The Congressional-mandated "Trafficking in Persons Report 2013" released by Secretary of State John Kerry, the report said sex trafficking of women and girls within the country is widespread.
Religious pilgrimage centres and cities popular for domestic tourism continue to be vulnerable to child sex tourism, it added.
India has been placed in Tier II of countries in the list which is for those governments that do not fully comply with the minimum standards of Trafficking Victims Protection Act, but are making significant efforts to bring themselves into compliance with those standards.
"Indian women and girls are also subjected to transactional sexual exploitation in the Middle East under the guise of temporary marriages.
"Women and girls-including those in child marriages-fleeing domestic violence from their husbands are particularly vulnerable to human trafficking," it said, adding that the Naxalites, or Maoist armed groups, forcibly recruited children into their ranks.
It recommended the Indian government to cease the penalisation of victims of human trafficking and increase prosecutions and convictions of all forms of trafficking, including bonded labour.
It also asked the Indian Government to respect due process, and report on these law enforcement efforts; prosecute officials allegedly complicit in trafficking, and convict and punish those found guilty.
Speaking at the report release function, Kerry said the Obama Administration is focused on this issue.
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