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Knowledge Nugget | Investment Friendliness Index: What makes a state investment-friendly?

Why do some states emerge as investment hubs while others lag behind? What makes a state attractive to investors? Which states topped NITI Aayog's new Investment Friendliness Index 2026? Here's all you need to know. Also, go 'Beyond the Nugget' to learn about the Fiscal Health Index 2026.

The Index uses 8 pillars for evaluating the 28 states and eight union territories (UTs). (Image: AI-generated)

6 min readNew DelhiJul 27, 2026 10:56 AM IST First published on: Jul 26, 2026 at 10:48 AM IST

Take a look at the essential events, concepts, terms, quotes, or phenomena every day and brush up your knowledge. Here’s your UPSC Current Affairs knowledge nugget for today on the Investment Friendliness Index.

Knowledge Nugget: Investment Friendliness Index

Subject: Reports and Indices

Why in the news?

NITI Aayog recently launched a new Investment Friendliness Index 2026. The index covers all 28 states and eight union territories (UTs) and evaluates what makes a state attractive for investors, as well as the challenges investors face.

In this context, let’s know the key highlights of the Investment Friendliness Index 2026 and also about the Fiscal Health Index 2026, another index also released by NITI Aayog.

Key Takeaways:

1. The Investment Friendliness Index seeks to foster competitive and cooperative federalism by encouraging States and Union Territories to adopt best practices and undertake continuous reforms..

2. The Index uses 8 pillars for evaluating the 28 states and eight union territories (UTs). It comprises 84 indicators, incorporating both secondary data and perception-based measures derived from a primary survey of investors. The 8 pillars are:

(i) Infrastructure

(ii) Business climate

(iii) Resources

(iv) Government policy

(v) Regulatory Ease

(vi) Financial Health

(vii) Institutional Environment; and

(viii) Environmental Resilience

Knowledge Nugget: Investment Friendliness Index

Indicators weights. (Image: Investment Friendliness Index)

3. In the index, States and Union Territories have been classified into four performance categories based on overall scores:

(i) Top Performers (scores above 50)

(ii) Frontrunners (45–50)

(iii) Emerging Performers (≥40 – <45)

(iv) Aspiring States (below 40)

4. In total, five states are top performers and 15 are frontrunners. Eight states/Union Territories each are categorised as emerging performers and aspiring states.

5. Gujarat, Maharashtra, Tamil Nadu, Goa and Odisha have emerged as top-performing states in Investment Friendliness Index 2026.

6. The index categorises Andhra Pradesh, Assam, Chandigarh, Chhattisgarh, Delhi, Haryana, Himachal Pradesh and Karnataka among other states as “frontrunners”.

7. Bihar, Jammu and Kashmir, Jharkhand, Meghalaya, Nagaland, Puducherry, Punjab, West Bengal as “emerging performers”.

Rank and score of states on Investment Friendliness Index. (Image: Investment Friendliness Index)

8. Andaman and Nicobar Islands, Arunachal Pradesh, Dadra & Nagar Haveli and Daman & Diu, Ladakh, Lakshadweep, Manipur, Mizoram and Sikkim were categorised as “aspiring states”.

9. Notably, Maharashtra, Karnataka, Gujarat, Delhi and Tamil Nadu — attract 85% of total foreign direct investment (FDI) inflows.

10. In contrast, states in the northeast receive less than 1% combined, highlighting the widening regional divergence, NITI Aayog report said.

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11. On the infrastructure front, Gujarat retained the top spot, followed by Tamil Nadu and Kerala. Odisha ranked eighth, while Maharashtra and Uttar Pradesh were placed ninth and 10th, respectively.

12. On business climate, Maharashtra led the rankings, followed by Karnataka and Tamil Nadu. Punjab ranked eighth, Andhra Pradesh ninth and Uttar Pradesh 10th.

13. In terms of government policy, Madhya Pradesh emerged as the top performer, followed by Gujarat and Rajasthan. Haryana, Andhra Pradesh and Tamil Nadu were ranked eighth, ninth and 10th, respectively.

Do you Know?

India’s investments picked up pace after the pandemic, growing faster than GDP since financial year 2022. Investments stood at 29.9% of GDP in financial year 2025, a tad higher than the decadal average of 29.1%, the report said, adding that the government and households have been the primary drivers of investment growth in the post-pandemic period.

BEYOND THE NUGGET: Fiscal Health Index 2026

1. In March this year, NITI Aayog released the Fiscal Health Index (FHI) 2026 for the Financial Year 2023-24. This is the second edition of the FHI, which assesses the state-level fiscal performance in India by expanding coverage to the North-Eastern and Himalayan states and refining indicators to better capture fiscal sustainability.

2. The FHI uses the five fiscal pillars to measure the fiscal health of states. The five pillars are: quality of expenditure, revenue mobilisation, fiscal prudence, debt index, and debt sustainability.

Knowledge Nugget: Investment Friendliness Index

3. Odisha remains the top performer, improving its score over the previous year, with Goa and Jharkhand also featuring among the top Achiever states. Gujarat and Maharashtra continue in the top five.

4. Haryana records a notable year-on-year improvement of three ranks. Bihar, Karnataka and Telangana show a mild recovery, whereas Punjab, West Bengal and Kerala remain at the bottom of the rankings.

5. Overall, higher-ranked states display stronger fiscal discipline and resource mobilisation efforts, while lower ranked states exhibit higher non-developmental expenditure and less sustainable fiscal patterns.

6. The Achiever group (Odisha, Goa and Jharkhand) is characterised by high own- tax shares (above 60%), relatively large capital outlay (around 4-5% of GSDP), low fiscal deficits (below 3% of GSDP), moderate debt levels (under 25% of GSDP) and contained interest burdens.

Final Ranking of States for 2023-24 (Source: FHI 2026)

7. Front-Runner states are Gujarat, Maharashtra, Chhattisgarh, Telangana, Uttar Pradesh and Karnataka. Whereas Performer states are Madhya Pradesh, Haryana, Bihar, Tamil Nadu and Rajasthan. Aspirational states in the index are West Bengal, Kerala, Andhra Pradesh and Punjab.

8. The NE /Himalayan States have been ranked separately from the major states and classified into three groups i.e.,

(i) Achievers: Arunachal Pradesh, Uttarakhand

(ii) Performers: Assam, Meghalaya, Mizoram, Sikkim, Tripura

(iii) Aspirational: Himachal Pradesh, Manipur, Nagaland

Post Read Question

With reference to the Investment Friendliness Index 2026, consider the following statements:

1. The index covers all 28 states and eight union territories (UTs).

2. The index helps in evaluating what makes a state attractive for investors.

3. The index is released annually by the Reserve Bank of India.

4. For the year 2026, Haryana has emerged as the top-performing state.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(d) All four

Answer Key

(b)

(Sources: Gujarat, Maharashtra & Tamil Nadu top Niti Aayog’s Investment Friendliness Index, Knowledge Nugget | Fiscal Health Index 2026: Key highlights for UPSC and other competitive exams)

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Roshni Yadav

Roshni Yadav is a Deputy Copy Editor with The Indian Express. At The Indian Express, she writes for ... Read More