India’s states that wish to attract private investment may have to rethink their strategies. For NITI Aayog’s first Investment Friendliness Index, generous tax incentives and subsidy packages are no longer the deciding factors for investors. Instead, businesses now focus more on land availability, flexible labour laws and reliable electricity supply when deciding where to invest.
The report was released last week and provides a comprehensive assessment of how attractive each state and Union Territory is for private investment. It also aims to encourage healthy competition among states by identifying areas where governance and infrastructure can be improved.
Survey Captures Investor Priorities
A key feature of the report is a large-scale survey of 1,850 private investors in all 36 states and Union Territories. Rather than simply resorting to official statistics, NITI Aayog asked investors directly about factors that influence their investment decisions.
The results were clear
According to the report, investors consistently ranked the following as their top priorities:
Land availability
Labour law flexibility
Reliable power supply
However, these three factors, all largely controlled by state governments, were considered to be more influential than tax concessions or financial incentives.
Infrastructure Receives Highest Weight
The Investment Friendliness Index is designed to evaluate states based on eight major pillars.
Among these, Infrastructure has the highest weight of 25%. This category evaluates:
Transport and logistics
Road and port connectivity
Reliable electricity
Industrial infrastructure
Digital connectivity
In this instance, investors say, production and distribution will be managed so long as the system is not disrupted.
Business Climate Comes Next
The second most important pillar is Business Climate, accounting for 20% of the total score.
This includes indicators such as:
Ease of doing business
Economic performance
Innovation ecosystem
Investment facilitation
Regulatory efficiency
Business environments that are predictable and transparent for companies looking to invest long-term remain at the top of the list among the goals.
Why Land Matters
Land acquisition has long been one of the biggest challenges for industrial and infrastructure projects in India.
Investors prefer states where:
Industrial land is readily available.
Land records are transparent.
Approval processes are quicker.
Industrial parks and manufacturing zones are well developed.
Land acquisition delays increase the costs of the project and delay commercial operations.
Labour Flexibility and Power Reliability
It also makes labour policies that encourage industrial growth and worker welfare seem more important to the report.
Similarly, uninterrupted power supply is critical to manufacturing companies, technology companies, logistics firms and so on.
Frequent power disruptions can significantly increase operating costs and reduce productivity, and therefore reliable electricity is a key competitive advantage for states.
More Than Financial Incentives
One of the report’s strongest conclusions is that financial incentives alone are not enough to attract sustained private investment.
While tax exemptions and subsidies can generate initial interest, investors will ultimately care about operational efficiency, infrastructure quality and regulatory certainty.
As such, this finding could bring into focus how states compete for investments in sectors such as manufacturing, logistics, electronics, renewable energy and technology.
Encouraging Competitive Federalism
NITI Aayog says the Investment Friendliness Index is designed to promote competitive federalism as well but urges states to improve governance, infrastructure and business conditions.
The index aims to help policymakers implement reforms for a more investor-friendly environment and for sustainable growth and job generation in the long term, with strengths and weaknesses of the macroeconomic indicators.
As India strives to become an international manufacturing and investment center, the report also states that sustainable competitiveness does not rely only on fiscal incentives but also on good infrastructure, efficient governance and business-friendly policies.
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