Andhra Pradesh and Delhi are top performers | They are Frontrunners; only five states are Top Performers |
| NITI Aayog is a constitutional body | It was created by an executive resolution in 2015 |
Practice MCQs
1. The Investment Friendliness Index has been released by:
a. DPIIT
b. NITI Aayog
c. Ministry of Finance
d. Reserve Bank of India
Ans: B
It is NITI Aayog’s first-ever index of state-level investment readiness.
2. Which state topped the index?
a. Maharashtra
b. Tamil Nadu
c. Gujarat
d. Karnataka
Ans: C
Gujarat ranked first, followed by Maharashtra and Tamil Nadu.
3. Which pillar carries the highest weightage?
a. Business climate
b. Regulatory ease
c. Infrastructure
d. Government policy
Ans: C
Infrastructure carries 25%, the highest of the eight pillars.
4. States and UTs are classified into how many categories?
a. Three
b. Four
c. Five
d. Six
Ans: B
Top performers, frontrunners, emerging performers and aspiring states.
5. Consider the following statements about NITI Aayog:
1. It is a constitutional body.
2. It replaced the Planning Commission in 2015.
Which of the above is or are correct?
a. 1 only
b. 2 only
c. Both 1 and 2
d. Neither 1 nor 2
Ans: B
NITI Aayog was set up by an executive resolution on 1 January 2015 and is not a constitutional or statutory body.
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