India’s next phase of economic growth may be determined less by what happens in New Delhi and increasingly by what happens in Gandhinagar, Mumbai, Chennai, Bhubaneswar, Bengaluru, Hyderabad, Lucknow and other state capitals.
That is one of the most important messages emerging from NITI Aayog’s inaugural Investment Friendliness Index (IFI) 2026, released on July 17. Gujarat has emerged at the top with a score of 56.6, followed by Maharashtra at 53.7 and Tamil Nadu at 53.3. Goa, with 53.1, and Odisha, at 52.4, complete the group of five “top performers”.
The rankings are important, but the larger significance of the IFI lies elsewhere. It attempts to shift the debate on investment from announcements, summits and memoranda of understanding to the underlying conditions that determine whether capital actually arrives, factories get built, businesses expand and investors stay.
For decades, investment promotion in India was viewed largely through a national lens. Taxation, trade policy, foreign investment rules, monetary stability and major economic reforms were driven primarily by the Union government. That remains important.
But once an investor decides to enter India, the decisive questions quickly become local: Where is industrial land available? How reliable is electricity? How quickly can environmental and construction approvals be secured? Is the port efficient? Is skilled manpower available? How predictable is state policy? And how effectively does the administration respond when a project encounters a problem?
NITI Aayog’s new index essentially recognises this reality: India may be one investment destination globally, but within India, states compete intensely for capital.
Investment as the engine of Viksit Bharat
The timing of the index is significant. India’s ambition of becoming a developed economy by 2047 requires economic growth to remain substantially above its historical trajectory for an extended period.
The IFI report notes that India’s real GDP grew at an average rate of about 6.1% between fiscal 1992 and 2025. Citing World Bank estimates, it says India would need average real GDP growth of around 7.8% over the next two decades to achieve high-income status by 2047. Investment has accounted for more than half of India’s economic growth since the reforms of the early 1990s, making a sustained acceleration in investment central to the Viksit Bharat objective.
The challenge, therefore, is not simply attracting more foreign direct investment. India needs a much broader investment surge encompassing domestic private capital, manufacturing, infrastructure, logistics, energy, technology, research and development, and new-age sectors.
Manufacturing is particularly important because of its ability to generate employment, deepen domestic supply chains and connect Indian enterprises with global production networks. As companies reassess global supply chains amid geopolitical tensions, protectionism and the search for alternatives to concentrated manufacturing bases, India has an opportunity. But global manufacturers looking at India will ultimately compare locations within the country.
The competition between Indian states is therefore becoming part of India’s global competitiveness.
What the Investment Friendliness Index measures
The IFI covers all 28 states and eight Union Territories and evaluates them through 84 indicators spread across eight pillars: infrastructure, business climate, resources, government policy, regulatory ease, institutional environment, financial health and environmental resilience. The framework combines publicly available quantitative information with primary surveys and investor perceptions.
This breadth distinguishes the index from a narrow ease-of-doing-business exercise.
An investor-friendly state cannot simply operate an online single-window portal while roads remain poor, electricity unreliable or land approvals uncertain. Nor can large subsidies indefinitely compensate for weak institutions or unpredictable regulation.
The index attempts to capture this wider ecosystem. Regulatory ease, for instance, looks at licences, the time required to start a business, utility approvals, industrial land allotment, environmental clearances, commercial courts and exit processes. The report rightly recognises that investors evaluate not merely the number of regulations but their transparency, predictability and implementation on the ground.
Environmental resilience has also been incorporated into investment attractiveness. Floods, cyclones, earthquakes, pollution and other environmental risks can disrupt production, damage assets and increase insurance and operating costs. Climate resilience is consequently becoming an economic competitiveness issue rather than merely an environmental one.
The IFI also recognises fiscal health as an investment consideration. A financially stressed state may eventually struggle to maintain infrastructure, honour commitments or continue incentives. Fiscal management, therefore, becomes part of the credibility of the investment ecosystem.
