"India must sort out some contours of its IPR regime. The legal system must be fast-tracked and the use of compulsory licensing (CL) for essential pharmaceutical drugs must be the exception and not the norm," it suggested.
The report has been released by the Europe India Chamber of Commerce (EICC) and European Business and Technology Centre (EBTC) in co-operation with the European Business Group.
The US industry too has raised concerns over India's IPR laws particularly in the pharmaceuticals sector. However, Indian government has maintained that its IPR laws are in compliance with WTO norms and rules.
The report also said that over the last two years, India Government has taken several steps to remove FDI barriers in a range of sectors but "it calls for swift implementation" of those measures.
It said: "Modalities such as land acquisition, revenue sharing and others must be discussed and debated by the states and the Centre before a formal policy decision is taken.
"Many EU companies find out that the actual market scenario in India is distinctly different from their original understanding."
Reforms also need to be initiated in trade facilitation and export promotion, it added.
"Companies that invest in India need to have lot of patience and deep pockets to sustain cash flow uncertainties. They should focus on the potential and not the short-term challenges," EICCs Research Head Adith Charlie said.
Further, it claimed said that European companies had spent USD 198 billion in India during the last 10 years.
"In the same period, Japanese and US firms channelised USD 138 billion and USD 50.7 billion respectively into their India units. This gives EU enterprises the distinction of being the largest inbound investor into India," it said.
EU firms have spent USD 118 billion on 2,566 greenfield (new) projects and also acquired interests in 1,442 companies for USD 80 billion.
"Tactical Greenfield investments, landmark acquisitions and steadfast dedication through uncertain economic cycles have been the key ingredients of the success enjoyed by European companies in India," it said quoting EICC Secretary General Sunil Prasad.
The study found that despite the challenges facing the Indian economy, EU firms are optimistic about the next 5 years.
"The common consensus is that the next government would usher in a fresh round of growth," Prasad added.
The report titled European Companies in India: Reigniting Economic Growth', said that EU companies collectively provide direct employment to 1.5 million Indians.
Of this, about 562,335 new jobs were added in the last 10 years alone through the greenfield route, the report added.
"To ensure continued high levels of FDI, essential to Indias future economic growth, Government and Industry alike must engage in novel thinking and disciplined implementation only then will the so urgently required paradigm shift happen," EBTC Director Poul Jensen said.
It said that huge potential is there in sectors such as education, energy, food processing, life sciences, advanced engineering and infrastructure.
Meanwhile, Ambassador of EU Delegation to India Joo Cravinho said in the report's foreword: "The sheer scale, diversity, and regulatory and tax complexity of India can be overwhelming for a foreign company.
"Companies have to be patient and committed to experience sustainable growth in the country over the longer term."
He added that the EU is committed to strengthening trade relations with India and "we are confident that the conclusion of the EU/India Broad-based Bilateral Trade and Investment agreement is possible in the near future".
The total India-EU bilateral trade was USD 94.43 billion during April-February, 2012-13. It was USD 109.86 billion for the entire 2011-12 fiscal.