Hyderabad: Telangana’s investment climate contributed significantly to the State’s economic expansion after its formation, but further reforms remained necessary to improve its competitiveness.
The State recorded an average annual GSDP growth rate of 12.1% at current prices between 2014-15 and 2025-26. This performance remained higher than the national average during the period. The services sector emerged as Telangana’s fastest-growing sector. It recorded a compound annual growth rate of 14.14% since 2014-15.
Telangana ranked sixth in foreign direct investment inflows during 2024-25. However, it remained behind Maharashtra, Karnataka, Gujarat, Delhi and Tamil Nadu.
Hyderabad remained the dominant destination for foreign investment within the State. The city accounted for 93% of Telangana’s FDI inflows during 2024-25. Overall, Telangana received FDI inflows of $13.02 billion between October 2019 and March 2026.
The State’s major exports included drugs and pharmaceuticals, engineering goods, organic and inorganic chemicals, and electronic goods. Computer software and hardware, pharmaceuticals and electronic goods accounted for a major share of foreign capital and export volumes.
Telangana investment climate supported economic expansion
Government policies implemented after 2014 contributed to significant economic growth in the State. Telangana’s Gross State Domestic Product increased from ₹5.05 lakh crore in 2014-15 to ₹17.82 lakh crore in 2025-26. It was projected to reach approximately ₹19.62 lakh crore in 2026-27.
Similarly, per capita income increased from ₹1,24,104 in 2014-15 to ₹2,20,201 in 2020-21. It was projected to reach ₹4.20 lakh in 2026-27. Telangana’s contribution to India’s GDP also increased during this period. Its share rose from 4.10% in 2014-15 to 5.14% in 2025-26.
At current prices, Telangana recorded average GSDP growth of roughly 13% between 2014-15 and 2025-26. Moreover, its GSDP growth consistently remained above the national average after 2014.
To strengthen the Telangana investment climate, the government focused on major infrastructure and development initiatives. These included metro rail expansion, futuristic cities and industrial hubs.
The initiatives sought to attract additional investment and accelerate Telangana’s transition towards a developed economy.
Investment Friendliness Index assesses eight pillars
The Union government announced the development of an Investment Friendliness Index in the 2025-26 Union Budget. The initiative sought to promote competitive and cooperative federalism among States and Union Territories.
The index assessed performance across eight pillars. Infrastructure received the highest weight of 25%, while business climate accounted for 20%. Resources received 15%, followed by regulatory ease at 12% and government policy at 10%.
Financial health carried a weight of 7%, while the institutional environment accounted for 6%. Environmental resilience received the remaining 5%. States and Union Territories were divided into four categories according to their scores.
Those scoring above 50 were classified as top performers. Scores between 45 and 50 placed States among front-runners. Emerging performers scored between 40 and 45, while jurisdictions with scores below 40 were classified as aspiring States.
The results showed considerable differences in investment friendliness across India. Gujarat ranked first with 56.6 points, followed by Maharashtra with 53.7 and Tamil Nadu with 53.3. Goa stood fourth with 53.1, while Odisha ranked fifth with 52.4.
Delhi occupied sixth place with 49.9 points, followed by Madhya Pradesh with 48.9. Andhra Pradesh and Karnataka shared eighth position with 48.7 points each. Rajasthan ranked tenth with 48.1.
Uttarakhand and Chhattisgarh shared the eleventh position with scores of 47.5. Telangana stood thirteenth with 47.3 points, placing it among the front-runners.
Telangana investment climate benefits from key strengths
Telangana’s performance reflected several advantages, including time-bound industrial approvals and the availability of land and other resources. The State’s own tax revenue stood at 17% of GSDP, compared with the national average of 9.8% of GDP.
Better infrastructure and a favourable business environment also supported Telangana’s performance. In addition, enrolment in science, technology, engineering and mathematics education remained above the national average.
Industrial development in and around Hyderabad further strengthened the State’s investment ecosystem. Telangana performed well on infrastructure, business climate, resources, regulatory ease, government policy and environmental resilience.
However, its scores remained relatively weaker in the institutional environment and financial health categories. These shortcomings prevented Telangana from entering the top-performer category.
High cybercrime and economic crime rates weakened the State’s institutional environment score. Meanwhile, outstanding liabilities and the fiscal deficit affected its financial health score.
These areas consequently required greater policy attention if Telangana wanted to improve its overall position.
Telangana investment climate requires targeted reforms
To become a top-performing State in future editions of the Investment Friendliness Index, Telangana needed to strengthen its institutional framework. More effective measures to prevent cybercrime and economic offences could improve the institutional environment. Such interventions could also strengthen investor confidence.
At the same time, the government needed sound fiscal management to improve its financial position. Reducing outstanding liabilities and the fiscal deficit should form part of that effort. Stronger financial management could improve the State’s economic fundamentals and create a more conducive environment for investment and sustainable growth.
Telangana also needed to strengthen areas where it already enjoyed comparative advantages. However, policymakers should simultaneously identify indicators where the State performed relatively poorly.
Clear, measurable and time-bound reform targets could help address those weaknesses and improve the Telangana investment climate.
The Investment Friendliness Index should, therefore, not be treated merely as a ranking table. Instead, it should serve as a measure of the progress and shortcomings of States in their reform journey.
Dr Tamma Koti Reddy
ICFAI Foundation for Higher Education, Hyderabad
The author is a financial and economic expert.