AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 2004

                       SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C.

                                    FORM 20-F

                            ANNUAL REPORT PURSUANT TO
           SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

                    FOR THE FISCAL YEAR ENDED MARCH 31, 2004

                         COMMISSION FILE NUMBER 1-15252

                        MAHANAGAR TELEPHONE NIGAM LIMITED
             (Exact name of Registrant as specified in its charter)


                                       N/A
                 (Translation of Registrant's name into English)


                              THE REPUBLIC OF INDIA
                 (Jurisdiction of incorporation or organization)


                       12TH FLOOR, JEEVAN BHARATI TOWER-1
                              124 CONNAUGHT CIRCUS
                                NEW DELHI 110 001
                                      INDIA
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)


Securities registered or to be registered pursuant to Section 12(b) of the Act.

      Title of each class              Name of each exchange on which registered

  American Depositary Shares,                New York Stock Exchange, Inc.
each representing two equity shares.
        Equity Shares                        New York Stock Exchange, Inc.*

Securities registered or to be registered pursuant to Section 12(g) of the Act.

                                      NONE
                                (Title of Class)


Securities for which there is a reporting obligation pursuant to Section 15(d)
                                  of the Act.

                                      NONE
                                (Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.

                            630,000,000 EQUITY SHARES

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

   X   Yes        No

Indicate by check mark which financial statement item the registrant has elected
to follow.

   Item 17        X   Item 18

* Not for trading, but only in connection with the registration of the American
Depositary Shares.



<PAGE>


                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

PRESENTATION OF FINANCIAL INFORMATION........................................ii
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS............................ii
Item 1.      Identity of Directors, Senior Management and Advisers............1
Item 2.      Offer Statistics and Expected Timetable..........................1
Item 3.      Key Information..................................................1
             SELECTED FINANCIAL AND OPERATING DATA............................1
             EXCHANGE RATES...................................................6
             RISK FACTORS.....................................................6
Item 4.      Information on the Company......................................13
             HISTORY AND DEVELOPMENT OF THE COMPANY..........................13
             BUSINESS OVERVIEW...............................................19
             ORGANIZATIONAL STRUCTURE........................................32
             PROPERTY, PLANT AND EQUIPMENT...................................33
             TELECOMMUNICATIONS REGULATION IN INDIA..........................37
Item 5.      Operating and Financial Review and Prospects....................42
             OPERATING RESULTS...............................................42
             LIQUIDITY AND CAPITAL RESOURCES.................................50
             RESEARCH AND DEVELOPMENT........................................51
             TREND INFORMATION...............................................51
Item 6.      Directors, Senior Management and Employees......................51
             DIRECTORS AND SENIOR MANAGEMENT.................................51
             COMPENSATION OF DIRECTORS AND OFFICERS..........................53
             EMPLOYEES.......................................................54
             SHARE OWNERSHIP.................................................55
Item 7.      Major Shareholders and Related Party Transactions...............55
             MAJOR SHAREHOLDERS..............................................55
             CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS............55
Item 8.      Financial Information...........................................57
             CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION.........57
             SIGNIFICANT CHANGES.............................................57
Item 9.      The Offer and Listing...........................................58
             MARKET PRICE INFORMATION........................................58
             THE INDIAN SECURITIES MARKET....................................59
Item 10.     Additional Information..........................................66
             MEMORANDUM AND ARTICLES OF ASSOCIATION..........................66
             MATERIAL CONTRACTS..............................................71
             INDIAN FOREIGN EXCHANGE CONTROLS AND SECURITIES REGULATIONS.....71
             TAXATION........................................................74
             DOCUMENTS ON DISPLAY............................................77
Item 11.     Quantitative and Qualitative Disclosures about Market Risk......78
Item 12.     Description of Securities Other than Equity Securities..........78
Item 13.     Defaults, Dividend Arrearage and Delinquencies..................78
Item 14.     Material Modifications to the Rights of Security Holders
             and Use of Proceeds.............................................78
Item 15.     Controls and Procedures.........................................79
Item 16A.    Audit Committee Financial Expert................................79
Item 16B.    Code of Ethics..................................................79
Item 16C.    Principal Accountant Fees and Services..........................79
Item 16D.    Exemptions from the Listing Standards for Audit Committees......80
Item 16E.    Purchase of Equity Securities by the Issuer and
             Affiliated Purchasers...........................................80
Item 17.     Financial Statements............................................80
Item 18.     Financial Statements............................................80
Item 19.     Exhibits........................................................80
Index to Consolidated Financial Statements..................................F-1


                                       i
<PAGE>


                      PRESENTATION OF FINANCIAL INFORMATION

         The financial information in this report has been prepared in
accordance with US GAAP with respect to our consolidated statements of
operations, shareholders' equity and cash flow for the fiscal years ended March
31, 2002, 2003 and 2004 and our balance sheets as of March 31, 2003 and 2004.
Our fiscal year ends on March 31 of each year, so all references to a particular
fiscal year are to the year ended March 31 of that year. The consolidated
financial statements, including the notes to those financial statements, are set
forth at the end of this report.

         Although we have translated in this report certain rupee amounts into
dollars for convenience, this does not mean that the rupee amounts referred
could have been, or could be, converted into dollars at any particular rate, the
rates stated below, or at all. All translations from rupees to dollars with
respect to financial data as of March 31, 2004 are based on the noon buying rate
in the City of New York for cable transfers in rupees on March 31, 2004. The
Federal Reserve Bank of New York certifies this rate for customs purposes on
each date the rate is given. The noon buying rate on March 31, 2004 was Rs.43.40
per US$1.00.

         Reference to "we," "us," "our," "MTNL," "Mahanagar,"and the "Company"
refer to Mahanagar Telephone Nigam Limited.