Why Gujarat leads
Gujarat’s first position is not based on a single advantage. Its performance reflects the cumulative impact of industrial infrastructure, logistics, power availability, exports, fiscal management and an established manufacturing ecosystem.
NITI Aayog identifies infrastructure, business climate, financial health, regulatory ease and government policy among Gujarat’s major strengths. Its port infrastructure is particularly significant for a state deeply integrated with manufacturing and international trade.
Power is another competitive advantage. According to the report, electricity for Gujarat’s industrial users is around 29% cheaper than the pan-India average, while average power availability stands at about 23.8 hours per day. Gujarat also accounts for approximately 31% of India’s merchandise exports, highlighting the depth of its integration with domestic and international supply chains.
Its fiscal position strengthens the picture. The report records Gujarat’s fiscal deficit at 2.81% of GSDP in FY2024, while outstanding liabilities were around 18% of GSDP—roughly 40% below the large-state average.
Yet Gujarat’s overall score of 56.6 also carries an important message: even the leader is far from a theoretical score of 100. NITI identifies resources, institutional environment and environmental resilience as areas where Gujarat has room for improvement. The index, therefore, should not be interpreted as declaring any state a finished model. It is better viewed as a diagnostic tool.
Maharashtra and Tamil Nadu offer different models
Maharashtra’s second position illustrates another route to investment competitiveness. The country’s largest corporate and financial centre performs particularly strongly on business climate, resources and financial health.
The state accounted for 35% of India’s private equity and venture capital investments covered by the report. It also had 1,033 Atal Tinkering Labs, the highest number in the country, while its expenditure on skilling was the highest among states.
Maharashtra’s advantage is consequently rooted not merely in manufacturing but in a dense ecosystem of capital, corporations, financial institutions, entrepreneurs, skilled manpower and innovation.
Tamil Nadu presents yet another model. Ranked third, it performs particularly strongly in infrastructure and business climate. The state ranks first among large states on the infrastructure pillar, aided by efficient ports, relatively low electricity downtime and contained transmission and distribution losses.
Perhaps more striking is its near-100% MoU conversion rate cited by the report. This is an important indicator because investment announcements often generate headlines while implementation determines economic impact. Tamil Nadu also performs strongly in exports, with its export-to-GSDP ratio about 36% above the large-state category average. Investors surveyed for the index highlighted consistency in state policies as another strength.
Taken together, Gujarat, Maharashtra and Tamil Nadu demonstrate that there is no single formula for investment competitiveness. Gujarat combines manufacturing, ports, energy and fiscal strength; Maharashtra combines industrial depth with capital and innovation; Tamil Nadu combines manufacturing clusters, infrastructure, exports and execution capacity.
The rise of competitive federalism
The IFI could become particularly consequential if states treat it as a reform instrument rather than another ranking exercise.
Its origins lie in the ninth meeting of the NITI Aayog Governing Council in 2024, when Prime Minister Narendra Modi asked for an “Investment-Friendly Charter” identifying the policies, programmes and processes required to attract investment. The Union Budget 2025–26 subsequently announced the creation of the Investment Friendliness Index as an instrument of competitive and cooperative federalism.
India has already seen how competition among states can influence industrial policy. Governments increasingly organise investment summits, establish investment-promotion agencies, court multinational corporations and compete for semiconductor plants, electronics factories, data centres, renewable-energy projects, defence manufacturing facilities and global capability centres.
The IFI adds a measurable framework to this competition. Its value will be greatest not in telling Gujarat that it is number one, but in helping a state ranked lower understand why it is behind and what it can realistically change.
This is why NITI Aayog has divided jurisdictions into large states, hilly and northeastern states, and city states and Union Territories rather than treating fundamentally different geographies as identical. Among hilly and northeastern states, Uttarakhand leads with 47.5, followed by Assam at 47.3 and Himachal Pradesh at 46.1. Among city states and Union Territories, Goa leads with 53.1, followed by Delhi at 49.9 and Chandigarh at 47.0.
