Asia's two economic giants, India and China, have been rated "unfree" and ranked 120th and 137th respectively, in the 2014 Index of Economic Freedom by US think tank Heritage Foundation and the Wall Street Journal.

"The foundations for long-term economic development continue to be fragile in the absence of effectively functioning legal frameworks," the editors of the Index wrote.

"Progress with market-oriented reforms has been uneven and has often backtracked at the urging of those with a political interest in maintaining the status quo."

The world's largest economy, the United States, fell out of the top 10, its score declining enough to leave it in the 12th slot overall as Hong Kong and Singapore finished first and second in the rankings for the 20th straight year. Australia, despite a drop in its score, held on to third place.

The 2014 Index finds notable declines for the US in fiscal freedom, business freedom and property rights, placing it again behind its neighbour to the north, Canada, a media release said.

Launched in 1995, the Index evaluates countries in four broad areas of economic freedom: rule of law; regulatory efficiency; limited government; and open markets.

Based on an aggregate score, each of 178 countries graded in the 2014 Index is classified as "free" (i.e. combined scores of 80 or higher); "mostly free" (70-79.9); "moderately free" (60-69.9); "mostly unfree" (50-59.9); or "repressed" (under 50).

In the Asia-Pacific region, India, with a score of 55.7, is ranked 25th among 43 countries. Over the 20 year history of the index, India has advanced its economic freedom score by almost 11 points, according to the index.

"India has been slowly but surely improving its economic freedom in recent years. However, the economy still continues to perform below its potential," said Terry Miller, co-author of Index and director of the Heritage Foundation's Centre for International Trade and Economics.

From a low base, India has achieved double-digit improvement in half of the 10 indicators of economic freedom, most notably trade, which improved by over 65 points.

"The government efforts to combat corruption have been well noted, and seem to be making a difference. However, the economy remains relatively closed off from the rest of the world, and government officials have resorted to protectionist controls this year," Miller said

"Economic freedom must be on the agenda as the country prepares for elections in May," he added.