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         This report contains "forward-looking statements", as defined in
Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of
the U.S. Securities Exchange Act of 1934, as amended, that are based on our
current expectations, assumptions, estimates and projections about our company
and our industry. The forward-looking statements are subject to various risks
and uncertainties. Generally, these forward-looking statements can be identified
by the use of forward-looking terminology such as "may," "will," "will likely
result," "believe," "expect," "will continue," "anticipate," "estimate,"
"intend," "plan," "contemplate," "seek to," "future," "objective," "goal,"
"project," "should," and similar expressions or variations of these expressions.
We caution you that reliance on any forward-looking statement involves risks and
uncertainties, and that although we believe that the assumptions on which our
forward-looking statements are based are reasonable, any of those assumptions
could prove to be inaccurate, and, as a result, the forward-looking statements
based on those assumptions could be incorrect. The uncertainties in this regard
include, but are not limited to, those identified in the risk factors discussed
elsewhere in this report. See "Key Information--Risk Factors." In light of these
and other uncertainties, you should not conclude that we will necessarily
achieve any plans and objectives or projected financial results referred to in
any of the forward-looking statements. We do not undertake to release the
results of any revisions of these forward-looking statements to reflect future
events or circumstances.


                                       ii


<PAGE>


ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.  KEY INFORMATION


                      SELECTED FINANCIAL AND OPERATING DATA

         You should read the following selected financial and operating data in
conjunction with our consolidated financial statements and the related notes,
"Operating and Financial Review and Prospects" and the other financial
information included in this report. Our consolidated financial statements
included in this report are prepared in Indian rupees and in accordance with
Generally Accepted Accounting Principles in the United States of America (US
GAAP) for the fiscal years ended March 31, 2003 and 2004.

         Up to March 31, 2003, we had presented consolidated financial
statements prepared in accordance with International Accounting Standards (IAS)
and reconciled to US GAAP. During the current year, we have changed our basis of
preparation and presentation from IAS to US GAAP.

         This being the first year of presenting consolidated financial
statements of the Company under US GAAP, the selected income statement and cash
flow data for the years ended March 31, 2002, 2003 and 2004 have been extracted
or derived from our audited consolidated statements of operations and cash flow
statements which are included elsewhere in this report. The summary balance
sheet data as of March 31, 2003 and 2004 have been extracted or derived from our
audited consolidated balance sheets included elsewhere in this report. The
summary balance sheet data as of March 31, 2002 have been extracted or derived
from our audited consolidated balance sheet which was prepared under IAS in that
year and not included in this report. The presentation of the same is in
conformity with the current presentation of US GAAP balance sheet data as of
March 31, 2003 and 2004.

         Additionally, we have also presented selected financial data in
accordance with IAS to maintain the consistency in presentation followed in the
previous periods. The selected balance sheet data, income statement and cash
flow data for the years ended March 31, 2000, 2001, 2002 and 2003 which are
presented in accordance with IAS have been extracted or derived from our audited
consolidated financial statements not included in this report. The selected
balance sheet data, income statement and cash flow data for the year ended March
31, 2004 have been extracted or derived from our audited consolidated balance
sheet which has been prepared under US GAAP and included in this report.  The
presentation of the same is in conformity with the current presentation of IAS
balance sheet data as of the previous four years ended March 31, 2003.

         Consolidated financial statements for the year ended March 31, 2004
have been translated for convenience into US dollars (although we have
translated certain rupee amounts in this report into US dollars for convenience,
this does not mean that the rupee amounts referred to could have been, or could
be, converted into US dollars at any particular rate, the rates stated below, or
at all). All translations from rupees to dollars with respect to financial data
as of March 31, 2004 are based on the noon buying rate in the City of New York
for cable transfers in rupees on March 31, 2004. The Federal Reserve Bank of New
York certifies this rate for customs purposes on each date the rate is given.
The noon buying rate on March 31, 2004 was Rs.43.40 per US$1.00.


                                       1
<PAGE>


UNDER IAS
---------

<TABLE>
<CAPTION>
                                                        (IN MILLIONS EXCEPT PER SHARE DATA)
                                                         FISCAL YEARS ENDED MARCH 31,
                                                                                                           2004
                                                                                                        CONVENIENCE
                                                                                                        TRANSLATION
                                   2000           2001           2002          2003          2004        INTO US$
 INCOME STATEMENT DATA:

 REVENUES
<S>                                <C>           <C>           <C>            <C>           <C>            <C>
 Call revenue                      Rs.30,377     Rs.31,835     Rs.30,078      Rs.24,886     Rs.24,176        US$557
 Telephone and other rentals          10,344        11,820        14,597         14,923        14,138           326
 Public call office revenue            8,007         9,715        10,186         10,273        10,632           245
 Interconnect revenue                  1,983         3,316         4,826          6,083        13,105           302
 Leased circuits                         425           483           955          1,100         1,053            24
 Connection fees                         314           280           245            210           197             5
 Other telephones                        197           353           322            340           556            13
 Telegraph and telex                     157           131            97             76            61             1
 Other                                   557         1,425           355            624          1455            33

 Total                             Rs.52,361     Rs.59,358     Rs.61,661      Rs.58,515     Rs.65,373      US$1,506

 COST OF REVENUES
 Wages and salaries                 Rs.9,991      Rs.9,508      Rs.9,903      Rs.10,747     Rs.11,579        US$267
 Pension costs                           896         1,238         1,410          2,213         2,962            68
 Gratuity costs                          253           244           990            615           716            16

 Medical costs (post-retirement)          --            --            --          1,468         2,164            50
 Staff welfare expenses                  145           156           797            916           928            21
 Other staff related costs               782           839           844          1,069         1,159            27

