India State Competitiveness Report: Best States for Foreign Business Operations

Why State Selection Matters More Than Country Selection

Most foreign companies approach India as a single market. They choose India, incorporate a private limited company, and default to registering in Mumbai or Delhi because those cities are familiar. This is a strategic error that costs real money.

India's 28 states and 8 union territories differ as much from each other as EU member states differ from one another. The state you register and operate in determines your tax incentives (states offer varying capital subsidies, SGST reimbursements, and stamp duty exemptions), talent availability and cost (a senior software engineer in Bengaluru earns 25-40% more than the equivalent role in Pune or Hyderabad), infrastructure quality (power reliability, port access, airport connectivity), regulatory speed (single-window clearance systems vary dramatically), and your overall cost structure.

Maharashtra and Karnataka alone accounted for 51% of all FDI inflows into India in FY 2024-25. But that does not mean they are the right choice for every foreign company. A manufacturing company may find Gujarat or Tamil Nadu more cost-effective, while a fintech startup may benefit from the regulatory sandbox advantages of Telangana or Karnataka.

This report analyses the top states across multiple dimensions to help foreign companies make an informed, data-driven state selection decision.

Top 10 States Ranked by FDI Inflows (FY 2024-25)

FDI inflows are the most direct measure of foreign investor confidence in a state. Here are the top states by foreign direct investment equity inflows for FY 2024-25:

Cumulative FDI Since 2000

When we look at cumulative FDI from April 2000 to December 2025, the dominance becomes clearer. Maharashtra has received $104.06 billion (31%), Karnataka $68.80 billion (21%), and Gujarat $49.90 billion (15%). These three states alone account for 67% of all cumulative FDI into India — a concentration that reflects decades of infrastructure investment, policy stability, and established business ecosystems.

Maharashtra: India's Financial and Business Capital

Maharashtra emerged as the top-performing state in the CareEdge State Ranking Report 2025 across economic, social, environmental, and governance parameters. For foreign companies, Maharashtra offers unmatched advantages in several areas.

Why Foreign Companies Choose Maharashtra

• Financial hub: Mumbai is home to the RBI, SEBI, BSE, NSE, and all major Indian and international banks. If your India operations involve financial services, capital markets, or treasury management, proximity to regulators and financial infrastructure is essential.
• Port connectivity: JNPT (Jawaharlal Nehru Port Trust) in Navi Mumbai is India's largest container port, handling approximately 5.5 million TEUs annually. The upcoming Vadhavan port in Palghar will add 10 million TEU capacity.
• Talent density: Greater Mumbai and Pune together offer a combined white-collar workforce of over 5 million professionals across IT, finance, manufacturing, and services.
• Infrastructure: Mumbai Trans Harbour Link (MTHL) opened in 2024, the Mumbai-Ahmedabad bullet train (expected 2028), and the ongoing metro expansion are transforming the city's connectivity.

Key Incentives

Maharashtra's industrial policy provides capital subsidies of 25-30% for mega projects (investment above INR 500 crore), 100% stamp duty exemption in SEZs, and SGST reimbursement of up to 50% for manufacturing units in less-developed districts. The state's single-window clearance system (MAITRI portal) processes most approvals within 30-45 days.

Cost Considerations

Maharashtra is India's most expensive state for real estate and talent. Grade A office space in Mumbai's Bandra-Kurla Complex (BKC) costs INR 200-350/sq ft/month, and professional tax is INR 2,500/month per employee — the highest in India. Companies seeking cost efficiency should consider Pune or Nagpur rather than Mumbai city.

Karnataka: Technology and Innovation Hub

Karnataka, and specifically Bengaluru, is India's undisputed technology capital. The state attracted $6.62 billion in FDI in FY 2024-25 and has 21% of India's cumulative FDI at $68.80 billion.

Why Foreign Tech Companies Choose Karnataka

• Tech ecosystem: Bengaluru hosts India's largest cluster of Global Capability Centres (GCCs), with over 1,600 GCCs employing more than 1.5 million professionals. Companies like Google, Microsoft, Amazon, SAP, and Goldman Sachs have major operations here.
• Startup capital: 8 out of 10 startups that became unicorns in 2024-2025 are headquartered in Bengaluru. The city has the deepest venture capital ecosystem, the largest concentration of accelerators, and the most active angel investor networks in India.
• R&D and innovation: Karnataka's aerospace sector is anchored by Hindustan Aeronautics Limited (HAL) and a growing cluster of defence-tech startups. The state offers aerospace-specific incentives including capital subsidies of up to 30%.
• Digital governance: Karnataka's e-Udyami portal provides online single-window clearances for industrial approvals, land allocation, and compliance certifications.

