The Economic Survey 2013-14 tabled in the Parliament today also said there is an "immediate need to simplify processes including those relating to tax policy and administration".
Listing out various issues, the Economic Survey said that in recent years, firms operating in India have faced an array of problems during interface with the government.
Among others, it mentioned about health safety environment regulation, regulation of companies, the working of the legal system, and problems of tax policy and tax administration.
Noting that long delays are costly, the survey said senior management time allocated to managing the relationship with the government could have been utilised for productivity improvements.
"The cost of doing business in India has generated increased incentives for Indian and global firms to favour investment elsewhere in the world," it said.
The top priority should be on making it easier and less costly to do business, it added.
"A comprehensive transformation of all aspects of the interface between firms and the state is now required. This involves focusing the state on addressing market failures and strong accountability mechanisms through which public bodies deliver world class efficiency," the survey said.