 Total staff costs                    12,067        11,985        13,944         17,028        19,508           449
 Less: Capitalized                      (964)       (1,011)       (1,033)        (1,143)         (817)          (18)

 Net staff costs                      11,103        10,974        12,911         15,885        18,691           431
 Interconnection payments             10,504        11,317        11,479          9,025        10,627           245
 License fee and spectrum              3,289         3,615         6,235          6,100         9,989           230
 charges--DOT
 Depreciation                          6,023         6,561         6,664          8,265         8,433           194
 Maintenance                           1,403         1,398         1,655          1,544         1,330            31
 Pay phone agency commissions          1,706         2,157         2,571          2,640         2,834            65
 Inventory provisions                     59            48            18             22            48             1
 Bad debts provisions                    525         1,030         1,784          2,074         2,425            56
 Others                                2,859         4,439         4,454          4,153         4,554           105

                                      37,471        41,539        47,771         49,708        58,932         1,358
 Less: recharged to DOT/BSNL             (16)           (6)           (9)            (5)            -             -

 Total                             Rs.37,455     Rs.41,533     Rs.47,762      Rs.49,703     Rs.58,932      US$1,358


</TABLE>



                                       2
<PAGE>


<TABLE>
<CAPTION>
                                                        (IN MILLIONS EXCEPT PER SHARE DATA)
                                                         FISCAL YEARS ENDED MARCH 31,
                                                                                                           2004
                                                                                                        CONVENIENCE
                                                                                                        TRANSLATION
                                       2000           2001         2002          2003          2004        INTO US$

<S>                                   <C>          <C>           <C>            <C>           <C>            <C>

OPERATING PROFITS                    Rs.14,906      Rs.17,825    Rs.13,899     Rs.8,812       Rs.6,441       US$148
Interest and other income                1,352          2,393        2,042        1,928          1,756           40
Interest and other financial              (261)          (376)        (346)        (334)          (367)          (8)
expenses (1)
Interest payable on DOT funding         (4,222)        (3,660)      (3,090)      (2,389)            --           --
Interest recoverable from DOT            4,222          1,830           --           --             --           --
Interest recoverable from BSNL             --            1,830        3,090        2,389            --           --

Net profit before tax                   15,997         19,842       15,595       10,406          7,830          180
Equity in earnings (losses) of             --              --           (4)          (4)           (20)          --
equity & affiliates, net of taxes
Taxation                                (6,954)        (7,549)      (7,209)      (4,200)        (3,145)         (72)

PROFIT AFTER TAXATION                 Rs.9,043      Rs.12,293     Rs.8,382     Rs.6,202       Rs.4,665       US$108

Weighted average equity shares             630            630          630          630            630
outstanding (millions)
EPS-Basic & diluted                   Rs.14.35       Rs.19.51     Rs.13.30      Rs.9.84        Rs.7.40      US$0.17
Basic and diluted earnings per           28.70          39.02        26.60        19.68          14.80         0.34
GDR/ADS (2)
Dividends declared per equity share       3.0            4.5          4.5          4.5            4.5          0.1
Dividends declared per GDR/ADS (3)        6.0            9.0          9.0          9.0            9.0          0.2
Amounts in accordance with US
GAAP:
Profit after tax                      Rs.8,169      Rs.11,012     Rs.9,662     Rs.5,707       Rs.5,052       US$116

Basic and diluted EPS under USGAAP    Rs.12.97       Rs.17.48    Rs. 15.34      Rs.9.06        Rs.8.02      US$0.18


<CAPTION>
                                                        (IN MILLIONS EXCEPT PER SHARE DATA)
                                                         FISCAL YEARS ENDED MARCH 31,
                                                                                                           2004
                                                                                                        CONVENIENCE
                                                                                                        TRANSLATION
                                        2000          2001         2002           2003         2004        INTO US$

<S>                                 <C>            <C>          <C>           <C>           <C>            <C>

BALANCE SHEET DATA:
Tangible fixed assets                Rs.63,434      Rs.67,595    Rs.70,809     Rs.74,670     Rs.75,922     US$1,749
Investments                                 --             --        1,013         3,692         3,705           85
DOT/BSNL--loan receivable--             28,810         26,190           --           --             --           --
long term
Current assets                          48,243         57,482       85,617        73,814        84,748       1,8953
TOTAL ASSETS                        Rs.140,487     Rs.151,267   Rs.157,439    Rs.152,176    Rs.164,375     US$3,787
Interest bearing loans--the             Rs.604         Rs.211           --            --            --           --
Company
Interest bearing loans--DOT/ BSNL       28,810         26,190           --            --            --           --
related--long term
Deferred tax and provisions             11,947         12,011       12,513        12,026        14,967          345
Other long term liabilities             12,607         13,549       14,303        15,005        14,802          341
Current liabilities                     30,770         31,264       57,323        48,478        56,475         1301
TOTAL LIABILITIES                    Rs.84,738      Rs.83,225    Rs.84,139     Rs.75,509     Rs.86,244     US$1,987
Shareholders' equity                 Rs.55,749      Rs.68,042    Rs.73,300     Rs.76,667     Rs.78,131     US$1,800
TOTAL SHAREHOLDERS' EQUITY AND
LIABILITIES                         Rs.140,487     Rs.151,267   Rs.157,439    Rs.152,176    Rs.164,375     US$3,787
Amounts in accordance With US
GAAP:
Shareholders' equity                 Rs.60,726      Rs.69,571    Rs.76,109     Rs.78,981     Rs.80,835     US$1,862
CASH FLOW DATA:
Net cash from operating                 12,816         19,325       15,164        22,495        19,885          458
activities
Net cash used in investing             (10,940)        (8,578)      (8,414)      (13,535)       (9,315)        (215)
activities
Net cash from financing activities       2,676         (4,870)      (7,591)      (15,222)       (3,198)         (74)


<FN>

(1)      Net of amounts recoverable from the DOT/Bharat Sanchar Nigam Limited
         (BSNL).