Talent and Cost Profile

Bengaluru has the deepest tech talent pool in India, but this depth comes at a premium. Senior software engineer salaries range from INR 25-55 lakh/year ($30,000-$66,000), comparable to some Tier 2 US cities. Companies looking for a 30-40% cost advantage often establish engineering centres in Bengaluru but place customer support and back-office operations in lower-cost cities like Mangalore or Mysore, both within Karnataka.

Gujarat: Manufacturing and Industrial Powerhouse

Gujarat is India's third-highest FDI recipient with $5.71 billion in FY 2024-25 and $49.90 billion cumulatively. The state has built a reputation as India's most business-friendly manufacturing destination.

Why Foreign Manufacturers Choose Gujarat

• Single-window clearance efficiency: Gujarat's single-window system is consistently rated among India's best. Industrial approvals typically take 15-30 days.
• Industrial infrastructure: The state has 207 operational industrial estates, 42 SEZs, and dedicated investment regions like the Dholera Special Investment Region (DSIR) — a 920 sq km development with integrated industrial, residential, and commercial zones.
• Port network: Gujarat has 49 ports, including Mundra (India's largest private port) and Kandla, handling approximately 40% of India's maritime cargo.
• Power availability: Gujarat has among the most reliable power supplies in India, with surplus generation capacity and competitive industrial tariffs around INR 6-7/kWh.

Key Incentives for Foreign Companies

Gujarat's industrial policy offers capital subsidies of 12-25% depending on district classification, interest subsidies of 5-7% on term loans, 100% SGST reimbursement for first 5-10 years in priority sectors (chemicals, pharmaceuticals, renewable energy), and free or subsidised land in government-developed industrial estates.

Sectors of Strength

Chemicals and petrochemicals (Dahej and Hazira complexes), pharmaceuticals (Ahmedabad cluster with companies like Zydus and Sun Pharma), textiles (Surat is the world's largest man-made fibre hub), and renewable energy (Gujarat leads India in solar and wind capacity) are the dominant sectors.

Tamil Nadu: Automotive and Electronics Manufacturing Champion

Tamil Nadu received $3.68 billion in FDI in FY 2024-25 and ranks among India's top manufacturing states with strong infrastructure, a skilled labour force, and progressive industrial policies.

Why Foreign Companies Choose Tamil Nadu

• Automotive cluster: Chennai is India's "Detroit" — the state produces approximately 35% of India's automobiles and 45% of auto components. Hyundai, Ford, BMW, Nissan, and Royal Enfield all have manufacturing plants here.
• Electronics manufacturing: Foxconn, Pegatron, and Tata Electronics operate iPhone and electronics assembly plants near Chennai. The state's electronics manufacturing ecosystem is growing rapidly under the PLI scheme.
• Port connectivity: Chennai Port and Ennore Port (now Kamarajar Port) provide direct shipping access. Chennai has the highest container throughput among all east coast ports.
• Talent: Tamil Nadu produces over 400,000 engineering graduates annually — the highest of any Indian state — providing a deep pipeline of technical talent.

Key Incentives

Tamil Nadu offers a 25% capital subsidy on eligible plant and machinery (up to INR 1.5 crore), SGST reimbursement for new manufacturing units, a Digital Accelerator Scheme providing grants up to INR 1 crore for startups (10% of capital raised), and dedicated industrial parks for automotive, electronics, and pharma sectors.

Telangana: Rising Star for IT and Pharma

Telangana attracted $3.0 billion in FDI in FY 2024-25 and has positioned itself as a serious competitor to Karnataka for technology and pharmaceutical companies.

Why Foreign Companies Choose Telangana

• Hyderabad's IT corridor: HITEC City and the Financial District host major GCCs for Microsoft, Google, Amazon, Deloitte, and Qualcomm. Office rents are 30-40% lower than Bengaluru, making it attractive for cost-conscious foreign companies. Hyderabad's IT exports crossed $15 billion in FY 2024-25, growing at approximately 12% year-over-year.
• Pharmaceutical hub: Hyderabad's Genome Valley is Asia's largest life sciences cluster, with Bharat Biotech, Dr. Reddy's, and Aurobindo Pharma headquartered in the region. The state produces approximately one-third of India's pharmaceutical output.
• T-Hub: India's largest startup incubator is in Hyderabad, providing foreign companies with partnership and talent acquisition opportunities.

