Gujarat has emerged as India’s most investment-friendly state, followed by Maharashtra and Tamil Nadu, in the first Investment Friendliness Index released by NITI Aayog on Friday.
Gujarat secured an overall score of 56.6 out of 100, while Maharashtra scored 53.7 and Tamil Nadu 53.3. Goa, with 53.1, and Odisha, with 52.4, completed the list of five states classified as “top performers”.
Delhi ranked sixth with a score of 49.9, followed by Madhya Pradesh at 48.9. Andhra Pradesh and Karnataka were jointly placed next with scores of 48.7 each.
Gujarat’s performance was attributed to efficient port operations, reliable electricity supply, a competitive power sector and its fiscal position. Maharashtra scored strongly on its business climate, including its ability to attract private equity and venture capital investment.
Tamil Nadu’s position was driven by its ports, export performance and a near 100% conversion rate for investment memorandums of understanding, the report said.
Five states classified as top performers
NITI divided the 36 states and Union Territories into four performance groups. Five were classified as top performers, 15 as frontrunners, and eight each as emerging performers and aspiring states.
The states were also grouped separately as large states, hilly and northeastern states, and city states and Union Territories to account for differences in geography, size and economic structure.
Gujarat, Maharashtra and Tamil Nadu led the large-state category. Uttarakhand, Assam and Himachal Pradesh were the three leading hilly and northeastern states, while Goa, Delhi and Chandigarh headed the city-state and Union Territory group.
NITI Aayog Vice-Chairman Ashok Kumar Lahiri said the exercise should not be treated purely as a race between states.
“This is not a ranking exercise. It is an exercise to tell states where they are doing well and where they are not doing so well,” Lahiri said.
The index was developed after Prime Minister Narendra Modi called for an investment-friendly charter for states at NITI Aayog’s ninth Governing Council meeting. It was subsequently announced in the Union Budget for 2025-26 as an instrument to encourage states to reduce regulatory barriers and compete for private investment.
India needs more investment to support growth
Releasing the report, Lahiri said India’s investment rate was around or below 25% and that the country required more investments to support demand and economic growth.
“India needs more investments as it also boosts demand,” he said.
The 25% figure, however, was not accompanied by a definition. The index report itself uses gross fixed capital formation as the measure of investment and places investments at 29.9% of GDP in FY25, slightly above the decadal average of 29.1%.
The report also noted that the post-pandemic investment recovery has been led primarily by the government and households. Government and public-sector investment grew 13.9% in real terms between FY22 and FY24, while household capital expenditure grew 13.4%. Private corporate investment grew at a relatively slower 8.7%.
Limitations and methodology of NITI’s exercise
The authors behind NITI Aayog’s investment friendliness report acknowledged that published data alone could not fully capture conditions faced by businesses on the ground. The investor survey was introduced to bridge this gap, but the report also described perception-based indicators as qualitative and subjective.
The relatively modest scores of even the leading states underline the scope for improvement. Gujarat, despite ranking first, scored 56.6 out of 100, indicating that the index is intended to identify reform gaps rather than certify that the top-ranked states have resolved all constraints faced by investors.
How the index was built
The index evaluates states through eight pillars carrying different weights.
Infrastructure has the highest weight of 25%, followed by business climate at 20% and availability of resources—including labour, skills, land and finance—at 15%. Regulatory ease carries a weight of 12%, government policy 10%, financial health 7%, institutional environment 6% and environmental resilience 5%.
Together, these pillars comprise 84 indicators. Of these, 62 are based on secondary data collected from government and other published sources, while 22 are based on investor perceptions.
The perception survey covered 1,850 investors across all 36 states and Union Territories. Since some respondents operated in more than one state, the exercise generated 2,503 state-specific responses.
The framework was also developed after consultations with 165 stakeholders, including central and state governments, industry associations, regulatory bodies, investment banks, private equity firms, sovereign wealth funds and multilateral institutions.
NITI Aayog has also included an unusually explicit disclaimer. It said that while due care had been exercised in preparing the report, it did not confirm the authenticity of the underlying data or the accuracy of the methodology. Responsibility for the findings and methodology rests with Crisil, which prepared the report with financial assistance under NITI Aayog’s research scheme.