India's richest businessman Reliance Industries chairman Mukesh Ambani and Arcelor Mittal CEO Lakshmi Mittal also feature in the list that comprises 71 mighty heads of state, CEOs, entrepreneurs and philanthropists who "truly run and shape the world of 7.1 billion people."
Gandhi dropped a notch from last year's list and ranks at number 12 this year ahead of Chinese Vice Premier Li Keqiang and French President Francois Hollande.
Forbes said the 65-year-old leader of India's ruling political party has the reins of the world's second-most-populous country and tenth-largest economy.
"Son Rahul is next in line to take over India's most famous political dynasty," it added.
Coming in at the 20th spot is Singh, the Oxford and Cambridge-educated economist who is the architect of India's economic reforms.
Singh had ranked 19th in the list last year.
"But Singh's quiet intellectualism is increasingly seen as timid and soft," Forbes added.
Ambani, owner of the world's most expensive private residence, ranks 37th in the list.
Forbes said the petrochemical billionaire is India's richest and Reliance Industries is the nation's most valuable company. It however described Ambani's support for disgraced former Goldman Sachs Director Rajat Gupta as a "low point" for him in 2012.
Mittal, ranked 47th in the most powerful people list, has a net worth of USD 16 billion but also has "lots of headaches, including S&P and Moody downgrades of his company's debt to junk status. " A highlight for Mittal during the past year was carrying the Olympic flame in the 2012 Torch Relay.
Forbes said 51-year-old Obama emerged "unanimously" as the world's most powerful person for the second year running.
The decisive winner of the 2012 US presidential election, Obama now has four more years to push his agenda even as he faces major challenges, including an unresolved budget crisis, stubbornly high unemployment and renewed unrest in the Middle East.
"But Obama remains the commander-in-chief of the world's greatest military and head of the sole economic and cultural superpower--literally the leader of the free world," it said.
The second most powerful person in the world also happens to be the most powerful woman, German chancellor 58-year-old Angela Merkel. She jumped up from the number four position last year to take the runner-up spot on the 2012 list. Forbes termed Merkel as the backbone of the 27-member European Union, one who carries the fate of the Euro on her shoulders.
The list also includes Russian President Vladimir Putin at number three, Microsoft co-founder Bill Gates (4), General Secretary of the Chinese Communist Party Xi Jinping (9), Google co-founders Larry Page and Sergey Brin (20), Iran's Supreme leader Ali Khamenei (21) UN chief Ban Ki-moon (30), North Korean leader Kim Jong-un (44) and former US President Bill Clinton (50). Forbes dropped US Secretary of State Hillary Clinton from the list this year. Clinton, who had ranked 16th last year, does not feature in 2012 rankings as she is not expected to return to her powerful post for Obama's second term.
It is for the same reason that US Treasury Secretary Timothy Geithner also does not feature in this year's list.
Pakistan's Chief of Army Staff Ashfaq Parvez Kayani is ranked 28th in the list.
"The most powerful man in an unstable country; Pakistan's de facto leader controls nuclear weapons and one of the world's largest standing armies.
Despite tension over drone strikes, Kayani remains a key ally in the war on terror," Forbes said, adding that a lowpoint for Kayani this past year came when the country's Supreme Court issued a series of rulings holding the military accountable for human rights abuses and political meddling.
Zaheer ul-Islam, the head of Pakistan's notorious intelligence service ISI, has been ranked 52nd on the list.
"The ISI has played both sides in the war on terror and, as US troops draw out of Afghanistan, will be hugely influential in determining the region's future," Forbes said.
Islam's high point in 2012 was his first official visit to the US for talks with then counterpart in CIA General David Petraeus.
Facebook CEO Mark Zuckerberg, who came in at the 25th spot, is one of the youngest persons on the list at age 29. He dropped significantly from last year's top-ten ranking after Facebook's much-anticipated IPO turned out to be a flop.
Brazilian president Dilma Rousseff (18) is one of the list's biggest gainers. At the midpoint of her first term, Rousseff's emphasis on entrepreneurship has prompted a slew of new startups and energized Brazilian youths, Forbes said.
Apple CEO Tim Cook (35) made a big upward move too. A year after he succeeded iconic founder Steve Jobs, the company is the most valuable in the world and Apple stock hit an all-time high in September, reaching above USD 700 a share.