Key Incentives

Telangana's TS-iPASS (Industrial Project Approval and Self-Certification System) guarantees approvals within 15 days or they are deemed approved. The state provides 100% SGST reimbursement for 5 years, capital investment subsidies of 25% on fixed capital (up to INR 30 lakh for MSMEs), and dedicated aerospace and defence manufacturing incentives.

Haryana and Delhi NCR: Services and Logistics Hub

Haryana received $3.14 billion in FDI in FY 2024-25, largely driven by the Gurugram (formerly Gurgaon) business district's role as India's services outsourcing capital.

Advantages

• Delhi NCR connectivity: Proximity to India's capital provides access to government ministries, embassies, and regulatory bodies — essential for companies requiring frequent policy engagement.
• Logistics hub: The Kundli-Manesar-Palwal (KMP) Expressway and Western Dedicated Freight Corridor pass through Haryana, making it a premier logistics and warehousing location.
• Cost advantage over Delhi: Office space in Gurugram costs INR 80-120/sq ft/month versus INR 180-250 in South Delhi, with equivalent talent availability.

Delhi NCR (combining Delhi, Gurugram, and Noida) is the second-largest GCC cluster in India after Bengaluru, with over 600 GCCs. It is particularly strong for consulting, financial services, and media companies. For foreign companies requiring a North India base, registering in Haryana (typically a Gurugram address) provides the Delhi NCR advantage at lower state-level costs.

Sector-Specific State Recommendations

Based on the data analysed above, here is our sector-specific recommendation matrix for foreign companies choosing a state:

Special Economic Zones: The SEZ Advantage

India has 276 operational SEZs as of March 2025, housing 6,279 units with combined exports of $172.27 billion in FY 2024-25 (7.37% growth). For foreign companies, SEZs offer compelling advantages: duty-free imports for operations and single-window clearance for regulatory approvals. Note that the Section 10AA income-tax holiday (100% of export profits for the first 5 years, 50% for the next 5) is closed to new units — only units that commenced operations on or before 31 March 2021 can claim it, so companies setting up today should evaluate SEZ locations on customs/indirect-tax savings and infrastructure rather than the income-tax holiday.

The government has formed a 17-member committee in March 2026 to prepare a roadmap for SEZ 2.0, addressing issues of policy overlap, underutilised capacity, and WTO-related concerns. Foreign companies setting up manufacturing or IT/ITES operations should evaluate SEZ locations — the combination of tax benefits and infrastructure quality often justifies the geographic constraint.

For a detailed comparison of entity structures for your India entry, see our branch office vs. subsidiary comparison and our guide on 8 Indian states competing for foreign investment.

Production Linked Incentive (PLI) Scheme: Cash-Back for Manufacturing

The PLI scheme offers 4-6% cashbacks on incremental sales for manufacturing companies in 14 sectors, including electronics, automobiles, pharma, textiles, and food processing. In the 2025-26 budget, the government significantly increased allocations for electronics/IT hardware and automobiles. The PLI scheme has attracted global giants like Apple (through Foxconn and Pegatron) and Samsung.

Foreign manufacturing companies should evaluate PLI eligibility as part of their state selection — the incentive effectively reduces the landed cost of production and can be combined with state-level subsidies for a compound benefit. Our FDI advisory team assists foreign manufacturers with PLI applications and state-level incentive negotiations.

Practical Steps for State Selection

For foreign companies evaluating state selection, we recommend the following process:

1. Define your primary activity: Manufacturing, IT services, financial services, or a combination. This immediately narrows your state options to 2-3 candidates.
2. Calculate total cost of operations: Include talent costs, real estate, state taxes (professional tax, stamp duty), power tariffs, and logistics costs for each candidate state.
3. Map available incentives: Quantify state-level subsidies, SGST reimbursement, capital subsidies, and PLI eligibility for your sector.
4. Evaluate regulatory speed: States with operational single-window systems (Gujarat, Telangana, Karnataka) offer significantly faster setup timelines.
5. Consider talent availability: Ensure your target state has sufficient talent in your required skill sets at your budget level.
6. Factor in connectivity: International airport access, port proximity (for manufacturers), and domestic connectivity to other Indian cities.

The state selection decision should be made before incorporation, as changing your registered office to a different state after incorporation involves Complex procedural requirements. Our foreign subsidiary registration service includes state selection advisory as a standard component.

For country-specific guidance on entering India, see our dedicated country pages — for example, the USA guide, UK guide, or Singapore guide.

