National Institution for Transforming India also known as NITI Aayog introduced the Investment Friendliness Index (IFI). It was introduced to boost the investment rate. This is a data-driven index that focuses on capital expenditure and increasing private sector investment for long-term growth of the economy.
NITI Aayog has officially launched the first edition of the Investment Friendliness Index (IFI) for all Indian States and Union Territories (UTs).
What is the Investment Friendliness Index (IFI)?
IFI is a framework to assess the business and investment environment across all 28 states and 8 union territories in India.
NITI Aayog developed it in collaboration with knowledge partner CRISIL. The index uses a mix of official government data from the various ministries and departments and feedback from an investor perception survey covering 1850 investors.
The index will also evaluate the stability of local laws and infrastructure as well as the financial health of state governments.
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Objectives of the IFI
The main objectives of the IFI is to make indian states attract capital. The indexencousinge health competition among states to improve their business ecosystem.
To promote cooperative federalism by creating a platform where low-performing states can follow the best practices from the top-performing states.
The index will also help to the government to identify where their policies or infrastructure fall. Also guides investors to identify the safest and efficient state infrastructure and other facilities for their projects.
What are the Parameters or Pillars of Evaluation?
The IFI is calculated on the basis of the 84 indicators which are categorised under eight pillars. Each pillar has specific weightage:
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S. No
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Pillars
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Weightage
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Elements
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| 1. |
Infrastructure
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25%
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Assesses the quality of transport, logistics, ports and industrial land availability.
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| 2. |
Business Environment
|
20%
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The ease of setting up operations, market size and ability to attract private equity or venture capital.
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| 3. |
Resources
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15%
|
Measures how simple, predictable and transparent local rules and clearances are.
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| 4. |
Regulatory Ease
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12%
|
Availability of skilled labor, natural resources, land and financial access
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| 5. |
Government Policy
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10%
|
Analyzes the stability, clarity and intent of state-level industrial policies.
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| 6. |
Financial Health
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7%
|
Evaluates the fiscal discipline of the state and long-term financial growth.
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| 7. |
Institutional Environment
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6%
|
Measures the capacity, quality of governance and efficiency of state institutions.
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| 8. |
Environment Resilience
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5%
|
Assesses the state’s preparedness for climate risks and sustainable growth.
|
How States are Categorised and Ranked
NITI Aayog divided states into three geographic groups large states, hilly and North-Eastern States and city states and union Territories. States fall into four performance tiers based on their final scores out of 100:
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Top Performers (Score above 50)
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Frontrunners (Score between 45 and 50)
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Emerging Performers (Score between 40 and 45)
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Aspiring States (Score below 40)
Top Performers of the First Edition Investment Friendliness Index
There are five states in the Top Performers list. It also highlights the five top states attract nearly 85% of India's Foreign Direct Investment (FDI), while the Northeast receives less than 1%.
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Gujarat ranked 1st overall with the 56.6 score. It is driven by efficient port operations. A competitive power sector and infrastructure.
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Maharashtra ranked 2nd and scored 53.7. Maharashtra leads the country in attracting venture capital and private equity.
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Tamil Nadu (TN) ranked 3rd with a score of 53.3. TN stands out for its massive export performance and high conversion rate of business Memoranda of Understanding (MoUs).
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Goa emerged as the top performer among the City States and UTs category with a score of 53.1.
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Odisha was recognised for its rich resource availability and industrial growth score of 52.4.
Leaders in Category-Wise
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Hilly and North-Eastern States: Uttarakhand secured the top category followed by Assam and Himachal Pradesh.
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Union Territories and City States: Goa led in this category with Delhi and Chandigarh taking the next spots.
Benefits and Significance of the Index
The introduction of the IFI by NITI Aayog marks a significant shift in how India sees industrial growth within the country.
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The Index highlights regional investment gaps such as which state receives maximum FDI.
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The index will help to improve the quality of state budgets by tracking financial health and infrastructure as core pillars. It will reward states that cut down on wasteful administrative spending and allocate more money toward infrastructure.
It builds global investor confidence. International corporations can use this official and verified index to understand risks and rewards of setting up factories in different parts of India.