Reports & IndicesImportant2025-07-31

NITI Aayog Investment Friendliness Index 2025

Q: With reference to the Investment Friendliness Index 2025, consider the following statements: 1. It is compiled by NITI Aayog in collaboration with DPIIT and the Ministry of Finance. 2. In its methodology, risk dimensions are given a higher weightage than opportunity dimensions. Which of the statements given above is/are correct?

1 only — Statement 1 is correct as the index is a joint initiative of NITI Aayog, DPIIT, and the Finance Ministry. Statement 2 is incorrect because opportunities hold a higher weightage of 65 percent, while risk dimensions hold a 35 percent weightage.

In News

What Happened

On July 31, 2025, NITI Aayog, in collaboration with DPIIT and the Finance Ministry, officially launched the Investment Friendliness Index for Indian states. First announced during the Union Budget 2025-26, the index comprehensively assesses the business climate across various states and union territories. It ranks regional investment potential by measuring two primary dimensions: opportunities, which hold a 65 percent weightage, and risks, which hold a 35 percent weightage.

Why It Matters

This index is a crucial tool for advancing competitive cooperative federalism by pushing states to actively improve their investment climates. By offering transparent data on infrastructure, policies, and regulatory risks, it helps domestic and foreign investors make informed decisions while supporting India's national manufacturing goals.

Background

History & Context

Historically, the Department for Promotion of Industry and Internal Trade (DPIIT) measured state-level business environments through the Business Reform Action Plan (BRAP), which focused heavily on regulatory compliance. Identifying a need for a more holistic approach, the Prime Minister directed NITI Aayog in 2024 to develop a comprehensive investor-friendly charter for states. Following this directive, the Finance Minister announced the Investment Friendliness Index in the February 2025 Union Budget to shift the focus from mere administrative deregulation to overall investment efficacy and risk management.

What Changed

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Scope of Assessment: BEFORE, state business rankings under BRAP primarily tracked statutory compliance and procedural ease of doing business. NOW, the new index evaluates comprehensive investment efficacy by assessing broad 'Opportunity' factors (like infrastructure and resources) and 'Risk' factors (like natural, financial, and regulatory risks).
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Evaluation Weightage: BEFORE, rankings often relied on flat completion rates of designated action points by state governments. NOW, a structured quantitative framework applies a strict 65 percent weightage to opportunities and a 35 percent weightage to risks.
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Inclusion of Investor Feedback: BEFORE, state assessments leaned heavily on government-submitted documentation regarding implemented reforms. NOW, the index incorporates perception-based indicators to measure how real investors perceive risks and experience ground-level regulations.

Prelims Angle

NCERT Connection

This development is a direct application of concepts from Class 11 Indian Economic Development, Chapter 3 - Liberalisation, Privatisation and Globalisation. The index reflects ongoing domestic liberalisation efforts to remove regulatory hurdles, which is essential for attracting Foreign Direct Investment (FDI) and integrating local state economies with global capital markets.

Practice Questions

Q1

With Reference To

With reference to the Investment Friendliness Index 2025, consider the following statements: 1. It is compiled by NITI Aayog in collaboration with DPIIT and the Ministry of Finance. 2. In its methodology, risk dimensions are given a higher weightage than opportunity dimensions. Which of the statements given above is/are correct?

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