The survey of 300 global executives by global consulting firm A T Kearney found that the US was ranked top destination in the world for foreign direct investment.
India was ranked second for three years in 2005, 2007 and 2012 and was placed on the third spot in 2010.
India attracted USD 25.5 billion in FDI inflows in 2012, down from USD 31.6 billion in 2011, according to 2014 A T Kearney Foreign Direct Investment Confidence Index released on Monday.
This is the lowest ranking for India since 2001. The US moved to the top position last year displacing China as Washington made progress towards sustainable and steady economic growth.
"The cooling-off in investor sentiment we foresaw last year appears to have taken shape, with a two-place drop from 5th to 7th its lowest rank since 2001," the report said.
In 2013, the then ruling UPA government raised limits on FDI in telecommunications, asset reconstruction, credit information, aviation, and defence production, the report said adding that foreign investment in oil refining and single-brand retail, currently capped at 49 per cent, will now be granted automatic approval.
AirAsia India, a joint venture between Malaysian budget airline AirAsia and Indian conglomerate Tata Sons, has been given the nod by Foreign Investment Promotion Board.
The initial investment of USD 50 million makes AirAsia the first foreign airline to set up a subsidiary in India.
German luxury tableware brand Villeroy & Boch has established a joint venture with marketer Genesis Luxury, opening its first store in Mumbai and planning to grow to 16 stores in the next five years.
This partnership comes after two years of struggling to clear administrative hurdles and acquire real estate without a local partner, the report said.
"In a long-awaited decision reached in late 2012, the Indian government permitted partial foreign ownership of supermarkets and department stores, a major step for the country's highly underdeveloped retail market," it said.
"Until late 2013, however, no foreign companies moved to enter, daunted by complex requirements, including one for 30 per cent content from small and medium-sized Indian enterprises," the report added.
"In December 2013, though, Tesco, Britain's biggest retailer, announced that it was seeking permission to take a 50 per cent stake worth USD 110 million in Trent Hypermarket, an arm of Tata.
This move came soon after Walmart ended its wholesale joint venture with the country's conglomerate Bharti to operate 20 stores in India, citing the local product requirement as the critical stumbling block," the report said.
A T Kearney said the US tops the index for the second year in a row, demonstrating sustained investor confidence in the strength of its ongoing economic recovery.
"In addition to being the most likely destination for FDI, no other country has experienced as profound a change in the expectations of the business leaders we surveyed.
A full 49 per cent of respondents compared to 39 per cent in 2013 and 23 per cent in 2007 indicated that their outlook for the United States is significantly more positive now than it was two years ago," it said.
White House Press Secretary Jay Carney said : "Not only did the US extend its lead, but the improvements over the past two years have been profound. And the US continues to show greater positive momentum than any other country."
"And today's survey shows, once again, that the rest of the world overwhelmingly wants to make it in America," Carney said.