(2)      One global depositary receipt, or GDR, represented two of our equity
         shares. In the fourth quarter of calendar year 2001, we exchanged our
         GDRs for our American Depositary Shares, or ADSs, on a one-for-one
         basis. One ADS also represents two of our equity shares.


</FN>

</TABLE>


                                       3
<PAGE>


UNDER US GAAP
-------------

<TABLE>
<CAPTION>
                                                         (IN MILLIONS EXCEPT PER SHARE DATA)
                                                            FISCAL YEARS ENDED MARCH 31,
                                             2002             2003              2004               2004
                                          -----------     -------------     --------------    ---------------
                                                                                               CONVENIENCE
                                                                                               TRANSLATION
                                                                                               INTO MILLION
                                                                                                  OF US$
                                                                                               (UNAUDITED)
                                          -----------     -------------     --------------    ---------------

<S>                                         <C>               <C>                <C>                  <C>
Revenues                                     58,735            55,251             61,084              1,407
Cost of revenues (excluding depreciation    (30,729)          (30,092)           (37,531)              (865)
   shown separately below)
                                          -----------     -------------     --------------    ---------------
Gross profit                                 28,006            25,159             23,553                542
Selling, general and administrative
   expenses (excluding depreciation
   shown separately below)                   (7,799)           (8,405)            (9,701)              (224)
Depreciation                                 (6,905)           (8,507)            (8,675)              (200)

                                          -----------     -------------     --------------    ---------------
TOTAL OPERATING EXPENSES                    (14,704)          (16,912)           (18,376)              (424)
                                          -----------     -------------     --------------    ---------------

INCOME FROM OPERATIONS                       13,302             8,247              5,177                118
Interest and other income, net                2,051             2,218              2,844                 65
                                          -----------     -------------     --------------    ---------------

INCOME BEFORE INCOME TAXES,                  15,353            10,465              8,021                183
   AND SHARE OF LOSSES FROM AFFILIATE
Income taxes                                 (5,687)           (4,754)            (2,949)               (68)
Equity in (losses) of affiliate                  (4)               (4)               (20)                 -

                                          ===========     =============     ==============    ===============
NET INCOME                                    9,662             5,707              5,052                115
                                          ===========     =============     ==============    ===============


EARNINGS PER EQUITY SHARE
   -Basic                                  Rs.15.34           Rs.9.06            Rs.8.02              $0.18
   -Diluted                                Rs.15.34           Rs.9.06            Rs.8.02              $0.18

WEIGHTED AVERAGE NUMBER OF EQUITY
    SHARES USED IN COMPUTING EARNINGS
    PER EQUITY SHARE (IN MILLION)
    -Basic                                      630               630                630                630
    -Diluted                                    630               630                630                630
                                          -----------     -------------     --------------    ---------------

Dividends declared per equity share          Rs.4.5            Rs.4.5             Rs.4.5               $0.1
Dividends declared per GDR/ADS (3)           Rs.9.0            Rs.9.0             Rs.9.0               $0.2
</TABLE>


                                       4
<PAGE>


<TABLE>
<CAPTION>
                                                         (IN MILLIONS EXCEPT PER SHARE DATA)
                                                            FISCAL YEARS ENDED MARCH 31,
                                             2002             2003              2004               2004
                                          -----------     -------------     --------------    ---------------
                                                                                               CONVENIENCE
                                                                                               TRANSLATION
                                                                                               INTO MILLION
                                                                                                  OF US$
                                                                                               (UNAUDITED)
                                          -----------     -------------     --------------    ---------------

ASSETS

<S>                                         <C>                <C>                <C>                  <C>
    Cash and cash equivalents               24,456             18,162             25,534               589
    Restricted cash                             10                  8                 11                 -
    Accounts receivable, net of
      allowances                             4,474              3,760              6,392               147
    Due from related parties                 12,051            29,644             26,725               615
    Inventories                               2,893             1,416                991                22
    Unbilled revenue                          5,819             5,296              5,379               124
    Deferred income taxes                     5,080             5,139              8,007               185
    Investment in held to
      maturity securities                     1,000             3,500              3,500                81
    Investments in affiliates                    13               192                205                 5
    Property and equipment, net              74,771            79,259             79,664             1,835
    Other assets                             35,924            14,667             19,601               452
                                          -----------     -------------     --------------     --------------
          TOTAL ASSETS                      166,491           161,043            176,009             4,055
                                          ===========     =============     ==============     ==============

LIABILITIES AND STOCKHOLDERS'
EQUITY

    Accounts payable                          4,770             5,442              8,626               199
    Due to related parties                    9,016            18,885             18,561               428
    Other liabilities                        52,213            30,513             31,079               716
    Accrued employee cost                     9,110            10,957             20,404               470
    Deferred income taxes                    15,273            16,265             16,504               380
                                          -----------     -------------     --------------     --------------
          TOTAL LIABILITIES                  90,382            82,062             95,174             2,193
                                          ===========     =============     ==============     ==============


STOCKHOLDERS' EQUITY
    Equity shares, 800,000,000
      shares authorized,
      issued and outstanding
       - 630,000,000 shares as
       of March 31, 2003 and
       2004                                   6,300             6,300              6,300               145
    Additional paid-in
      capital                                 6,649             6,649              6,649               153
    Retained earnings                        62,852            65,724             67,578             1,557
    Research and development
      reserve                                   308               308                308                 7
                                          -----------     -------------     --------------     --------------

TOTAL STOCKHOLDERS' EQUITY                   76,109            78,981             80,835             1,862
                                          ===========     =============     ==============     ==============

TOTAL LIABILITIES AND STOCKHOLDERS'
     EQUITY                                 166,491           161,043            176,009              4055
                                          ===========     =============     ==============     ==============


CASH FLOW DATA:
Net cash from operating activities           17,164            23,456             19,885               458
Net cash used in investing activities        (9,945)          (14,739)            (9,315)             (215)
Net cash from financing activities           (7,591)          (15,011)            (3,198)              (74)


        The notes accompanying the consolidated financial statements are an integral part of this data.