New members of the list include LinkedIn co-founder Reid Hoffman who is ranked 71. Forbes said Hoffman is the world's most powerful venture capitalist and the most-connected man in Silicon Valley. Making his debut on the list at rank 66 is Elon Musk, the entrepreneur behind PayPal and Tesla Motors who is the most powerful man in space.
"His company SpaceX is a leader in the private space industry, and with that business set to boom, Musk stands to make out like a 19th-century railway tycoon," Forbes added.
A number of prominent people fell off the list entirely. Chinese President Hu Jintao had ranked number two on the list last year and was the most powerful person in the world in 2010. With a new regime in place in China, Jintao is however on his way out of office, having already handed over some of his duties. He would surrender the rest early next year.
In compiling the list, Forbes considered hundreds of candidates from various walks of life all around the globe.
It took into consideration factors including whether the candidate has power over lots of people, the financial resources controlled by each person, whether they are powerful in multiple spheres and the active use of the candidates' power.
(Reuters adds) When it comes to power, politics trumps business, according to a new Forbes ranking on Wednesday that found heads of state occupying six of the top 10 spots among the world's most powerful people, led by US President Barack Obama. The annual list selected what Forbes said were the world's 71 most-powerful people from among the roughly 7.1 billion global populace, based on factors ranging from wealth to global influence.
Obama was joined in the top 10 by German Chancellor Angela Merkel, Russian President Vladimir Putin, King Abdullah bin Abdulaziz al Saud of Saudi Arabia and British Prime Minister David Cameron. The list's highest-ranked businessman was Microsoft co-founder Bill Gates at No 4. US Federal Reserve Chairman Ben Bernanke and European Central Bank President Mario Draghi, both public officials, also made the top 10.
"This year's list reflects the changing of the guard in the world's two most powerful countries: the United States and China," Michael Noer, Forbes' executive editor, told Reuters in an email. Noer noted that China's President Hu Jintao, last year's third most-powerful person, fell off the list as he is leaving power, and his successor, Xi Jinping, ranked ninth instead.
Both US Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton, who have stated they will not be serving in Obama's second term, were not in this year's rankings. While elected and appointed officials and business people made up the vast majority of Forbes' most powerful, Pope Benedict XVI placed fifth in the rankings.
Among the oddities was Joaquin Guzman Loera at No 63. Loera, far from a household name, is a billionaire nicknamed 'El Chapo' who as head of Mexico's Sinaloa cartel is the world's most powerful drug trafficker, according to Forbes.
Age was also not a barrier, with two of the youngest and oldest of this year's most powerful - 28-year-old Facebook CEO Mark Zuckerberg and 81-year-old News Corp CEO Rupert Murdoch - back-to-back at numbers 25 and 26, respectively.
Forbes noted that Zuckerberg fell out of last year's top 10 after Facebook's IPO disappointed. A gainer, meanwhile, was Brazilian President Dilma Rousseff, who moved up four spots to No 18 despite being only halfway into her first term of office. To create the rankings, which Forbes readily concedes bore a measure of subjectivity, editors graded candidates on four criteria for power and averaged the four grades: power over many people, control over financial and other valuable, resources, power in multiple spheres or arenas and active use of power.
Some measures, such as power over many people, favored leaders such as the Pope, while the world's richest man - Mexican telecom magnate Carlos Slim Hula, worth a reported $72 billion - placed 11th on the strength of his wealth. Others, such as New York's billionaire Mayor Michael Bloomberg, scored high in all areas, placing him at No 16.
Noer said that Elon Musk, one of the co-founders of Paypal and Tesla Motors, was "one of the more interesting newcomers" on the list due to his SpaceX company, a private space exploration venture. "With NASA retiring the space shuttle fleet, private companies like SpaceX have been awarded huge contracts to do things like resupply the International Space Station. The commercialization of space is just beginning, but we expect it to be big business," Noer said.
Former President Bill Clinton placed 50th, with editors noting that by hitting the campaign trail for Obama, Clinton "cemented his status as a kingmaker", along with his nonpartisan Global Initiative raising more than $71 billion in commitments to fund charitable action worldwide. Other high-ranking heads of state included French President Francois Hollande at No 14, Indian Prime Minister Manmohan Singh at No 19 and Iran's Grand Ayatollah Ali Hoseini-Khamenei at No 21.
Among businessmen in the top 20 were Berkshire Hathaway CEO Warren Buffett at No 15, Wal-Mart CEO Michael Duke at No 17 and Google co-founders Larry Page and Sergey Brin at No 20.