LONDON: India's new government needs to resolve taxation issues dogging multinational companies if it wants to encourage foreign direct investment, said Bill Gammell, who retired as chairman of Cairn Energy.

"I think it is recognised that India needs to consider being more investor-friendly from an international perspective," he said.

Speaking after Narendra Modi-led BJP swept to power in the general election last week, he told The Telegraph: "We are just one of a number of companies including Vodafone, SABMiller, IBM and Nokia who have outstanding tax questions there.

"I would very much hope that one of the first things the new government sorts out is that they look at the whole retrospective tax legislation and the impact it is having on foreign investment."

Cairn bought drilling rights in Rajasthan, which Shell had failed to exploit, for a mere $ 7.25 million in 2002.

After it found oil, it sold a controlling interest to Vedanta Resources for $ 8.5 billion nine years later.

Cairn Energy now has only a 10 per cent stake remaining in Cairn India valued at about $ 1 billion.

It would like to sell this but is being blocked by a retrospective tax notice that was issued at the beginning of this year.

The notice declared that the stake cannot be sold until India's tax authorities assess whether tax is due from seven years ago.

The saga has led to a slump in the shares of Cairn in January from more than 260p to close of 181p, reducing the company's market capitalisation to 1 billion pound, but Gammell is hopeful that India's new government will resolve the situation.

Gammell, who stepped down as chief executive in 2011, said the Indian issue was his biggest regret from his time at the company.

Cairn, which Gammell co-founded in 1981 and floated on the London Stock Exchange in 1989, has handed back USD 4.5 billion to shareholders over the last five years.

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