Should I withdraw a paper from arXiv if it does not contain any new research? I had submitted a copy of a reading-cum-review project to arXiv in my undergrad sophomore year without really thinking of the consequences. The paper was announced and eventually moved to the General Physics section.

The issue with the paper is that it does not contain any new research and the review is far from being exhaustive. Besides, it was typed in a very unprofessional manner with too few references for a review paper.

Now that I am a grad student and need to associate a real journal paper to my arXiv account, I was wondering if having such a paper on arXiv hurts reputation in the long run. Is it usual to have casual reports uploaded on arXiv, or is it advisable to withdraw it and start afresh?
You're actually asking several sub-questions:

Can I withdraw the paper?
Should a paper containing no research be un-published/withdrawn (regardless of venue)?
What should I do with this specific paper?

1. Papers can't quite be removed from ArXiv
You cannot completely remove a paper from ArXiv once it's been published there. The ArXiv withdrawal policy says:

Articles that have been announced and made public cannot be completely removed. However, you may submit a withdrawal notification for your article.

You can definitely submit such a notice if you decide you want to withdraw; here's an example of a withdrawn paper - where you see the withdrawal notification. But, again, the paper is still accessible, forever.
The example is taken from this answer by @ff524
2. &quot;No new research&quot; does not make a paper unworthy of publication
Many papers offer a different view of existing research findings; or consolidate, compare, contrast or compile other pre-existing results, hopefully making them more accessible to the reader.
Your other reasons for withdrawal seem more pertinent.
3. What should you do?
For the paper you described, you could write up a withdrawal notice; however - don't be too harsh on yourself in phrasing it. Mention that this was an undergraduate research project and that, in hindsight, it isn't sufficiently exhaustive.
But rather than a complete withdrawal, you could just change the description on the paper's web page on ArXiv, indicating the same thing, as a sort of a caveat.