</TABLE>


                                       5
<PAGE>


                                 EXCHANGE RATES

         The following table sets forth, for the fiscal years indicated,
information concerning the exchange rates between Indian rupees and US dollars
based on the noon buying rate in the City of New York for cable transfers of
Indian rupees, as certified for customs purposes by the Federal Reserve Bank of
New York.

<TABLE>
<CAPTION>
                                   AT END OF     AVERAGE
        YEAR ENDED MARCH 31,        PERIOD       RATE (1)     HIGH         LOW
<S>     <C>                          <C>          <C>         <C>         <C>
        2000                         43.65        43.46       43.75       42.50
        2001                         46.85        45.88       47.47       43.63
        2002                         48.83        47.82       48.83       46.58
        2003                         47.53        48.36       49.07       47.53
        2004                         43.40        45.78       47.46       43.40

<FN>

(1) The average rate is the average of the exchange rates on the last day of
    each month during the period.

</FN>

</TABLE>

         The following table sets forth the high, low and period-end buying
rates for the Indian rupee for each of the previous six months.

<TABLE>
<CAPTION>
                MONTH                       HIGH                LOW
<S>                                         <C>                <C>
                March 2004                  45.32              43.40
                April 2004                  44.52              43.40
                May 2004                    45.57              44.55
                June 2004                   46.21              44.94
                July 2004                   46.45              45.66
                August 2004                 46.40              46.21

</TABLE>

         On September 20, 2004, the noon buying rate was Rs.45.93 = US$1.00.


                                  RISK FACTORS

         You should carefully consider the following risk factors as well as the
other information contained in this report in evaluating us and our business.
The market price of our equity shares or ADSs could decline due to any of these
risks.

                RISKS RELATING TO INVESTMENTS IN INDIAN COMPANIES

         A SIGNIFICANT CHANGE IN THE INDIAN GOVERNMENT'S ECONOMIC LIBERALIZATION
AND DEREGULATION POLICIES COULD ADVERSELY AFFECT BUSINESS AND ECONOMIC
CONDITIONS IN INDIA GENERALLY AND OUR BUSINESS IN PARTICULAR.

         The Indian government has traditionally exercised and continues to
exercise a dominant influence over many aspects of the economy. Its economic
policies have had and could continue to have a significant effect on private-
and public-sector entities, including us, and on market conditions and prices of
Indian securities, including our equity shares and our ADSs.

         Although the current government has continued India's current economic
liberalization, deregulation and disinvestment policies, these liberalization
policies could be discontinued in the future. A significant change in India's
economic liberalization and deregulation policies could adversely affect
business and economic conditions in India in general and could adversely affect
the telecommunications licensing and regulatory framework in which we operate
our business.


                                       6
<PAGE>


         FINANCIAL INSTABILITY IN OTHER COUNTRIES, PARTICULARLY EMERGING MARKET
COUNTRIES IN ASIA, COULD ADVERSELY AFFECT THE INDIAN ECONOMY AND CAUSE OUR
BUSINESS AND THE MARKET FOR OUR EQUITY SHARES AND ADSS TO SUFFER.

         Financial turmoil in Asia, Russia and elsewhere in the world in the
late 1990s affected different sectors of the Indian economy in varying degrees.
Although economic conditions are different in each country, investors' reactions
to developments in one country can have adverse effects on the securities of
companies in other countries, including India. A loss of investor confidence in
the financial systems of other emerging markets may cause increased volatility
in Indian financial markets and, indirectly, in the Indian economy in general.
Any worldwide financial instability could influence the Indian economy and could
have a material adverse effect on the market for securities of Indian companies,
including our equity shares and ADSs.

         SOCIAL CONFLICT, TERRORISM AND RELATED MILITARY ACTIVITY MAY ADVERSELY
AFFECT THE INDIAN ECONOMY OR WORLD ECONOMIC ACTIVITY, EITHER OF WHICH COULD
ADVERSELY AFFECT OUR BUSINESS AND THE PRICES OF OUR EQUITY SHARES AND ADSS.

         India and other parts of the world have recently experienced
significant social conflict and/or terrorist acts, and retaliatory military
operations are continuing in our geographic region and elsewhere. In India,
social conflict, including religious and regional/separatist conflicts, has been
an ongoing problem, which frequently includes significant acts of terrorism. To
the extent that the Indian economy or world economic activity is adversely
affected by such conflict, terrorism or military activity, our business may also
be adversely affected, resulting in a decline in revenue, and the prices of our
equity shares and ADSs may decline.

                         RISKS RELATING TO OUR BUSINESS

         WE EXPECT TO ENCOUNTER INCREASED COMPETITION IN EACH OF OUR MARKETS,
WHICH COULD REDUCE OUR REVENUES.

