The index, announced by finance minister Nirmala Sitharaman in the Union Budget 2025-26, aims to strengthen competitive cooperative federalism while pushing states to take the necessary steps to spur investments and growth.

The Centre hopes that states will look up to top performers, ask how they can match them, learn from their best practices, and adopt improvements, said the first person mentioned above on the condition of anonymity.

"At the recent annual conference of state chief secretaries in December, Prime Minister Narendra Modi actively participated—listening, engaging, and offering guidance on the way forward. The discussions were intense, focusing on regulatory simplification and key steps to enhance the ease of doing business," the person said.

"So, Niti Ayog has been working on this index, which will be out by around the mid-year, likely in July," the person added.

The Economic Times reported in February that the Investment Friendliness Index for states will rank states around two primary dimensions of opportunity and risk, with at least four sub-indicators to rank their performance.

These sub-indicators will include the state government’s policy and incentives, infrastructure, business climate and innovation and available resources to the states.

"It's not enough to simply announce a policy or change a law to spur investments at the state level. What truly matters is how reforms unfold on the ground," said the second person on the condition of anonymity.

"Some reforms may take a year, others even longer. It’s about creating an incentive-based push for the states to carry out the reforms needed to enhance productivity," the person added.

Spokespersons of the ministry of finance and Niti Ayog didn't respond to Mint's emailed queries.

To be sure, the Economic Survey 2024-25, tabled on 31 January, emphasized deregulation as a key driver of the nation's economic growth.

“The focus of reforms and economic policy must now be on systematic deregulation… Once some regulations are repealed or simplified, the remaining ones become progressively easier," the government's chief economic adviser V. Anantha Nageswaran said following the release of the latest economic survey.

Meanwhile, the central government has been encouraging states to implement reforms to attract investment and improve the ease of doing business, which includes leveraging the 50-year interest-free loan provided by the central government, where access to a portion of the funds is tied to states undertaking specific reforms recommended by the government, the first person said.

"Over the last two to three years, the Centre has been nudging states to move towards reforms. And as we get more and more experience, the quality of those reforms will be higher," the person added.

Meanwhile, the central government has announced that a high-level committee will be established to discuss regulatory reforms in the non-financial sector.

In her budget speech, Sitharaman said the high-level committee will review all non-finance sector regulations, licences, certifications, and permissions.

"The Centre will aim to strengthen trust-based economic governance to ensure the ease of doing business," she added.

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