Doing business in India just got harder, according to a World Bank report that highlights the perils for small and medium-sized companies in the country.

India ranked 134 out of 189 countries assessed for how easy it is to do business, according to the report titled “Doing Business 2014” released Tuesday.

Bangladesh, a country with a gross domestic product of $115.6 billion compared to India’s $1.8 trillion, finished four places higher than India in the rankings. The regional average for South Asia was 121 in the report, which is based on figures for the year ending June 1, 2013.

Libya, Central African Republic and Chad were the worst performers this year.

In the 2013 report, India ranked 131.

“It’s not at all surprising,” said Madan Sabnavis, chief economist at Care Ratings in Mumbai. “In the last couple of years there have been a number of administrative, bureaucratic issues that have come up which has made it difficult for local investors to invest,” he added.

Singapore was most simple country in which to carry out business, the report said, followed by Hong Kong.

The World Bank ranks 189 countries based on 10 indicators, such as permits required to do business, access to electricity, protecting investors, paying taxes, enforcing contracts and the time, cost and outcome of insolvency proceedings against a company.

India dropped on all of these indicators, except on the administrative burden of paying taxes and dealing with construction permits. In each of those categories, India improved its ranking by one place from the previous report. However the country still ranked 182 when it came to dealing with construction permits. The World Bankidentified 35 steps necessary for obtaining such a permit in India, compared to an average of 16 in South Asia and 13 in OECD countries. China though was more obstructive in terms of construction permits and ranked 185 in the report on this measure.

In terms of enforcing contracts, an indicator measuring the efficiency of the judicial system in resolving commercial disputes, India is among the worst performing nations, with a rank of 186 out of 189. There was no change in its ranking by that metric compared with last year. When it came to getting credit, India fell four places, the biggest dip in any category compared to the 2013 ranking.

At the state level, Ludhiana, in Punjab in northern India, is the number one city in India in terms of ease of doing business, while Kolkata, the capital of West Bengal state, is bottom. New Delhi is the best city in India to start a new business and sixth in terms of ease doing business, according to the report.

To be sure, India’s fast growing middle-class population provides a growing market for medium and large companies looking to expand their operations.

The government is also trying to boost its ailing economy by allowing foreign investors to start their operations in India. But persisting red tape has been a serious deterrent.

India opened its multi-brand retail sector for foreign investors for the first time in September last year. It also increased the foreign investment caps on cable and satellite TV operators to 74% from 49%.

Still, big retailers including Wal-Mart Inc.WMT -0.15% and Carrefour SACA.FR -0.34% haven’t settled their India plans. They demand more clarity on the rules and regulations that are required to start operations in India. Retailers also say that some of the mandates that dictate how foreign companies build and supply their stores are too restrictive.

Some foreign companies have also found themselves embroiled in a bitter battle with the Indian government over tax claims. Companies such as Vodafone GroupVOD.LN +0.64%, Cadbury PLC, Nokia Corp.NOK1V.HE +1.38%, General Electric Co. and others have received notices from Indian authorities asking for additional tax payments.