         The Indian government is rapidly liberalizing the telecommunications
industry in India. The Department of Telecommunications (DOT) may license, at
its discretion, multiple additional service provider in any service area, with
respect to both basic telecommunications services and cellular services. In
November 2003, the Department issued guidelines for Unified Access Licenses,
which cover both basic and cellular services within a service area. In the
Indian context, "basic telecommunications services" or "basic services" include
basic fixed-line access service and a number of other telecommunications
services, other than long distance services, cellular service and Internet
access. Basic services also include CDMA-based fixed wireless and mobile
services (without roaming). Tata Teleservices Limited and Reliance Infocomm
Limited are currently competing with us in the market for basic services in both
Mumbai and Delhi, and Bharti Infotel Limited is also competing with us in the
basic services market in Delhi. All of these companies already have significant
telecommunications infrastructure in Delhi and Mumbai, including, with respect
to Tata Teleservices and Reliance Infocom, low-cost CDMA mobile and fixed
wireless technology. With approximately 65% of our call units having come from
approximately 19% of our access lines in service (last two months of fiscal
2004), we are particularly vulnerable to losing market share if these or other
new operators aggressively target our largest subscribers. Some of our largest
customers have already migrated to new basic service operators in Mumbai and
Delhi.

         We experience significant and growing competition in the market for GSM
cellular and Internet services. Bharti Cellular Limited and Hutchison Essar
Telecom Limited, which offer GSM services under the brand names Airtel and
Hutch, respectively, have been servicing the Delhi market since 1995. In Mumbai,
Hutchison Max Telecom Limited, which offers GSM service under the brand name
Orange, and BPL Mobile Limited have been servicing the cellular market since
1995, and Bharti Cellular commenced cellular operations there in July 2002. All
of these service providers enjoy significant penetration in these markets, have
established brand names and have more experience operating a cellular network
than we do. In addition, the Birla Group, Tata Group and AT&T have combined
their cellular operations into one business, Idea Cellular Limited, which has
begun operating in the Delhi market, among other places. Cellular operators also
face competition from rapidly growing CDMA-based mobile services, which are
priced considerably lower than GSM cellular services.

         We commenced providing our Internet services in Delhi and Mumbai in
February 1999. The competition among Internet service providers throughout India
is intense with approximately 189 licenses for providing Internet services
issued as of March 31, 2004.



                                       7
<PAGE>


         There has been significant consolidation in the telecommunications
industry in India. For example, the Birla Group, the Tata Group and AT&T have
combined their interests in GSM cellular operators into one business, and the
Tata Group, which controls Tata Teleservices, acquired a controlling interest in
India's dominant international long distance carrier, Videsh Sanchar Nigam
Limited (VSNL), and Tata Teleservices has acquired Hughes Telecom, a basic
service provider in Mumbai. We expect the trend toward consolidation to
continue, resulting in larger, more diversified competitors in the Indian
market.

         The government of India has recently announced its intention of
increasing the limit on foreign direct investment in telecom providers from 49%
to 74%. If implemented, this change may give our competitors access to more
capital with which to expand or enhance their networks, increasing competition.

         Increased competition has kept and will likely continue to keep
downward pressure on prices and has required and will likely continue to require
us to increase our capital investment to improve and expand our services. These
developments, in turn, have had and may continue to have a negative impact on
our profitability.

         THE RECENT INTRODUCTION OF A UNIFIED ACCESS SERVICE LICENSE REGIME IN
INDIA SUBJECTS US TO SIGNIFICANT UNCERTAINTY.

         The DOT issued a November 2003 guideline on the introduction of a
unified access service license (basic and cellular) for the telecommunications
industry. See "Information on the Company--Telecommunications Regulation in
India--Unified License." We do not have enough experience at this time to
ascertain the impact this would have on our business, but possible negative
ramifications include increased competition in our more profitable lines of
business.

                          RISK OF POLITICAL UNCERTAINTY

         During the past decade, the government of India has pursued policies of
economic liberalization, including significantly relaxing restrictions on the
private sector. Nevertheless, the role of the Indian central and state
governments in the Indian economy as producers, consumers and regulators has
remained significant. The General Elections to the lower house of the Indian
Parliament have just been completed. No party has won absolute majority and a
coalition government has been formed again. We cannot assure that these
liberalization policies will continue in the future. Government corruption
scandals and protests against privatization could slow down the pace of
liberalization and deregulation. The rate of economic liberalization could
change, and specific laws and policies affecting technology companies, foreign
investment, currency exchange rates and other matters affecting investment in
our securities could change as well. A significant change in India's economic
liberalization and deregulation policies could disrupt business and economic
conditions in India generally and our business in particular.

         WE HAVE RECEIVED A DEMAND TO PAY SALES TAX IN RESPECT OF CERTAIN
HISTORICAL TELECOMMUNICATIONS REVENUES, MAINLY TELEPHONE RENTAL CHARGES. WE ARE
NOT YET ABLE TO ESTIMATE OUR POTENTIAL AGGREGATE LIABILITY, BUT IT COULD BE
LARGE AND HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS, FINANCIAL
CONDITION AND CASH FLOW.

         We have received a demand from the state government of Maharashtra, of
which Mumbai is a part, for payment of Rs.3.2 billion in sales tax for fiscal
1989-2000 on certain telecommunications revenues, mainly telephone rental
charges, and received notice from the Delhi state government seeking further
information in aid of an investigation into whether a similar demand should be
made upon us. The amount at issue in Delhi is significantly less.

         The Indian trade tax department has similarly demanded that BSNL make
sales tax payments in respect of certain historical telecommunications revenues.
We have been implicated as a party. BSNL challenged the demand in the state's
High Court and won. The state government has since appealed to the Supreme Court
of India, which held in favor of the state government. BSNL has filed a writ
petition with the Supreme Court seeking another review. This petition was
admitted on September 25, 2003. If we were required to pay sales tax in respect
of certain historical revenues, including telephone rentals, such payments could
have a material adverse effect upon our results of operations, financial
condition and cash flow. At this time, we cannot estimate potential aggregate
actual liability associated with sales tax payment.

