India has been ranked 64th in a global list of best countries to do business in, dropping from 51st place last year. While India has dropped 13 places, China is down two notches to No 79.
In the new Forbes study that compared business climate from various angles in 121 countries, Denmark tops the list, having displaced the US, last year's leader. Ireland and Finland follow at No 2 and No 3 spots. US is at No 4 now, followed by UK.
The Forbes report has ascribed India and China's fall in rankings this year to "demonstrated resistance to increasing personal freedoms. Higher inflation from food and other commodity costs, as well as increased burdens on entrepreneurs also held the world's most populous nations back as business destinations".
Pointing out that the Indian government has reduced controls on foreign trade and investment, the business magazine said tariff spikes in sensitive categories, including agriculture, and incremental progress on economic reforms still hinder foreign access to India's vast and growing market.
"Privatisation of government-owned industries remains stalled and continues to generate political debate; populist pressure from within the UPA government and from its Left Front allies continues to restrain needed initiatives," the report added.
Forbes said that strong growth combined with easy consumer credit and a real estate boom fuelled inflation concerns in 2006 and 2007. This had led to a series of central bank interest rate hikes that have slowed credit growth and eased inflation concerns.
For the study, the magazine said it used expertise, research and published reports from the Heritage Foundation, World Economic Forum, World Bank, Transparency International, Freedom House, Deloitte Tax, the US Chamber of Commerce and Central Intelligence Agency and their vital analyses of various socioeconomic indicators on the countries included.
To find the best countries to do business in, the magazine said, "We analyze business climates in each of more than 120 national economies, focusing on degrees of personal freedoms, like the right to participate in free and fair elections, or freedom of expression and organisation."
Investor protection examines the recourse held by minority shareholders in cases of corporate misdeeds, while corruption looks at the number and frequency of similar misuse of corporate assets for personal gain. Together with economic policies supportive of free trade and low inflation, these key points form a snapshot of countries' suitability for capital investment.
In developed nations like Germany (No. 21, down nine) and France (No. 25, down nine), scandals in the banking sector and tougher barriers for entrepreneurs led to declines.
One of the biggest declines, the magazine said, came from Japan (No. 24, down 21), where a Council on Economic and Fiscal Policy spelled out problems with the world's second-largest economy earlier this year. Among others, the committee's report cites the nation's 40 percent corporate tax rate as uncompetitive compared with regional rivals like Hong Kong at 17.5 percent and South Korea at 25 percent.