European countries represent two-thirds of the top 25 with the US sliding four spots to No. 22, continuing a six-year descent since 2009 when the US ranked second overall.
Denmark ranked in the top 20 in all but one of the 11 metrics used by Forbes to gauge the Best Countries for Business. It finished 28th for red tape.
New Zealand moved up one spot to No. 2 (it ranked first in 2012). Rounding out the top five are Norway, Ireland and Sweden.
While the US fell in Forbes ranking, the world’s next four biggest economies all improved their overall standing. Britain and Japan both moved up three spots to No. 10 and No. 23 respectively.
Germany improved two places to No. 18. China rose from No. 97 to No. 94.
India is developing into an open-market economy, yet traces of its past autarkic policies remain, Forbes said.
India’s rankings on the 11 metrics were: Trade Freedom 125, Monetary Freedom 139, Property Rights 61, Innovation 41, Technology 120, Red Tape 123, Investor Protection 8, Corruption 77, Personal Freedom 57, Tax Burden 121 and Market Performance 65.
India’s growth in 2014 fell to a decade low, as India’s economic leaders struggled to improve the country’s wide fiscal and current account deficits, the business magazine noted.
Rising macroeconomic imbalances in India, and improving economic conditions in Western countries led investors to shift capital away from India, prompting a sharp depreciation of the rupee, Forbes noted.
However, investors’ perceptions of India improved in early 2014, due to a reduction of the current account deficit and expectations of post-election economic reform, resulting in a surge of inbound capital flows and stabilization of the rupee.
The outlook for India’s long-term growth is moderately positive due to a young population and corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy, Forbes said.
However, India has many challenges that it has yet to fully address, including poverty, corruption, violence and discrimination against women and girls, an inefficient power generation and distribution system and ineffective enforcement of intellectual property rights, it said.