Andhra Pradesh continues to be the best state to do business while Gujarat slipped two positions to rank fifth in the ease of doing business ranking prepared by the World Bank and the Department of Industrial Policy and Promotion (DIPP).
In the last year's ranking, Andhra Pradesh had jointly topped the chart with Telangana while Gujarat was relegated to the third position from the top slot in 2015.
According to the latest Business Reform Action Plan (BRAP) index, Telangana and Haryana are placed at second and third positions, respectively.
On the other side of the spectrum, Meghalaya, Lakshadweep and Arunachal Pradesh were ranked at the bottom for not doing anything to improve business climate.
"This time we have taken feedback from industry to see whether the reforms are percolated to the ground level," DIPP Secretary Ramesh Abhishek said adding next year "100 per cent evaluation would be done based on feedback from industry".
Implementation of the reforms help attract both domestic and foreign investors. Due to this exercise, states are competing with each other in improving business climate.
Indian economy would touch USD 10 trillion in the coming years and for that it is fundamental to make business more competitive, Abhishek said.
Other states in the top ten are Jharkhand (4), Gujarat (5), Chhattisgarh (6), Madhya Pradesh (7), Karnataka (8), Rajasthan (9) and West Bengal (10). Delhi was ranked 23rd in the chart.
An official statement said that a large number of states have made significant progress in reforms suggested in BRAP 2017.
The assessment is based on a combined score consisting of reform evidence score that is based on evidence uploaded by States/UTs and feedback score that is based on response garnered from actual users of services provided to businesses.
As many as 17 states achieved a reform evidence score of more than 90 per cent and 15 achieved a combined score of 90 per cent and more.
"The states which have achieved 80 per cent or more reforms evidence score represent 84 per cent of the country’s area, 90 per cent of the country’s population and 79 per cent of India’s GDP," it said.
A number of reform actions implemented under BRAP 2017 increased to 7,758 from 2,532 in 2015.
Industry body CII said that improvement in ranking is particularly encouraging as it is important to create a beneficial investment ecosystem in all states for ensuring equitable growth.
These results will further encourage and incentivise states to develop a progressively facilitative investment climate which will boost investments and growth in the country, CII president Rakesh Bharti Mittal said in a statement.
The exercise would help further improve India's ranking in the Doing Business report, prepared by the World bank. India has jumped 30 places to rank 100th in that report, helped by a slew of reforms in taxation, licensing, investor protection and bankruptcy resolution.
The DIPP said that it has already shared proposed reforms for the next year with the State/UTs.
"Considering that systems developed in last three years have matured during the existing assessment cycles, the importance of the feedback from the users and success of obtaining user feedback in BRAP, 2017, the next year’s assessment will be entirely based on user feedback," it added.