         REGULATIONS APPLICABLE TO PUBLIC SECTOR ENTERPRISES IN INDIA GOVERNING
CERTAIN PERSONNEL MATTERS, PROCUREMENT, CAPITAL EXPENDITURE AND THE ISSUANCE OF
SECURITIES MAY AFFECT OUR ABILITY TO COMPETE EFFECTIVELY.

         As long as the Indian government's shareholding in us equals or exceeds
51%, we are deemed to be an Indian government company. As such, we are subject
to laws and regulations generally applicable to public sector enterprises in
India. These laws and regulations govern, among other things, personnel matters,
procurement, budgeting and capital expenditures and the generation of funds
through the issuance of securities.

         Under our articles of association, the President of India, on behalf of
the Indian government, may also issue directives with respect to the conduct of
our business and affairs, and certain matters with respect to our business,
including the appointment and remuneration of our Chairman-cum-Managing Director
and the declaration of dividends. None of our shareholders, management or board
of directors may take action in respect of any matter reserved for the President


                                       8
<PAGE>


of India without his approval. If the President of India does not allow us to
issue securities to raise funds or make capital expenditures pursuant to our
business plan, we may be unable to compete effectively or maintain
profitability. Government formalities, including requirements that many of our
purchases be made through a competitive bidding process, often cause delays in
our equipment and product procurement; these delays can place us at a
disadvantage relative to private sector competitors.

         THE INDIAN GOVERNMENT, OUR CONTROLLING SHAREHOLDER, WHEN CONSIDERING
MATTERS PERTAINING TO US, OFTEN ALSO CONSIDERS THE INTERESTS OF THE LARGEST
GOVERNMENT-OWNED TELECOMMUNICATIONS COMPANY, BHARAT SANCHAR NIGAM LIMITED
(BSNL). THE INDIAN GOVERNMENT IS EVALUATING THE POSSIBILITY OF A MERGER OF OUR
COMPANY WITH BSNL.

         The Indian government, through the DOT, holds 56.25% of our outstanding
equity shares and 100% of BSNL's equity shares. Consequently, the DOT controls
both of us. The DOT has the power to determine the outcome of most actions
requiring approval of our board of directors or shareholders, including proposed
expansion of our basic and cellular services into new areas in which we may
compete with BSNL, transactions with BSNL or the assertion of claims against
BSNL. When considering many of these matters, the DOT may also take into account
the interests of BSNL. Failure by the DOT to effect transactions or resolve
conflicts involving us and BSNL in an equitable manner could have a material
adverse effect on our business prospects.

         Media reports have suggested that we are not eligible to be granted
licenses to provide basic services outside of Delhi and Mumbai since we and BSNL
are both controlled by the government of India. According to these reports, a
basic license may not be granted to any company controlled by an entity, which
also controls another licensee in that area. Because the licenses of the other
basic service providers in our Mumbai and Delhi circles do not permit them to
have trunk auto exchanges, the DOT may require that we dispose of these assets.

         Announcements from India's Ministry of Communications indicate that a
group within the DOT was devising a plan for and examining issues relating to
the possible merger between us and BSNL. We are not aware of any recent
developments on this possible merger. We cannot assess at this time the
likelihood or timing of a merger between us and BSNL, the impact such a merger
would have on holders of our equity shares and ADSs, the impact such a merger
would have on our business or the condition or prospects of a combined
enterprise post-merger.

         WE MAY ENCOUNTER GREATER EMPLOYEE COSTS THAN OUR PRIVATE COMPETITORS
BECAUSE WE ARE SUBJECT TO THE PERSONNEL POLICIES OF THE DEPARTMENT OF
TELECOMMUNICATIONS AND DEPARTMENT OF PUBLIC SECTOR ENTERPRISES.

         As a public sector enterprise, we are subject to the personnel policies
of the DOT and Department of Public Sector Enterprises. These policies limit our
ability to reduce employment levels and control the amount of salaries and other
remuneration that we may pay to our employees. If the employment levels,
salaries and other employee compensation that we are required to maintain are
greater than our private competitors, we will experience relatively higher costs
of operations which could make us less profitable and limit our ability to make
expenditures to expand our business.

         WE COULD EXPERIENCE DELAYS IN PROVIDING INFORMATION TO THE INVESTMENT
COMMUNITY.

         Due to our internal procedures for disclosure of information, we may
experience delays in providing the investment community with supplemental
information that investors and analysts may request.

         WE HAVE EXPERIENCED SIGNIFICANT LOSSES WITH RESPECT TO UNCOLLECTIBLE
ACCOUNTS RECEIVABLES

         We being a telecommunication company, a significant portion of the
total accounts receivable balance as of any reporting date is represented by
aggregate of small amounts recoverable from numerous customers.

         We have built in certain control procedures relating to detailed credit
analysis and identification verification. However, due to the number of
customers involved and significant delay in settlement of recovery proceedings,
we have experienced losses on account of uncollectible receivable in the range
of 2% to 5% over the past few periods.

         Any change in the experience relating to loss for uncollectible
accounts receivables may impact our future profitability.

                  RISKS RELATING TO THE ADSS AND EQUITY SHARES

         ABILITY TO WITHDRAW EQUITY SHARES FROM THE DEPOSITARY FACILITY IS
UNCERTAIN AND MAY BE SUBJECT TO DELAYS.

         India's restrictions on foreign ownership of Indian companies limit the
number of shares that may be owned by foreign investors and generally require
government approval for foreign ownership. The maximum foreign ownership
permitted in us without prior governmental approval is 49% under the sectoral
caps currently provided for by the government of India and the Reserve Bank of
India. Investors who withdraw equity shares from the depositary facility will be


                                       9
<PAGE>


subject to Indian regulatory restrictions on foreign ownership of equity shares
upon withdrawal. It is possible that this withdrawal process may be subject to
delays.