Such peer comparisons are potentially more useful than a simple national league table.
Rankings should be read with caution
No composite index can perfectly capture something as complex as investment attractiveness. Investment decisions vary enormously by sector. A semiconductor company, steel producer, software company, automobile manufacturer, renewable-energy developer and tourism investor will assign very different weights to land, electricity, minerals, talent, ports, airports, water availability and urban quality of life.
There is also an inherent methodological challenge in combining hard economic data with perception surveys. The IFI itself uses both secondary indicators and perception-based indicators, with the state profiles showing a 65% data score and 35% survey score. The survey was heavily weighted towards MSMEs: around 88% of respondents were MSMEs and 12% large corporates.
That gives the index valuable ground-level information, but it also means the results should not be interpreted as a definitive prediction of where the next billion-dollar investment will go.
There is another caution. Investment friendliness and actual investment flows are related, but they are not identical. Existing industrial clusters generate powerful network effects. A state that already has automobile manufacturers, suppliers, engineers, ports and logistics networks may continue attracting automotive investment even if another state improves its regulatory environment rapidly.
The concentration of foreign investment illustrates the challenge. Recent reporting on the IFI notes that Maharashtra, Karnataka, Gujarat, Delhi and Tamil Nadu together attract around 85% of India’s FDI inflows. Breaking such concentration requires more than incentives. States need to build capabilities and industrial ecosystems over years.
From investment summits to investment execution
Perhaps the most useful contribution of the IFI is that it can push the investment conversation towards outcomes.
For years, state investment summits have competed to announce increasingly large MoUs. But the quality of an investment ecosystem is ultimately reflected in how many projects reach financial closure, acquire land, secure approvals, begin construction, start production and subsequently expand. The distinction between attracting and sustaining investment is critical.
Existing investors are often the most credible ambassadors for a state. A company that expands a factory for the second or third time signals something more powerful than a freshly signed MoU: it demonstrates confidence based on actual experience.
NITI Aayog itself makes this point, observing that a supportive investment environment cannot depend only on incentives. Transparency, responsiveness, regulatory predictability and the reduction of business friction are equally important, while reinvestment by existing enterprises can be a particularly strong indicator of confidence in governance and institutions.
This is where the next generation of state reforms must focus.
Single-window systems must become genuinely single-window rather than digital interfaces sitting above multiple disconnected departments. Industrial land banks need clear titles and infrastructure. Power must be reliable and competitively priced. Commercial disputes need faster resolution.
State investment-promotion agencies need professional capacity. Universities and skilling institutions must be connected with emerging industrial clusters. And incentives must be transparent, predictable and paid on time.
States will determine the speed of India’s rise
The Investment Friendliness Index arrives at an important moment in India’s development trajectory. The country is seeking to expand manufacturing, become part of reconfigured global supply chains, attract advanced technologies and generate millions of productive jobs while simultaneously managing the energy transition and building infrastructure on an enormous scale.
The Union government can create the macroeconomic architecture, negotiate trade agreements, liberalise investment rules, develop national infrastructure corridors and launch programmes such as Make in India and production-linked incentives. But the factory, warehouse, data centre, R&D laboratory or renewable-energy project ultimately has to be located in a state.
That makes state capacity one of the central variables in the Viksit Bharat equation. The first IFI has established the baseline. Future editions will be even more revealing because they will show movement: which states are reforming fastest, which are converting policy into investment, which are losing momentum and which are emerging as new industrial destinations.
The real success of the index, therefore, should not be measured by whether Gujarat remains number one next year. It should be measured by whether the gap between India’s strongest and weakest investment ecosystems begins to narrow.
If states start competing not merely over subsidies and investment announcements but over infrastructure quality, regulatory certainty, skills, institutional efficiency, fiscal credibility and execution, the Investment Friendliness Index could become more than another government ranking. It could become an instrument for changing the geography—and accelerating the pace—of India’s economic transformation.