Infrastructure Comparison: Power, Logistics, and Digital Connectivity

Beyond incentives and talent, the quality of physical and digital infrastructure varies significantly across Indian states and directly impacts operational efficiency for foreign companies.

Power Reliability

Power reliability is critical for manufacturing and data centre operations. Gujarat, Tamil Nadu, and Maharashtra have the most reliable power grids, with average industrial power availability exceeding 99%. States like Bihar, Jharkhand, and Uttar Pradesh still face periodic power shortages, though the situation has improved significantly with national grid integration and renewable energy additions.

Logistics Performance

India's logistics cost as a percentage of GDP has been declining but remains at approximately 13-14% — higher than the 8-10% in developed economies. States with superior logistics infrastructure include Gujarat (port network), Tamil Nadu (Chennai port and freight corridors), Maharashtra (JNPT and dedicated freight corridor connectivity), and Haryana (Western Dedicated Freight Corridor and KMP Expressway). The PM Gati Shakti national logistics master plan is systematically addressing infrastructure gaps through integrated multi-modal connectivity planning.

Digital Infrastructure

India's digital infrastructure is increasingly strong across all states. 5G coverage now reaches all major cities, average broadband speeds have crossed 90 Mbps nationally, and the Aadhaar-enabled digital identity system processes billions of transactions annually. Karnataka, Telangana, and Tamil Nadu lead in digital governance maturity, with most business approvals and compliance filings available online.

Emerging States: The Next Tier of Opportunity

While the top 5 states dominate current FDI flows, several emerging states are making aggressive plays to attract foreign investment. Foreign companies willing to be early movers in these states can benefit from significantly lower costs, stronger incentive packages, and less competition for talent.

Uttar Pradesh

India's most populous state (240+ million people) is investing heavily in industrial infrastructure. The Jewar International Airport near Greater Noida (expected operational by 2025-2026), the UP Defence Industrial Corridor (6 nodes across the state), and dedicated electronics manufacturing zones are drawing attention from defence, electronics, and food processing companies. Uttar Pradesh attracted $1.5 billion in FDI in FY 2024-25, and the state's industrial policy offers 100% stamp duty reimbursement, interest subsidy of 5%, and capital subsidy up to 25% in priority districts.

Rajasthan

Rajasthan has emerged as India's renewable energy leader, with some of the world's best solar irradiance levels and significant wind corridors. The state attracted $1.8 billion in FDI in FY 2024-25, driven by renewable energy projects and mining operations. The Rajasthan Investment Promotion Scheme (RIPS) offers 75% electricity duty exemption, land at concessional rates in industrial areas, and SGST reimbursement for 7 years for mega projects. For foreign renewable energy and mining companies, Rajasthan offers land availability and natural resources that the coastal industrial states cannot match.

Andhra Pradesh

With Google's $15 billion AI data hub investment in Visakhapatnam, Andhra Pradesh is positioning itself as a data centre and technology hub. The state offers competitive port infrastructure (Visakhapatnam and Krishnapatnam are among India's fastest-growing ports), low-cost industrial land, and aggressive subsidy packages. The YSRCP government's AP Industrial Development Policy offers 50% reimbursement of SGST for 5 years, 10% investment subsidy on fixed capital investment, and dedicated assistance through the AP Industrial Infrastructure Corporation.

Labour Costs and Talent Comparison Across States

Labour costs vary significantly across Indian states, and this variation directly impacts the total cost of operations for foreign companies. Here is a comparative overview of talent costs across key states:

The cost differential between Mumbai (most expensive) and Hyderabad or Chennai (most cost-effective) can translate to 25-35% savings on total operating costs for a 50-person team. This is a material consideration that should drive state selection alongside sector fit and infrastructure quality.

Key Takeaways

• Maharashtra ($19.6B) and Karnataka ($6.62B) attracted 51% of India's total FDI in FY 2024-25 — they are the safest choices for most foreign companies but not always the most cost-effective.
• Gujarat offers India's best manufacturing infrastructure with 207 industrial estates, 49 ports, and reliable power — ideal for chemical, pharmaceutical, and renewable energy companies.
• Tamil Nadu produces 35% of India's automobiles and is rapidly becoming an electronics manufacturing hub under the PLI scheme — the natural choice for hardware companies.
• Telangana offers 30-40% lower costs than Bengaluru for IT operations, with guaranteed 15-day approvals through TS-iPASS — increasingly attractive for cost-conscious foreign tech firms.
• State selection should be driven by sector, cost modelling, and incentive mapping rather than familiarity — the difference between optimal and default state selection can save 15-25% in annual operating costs.