Understanding NITI Aayog’s Investment Friendliness Index

What is NITI Aayog’s Investment Friendliness Index?

The NITI Aayog’s Investment Friendliness Index is an innovative framework designed to rank Indian states based on their attractiveness for private investment. This index will evaluate crucial factors such as opportunity, risk, regulatory ease, and investor experience. The primary aim is to encourage necessary reforms that foster a more inviting environment for investments.

Purpose of the Index

The primary purpose of this index is to pinpoint and mitigate regulatory obstacles that hinder investment. It seeks to enhance state-level policy frameworks and stimulate healthy competition among states. Furthermore, it aligns with the Centre’s initiatives towards deregulation and economic decentralisation.

Evaluation Criteria of the Index

The Investment Friendliness Index will assess multiple sub-indicators, which may include:

• Investment Opportunities: The potential for growth and returns in various sectors.
• Regulatory Clarity: The simplicity and transparency of regulatory frameworks.
• Risk Environment: The overall risk associated with investing in the state.
• Infrastructure and Innovation Readiness: The state of physical and digital infrastructure and support for innovation.
• Business Climate: General ease of doing business in the region.

Other State-Level Indices by NITI Aayog

NITI Aayog has developed several performance-based indices to monitor and enhance governance across Indian states. Key indices include:

• Health Index: This measures healthcare access, quality, outcomes, and public health delivery capacity.
• School Education Quality Index: It evaluates learning outcomes, access to education, infrastructure, and teacher availability.
• State Energy & Climate Index: This assesses power distribution reforms, renewable energy adoption, and energy accessibility, focusing on environmental sustainability.
• Export Preparedness Index: This examines infrastructure, policy environments, and export performance to highlight gaps in state-level exports.

Promoting Competitive Federalism

The Investment Friendliness Index promotes competitive federalism by comparing states and encouraging the adoption of superior practices. This spirit of competition motivates states to enhance their governance frameworks, simplify regulations, and attract more businesses.

Expected Outcomes

The anticipated outcomes of this index include:

• Guidance for Investors: Providing insights for state-level investment decisions.
• Triggering State Reforms: Encouraging states to enhance their investment climates.
• Boosting Economic Growth: Fostering economic growth through decentralised policy innovations.
• Enhancing India's Appeal: Making India a more attractive destination for both domestic and foreign investments.

Launch Timeline

The index is expected to be officially launched during the April–June quarter of 2025–26. Its framework is currently being finalised in collaboration with industry experts, state governments, and relevant stakeholder bodies.

Frequently Asked Questions (FAQs)

Q1. What factors are evaluated in NITI Aayog’s Investment Friendliness Index?
Answer: The index evaluates factors such as investment opportunities, regulatory clarity, risk environment, infrastructure readiness, and the overall business climate.

Q2. How does the index promote competitive federalism among states?
Answer: By comparing states and encouraging best practices, the index fosters competition, motivating states to reform governance and attract businesses.

Q3. When is the Investment Friendliness Index expected to launch?
Answer: The index is anticipated to be launched in the April–June quarter of 2025–26, with its framework currently being finalised.

Q4. What is the significance of the Investment Friendliness Index?
Answer: The index aims to improve the investment climate in Indian states, guiding investors and promoting economic growth through decentralised policy innovation.

Q5. What other indices does NITI Aayog publish?
Answer: NITI Aayog publishes indices like the Health Index, School Education Quality Index, State Energy & Climate Index, and Export Preparedness Index to enhance governance.

UPSC Practice MCQs

Question 1: What is the main aim of NITI Aayog's Investment Friendliness Index?
A) To rank Indian states based on tourism
B) To enhance private investment attractiveness
C) To assess public health outcomes
D) To evaluate educational performance
Correct Answer: B

Question 2: Which of the following is NOT a sub-indicator of the Investment Friendliness Index?
A) Investment Opportunities
B) Regulatory Clarity
C) State Cultural Heritage
D) Business Climate
Correct Answer: C

Question 3: When is the Investment Friendliness Index expected to be launched?
A) 2023-24
B) 2024-25
C) 2025-26
D) 2026-27
Correct Answer: C