"The end of legal slavery in the United States and in other countries around the world has not, unfortunately, meant the end of slavery," said Clinton.

"Today it is estimated as many as 27 million people around the world are victims of modern slavery, what we sometimes call trafficking in persons," she said at the unveiling of the report at the state department.

"Those victims of modern slavery are women and men, girls and boys, and their stories remind us of the kind of inhumane treatment we are capable of as human beings," said Clinton.

"Whatever their background, they are the living, breathing reminders that the work to eradicate slavery remains unfinished."

 Out of the 185 countries included in the 2012 report, only 33 complied fully with laws in place to end human trafficking, putting them at the top of a four-tier ranking system.

On India, the report states that the country is a source, destination, and transit country for men, women, and children subjected to forced labour and sex trafficking.

India, however, has maintained its position at tier 2, which it climbed to in 2011. Tier 2 is defined as a country whose government does not fully comply with the TVPA’s (Trafficking Victims Protection Act) minimum standards, but are making significant efforts to bring themselves into compliance with those standards.

"The forced labor of millions of its citizens constitutes India’s largest trafficking problem; men, women, and children in debt bondage are forced to work in industries such as brick kilns, rice mills, agriculture, and embroidery factories. A common characteristic of bonded labor is the use of physical and sexual violence as coercive tools," it says.

According to the report, 90% of trafficking in India is internal, and those from India’s most disadvantaged social strata, including the lowest castes, are most vulnerable. It also states that children are subjected to forced labour as factory workers, domestic servants, beggars, agricultural workers, and to a lesser extent, in some areas of rural Uttar Pradesh as carpet weavers.

"There were new reports about the continued forced labor of children in hybrid cottonseed plots in Gujarat, and reports that forced labor may be present in the Sumangali scheme in Tamil Nadu, in which employers pay young women a lump sum to be used for a dowry at the end of a three-year term."

The report also recommends that India develops a comprehensive anti-trafficking law or amend anti-trafficking legislation to be in line with the 2000 UN TIP Protocol, with adequate penalties prescribed by the UN Transnational Organized Crime Convention. It also suggests that India increase prosecutions and convictions on all forms of trafficking, including bonded labour.

Prosecution of officials allegedly complicit in trafficking, and convict and punish officials complicit in trafficking; encourage states to establish special anti-trafficking courts and improvement in distribution of state and central government rehabilitation funds to victims under the Bonded Labour (System) Abolition Act (BLSA), improve protections for trafficking victims who testify against their traffickers, encourage AHTUs to address both sex and labour trafficking of adults and children as well as encourage state and district governments to file bonded labour cases under appropriate criminal statutes are some of the suggestions.

Five countries had moved up from the bottom blacklist known as tier 3, including Myanmar and Venezuela, to be included among the 42 countries now on what is known as a tier 2 watchlist.

Among the 16 other countries on the blacklist were Algeria, the Democratic Republic of the Congo, Libya, North Korea and Saudi Arabia.

Kenya slipped down onto the watchlist for the first time in five years, while Nigeria lost its place on tier 1, moving down a notch as the report highlighted that women and children were forced into labor and sex trafficking.

But Clinton hailed the fact that a total of 29 countries had been upgraded to a higher ranking, "which means that their governments are taking the right steps."

They included Bangladesh, which was bumped up to tier two for making significant efforts to comply with minimum standards, including passing "a comprehensive anti-trafficking law" in December.

Ambassador Luis CdeBaca, director of the office to combat trafficking in persons, said while the number of people officially identified as victims of trafficking and slavery had gone up by 28% since last year to 42,291, the numbers of prosecutions in 2012 had also increased by 10% to 3,969.

So while countries "still have a little ways to go" there was "the beginnings, I think, of a real trend," he said.

This year's report focuses on how to better protect the victims, and urges governments to meet the challenge head-on.

"Traffickers are criminals. Governments -- which alone have the power to punish criminals and provide legal recourse to survivors -- cannot waver in their efforts to confront modern slavery," the report says.

But it also argues that human trafficking takes many guises and it is not just about moving people across borders to trap them in prostitution.

"The United States government, and increasingly, the international community, view 'trafficking in persons' as the term through which all forms of modern slavery are criminalized," it says.

"The essence of the trafficking experience is the denial of freedom,  including the freedom to choose where and how you live, the freedom to work or choose not to work, the freedom from threats, and the freedom of bodily integrity," the report says.