         ABILITY TO SELL, IN INDIA, ANY EQUITY SHARES WITHDRAWN FROM THE
DEPOSITARY FACILITY MAY BE SUBJECT TO DELAYS.

         Persons seeking to sell in India any equity shares withdrawn upon
surrender of an ADS will require Reserve Bank of India approval for each such
transaction. Because of possible delays in obtaining necessary approvals,
holders of equity shares may be prevented from realizing gains during periods of
price increases or limiting losses during periods of price declines.

         ABILITY TO WITHDRAW AND REDEPOSIT SHARES IN THE DEPOSITARY FACILITY IS
LIMITED, WHICH MAY CAUSE OUR EQUITY SHARES TO TRADE AT A DISCOUNT OR PREMIUM TO
THE MARKET PRICE OF OUR ADSS.

         Because of Indian legal restrictions, despite recent relaxations, the
supply of ADSs may be limited. Under procedures recently adopted by the Reserve
Bank of India, the depositary will be permitted to accept deposits of our
outstanding equity shares and deliver ADSs representing the deposited equity
shares to the extent, and limited to the number, of ADSs that have previously
been converted into underlying equity shares. Under these new procedures, if you
elect to surrender your ADSs and receive equity shares, you may be unable to
re-deposit those outstanding equity shares with our depositary and receive ADSs
because the number of new ADSs that can be issued cannot, at any time, exceed
the number of ADSs converted into underlying equity shares or result in foreign
equity in us exceeding 49%. This may restrict your ability to re-convert the
equity shares obtained by you to ADSs. Also, investors who exchange ADSs for the
underlying equity shares and are not holders of record will be required to
declare to us details of the holder of record. Any investor who fails to comply
may be liable for a fine of up to Rs.1,000 for each day such failure continues.
See "Additional Information--Indian Foreign Exchange Controls and Securities
Regulations."

         The restrictions described above may cause our equity shares to trade
at a discount or premium to our ADSs.

         CONDITIONS IN THE INDIAN SECURITIES MARKET MAY AFFECT THE PRICE OR
LIQUIDITY OF THE EQUITY SHARES AND THE ADSS.

         The Indian securities markets are generally smaller and more volatile
than securities markets in the world's major financial centers. The Indian stock
exchanges have in the past experienced substantial fluctuations in the prices of
listed securities, and the price of our stock has been especially volatile. In
2003, our stock price on The Stock Exchange, Mumbai, reached a high of Rs.164.5
and a low of Rs.81.05. In 2004, the range was a high of 167.15 and a low of 85.
On September 24, 2004 the closing price of our equity shares on The Stock
Exchange, Mumbai was Rs.125.90.

         Indian stock exchanges have also experienced problems that have
affected the market price and liquidity of the securities of Indian companies.
These problems have included temporary exchange closures, the suspension of
stock exchange administration, broker defaults, settlement delays and strikes by
brokers. In addition, the governing bodies of the Indian stock exchanges have
from time to time imposed restrictions on trading in certain securities,
limitations on price movements and margin requirements. Further, from time to
time, disputes have occurred between listed companies and stock exchanges and
other regulatory bodies, which, in some cases, may have had a negative effect on
market sentiment. Similar problems could happen in the future and, if they do,
they could affect the market price and liquidity of our equity shares and our
ADSs.

         BECAUSE THERE MAY BE LESS COMPANY INFORMATION AVAILABLE IN INDIAN
SECURITIES MARKETS THAN SECURITIES MARKETS IN MORE DEVELOPED COUNTRIES, THE
PRICE OF OUR EQUITY SHARES COULD FLUCTUATE UNEXPECTEDLY.

         There is a difference between the level of regulation and monitoring of
the Indian securities market and the activities of investors, brokers and other
participants and that of markets in the United States and other developed


                                       10
<PAGE>


economies. The Securities and Exchange Board of India is responsible for
improving disclosure and other regulatory standards for the Indian securities
markets. The Securities and Exchange Board of India has issued regulations and
guidelines on disclosure requirements, insider trading and other matters. There
may, however, be less publicly available information about Indian companies than
is regularly made available by public companies in developed economies. As a
result, shareholders could act on incomplete information and cause the price of
our equity shares to fluctuate unexpectedly.

         ADS HOLDERS MAY BE UNABLE TO EXERCISE PREEMPTIVE RIGHTS AVAILABLE TO
SHAREHOLDERS AND THEREFORE MAY SUFFER FUTURE DILUTION OF THEIR OWNERSHIP
POSITION.

         A company incorporated in India must offer its holders of equity shares
preemptive rights to subscribe and pay for a proportionate number of shares to
maintain their existing ownership percentages prior to the issuance of any new
equity shares, unless these rights have been waived by at least 75% of the
company's shareholders present and voting at a shareholders' general meeting.
Holders of our ADSs as well as our shareholders located in the United States may
be unable to exercise preemptive rights for our equity shares underlying our
ADSs unless a registration statement under the Securities Act is effective with
respect to those rights or an exemption from the registration requirements of
the Securities Act is available. Our decision to file a registration statement
will depend on the costs and potential liabilities associated with any such
registration statement, as well as the perceived benefits of enabling investors
in our ADSs to exercise their preemptive rights and any other factors we
consider appropriate at the time. We do not commit that we would file a
registration statement under these circumstances. If we issue any such rights in
the future, the rights would be issued to the depositary, which may sell the
rights in the securities markets in India for the benefit of the holders of our
ADSs. There can be no assurance as to the value, if any, the depositary would
receive upon the sale of the rights. To the extent that holders of our ADSs as
well as our shareholders located in the United States are unable to exercise
preemptive rights, their proportional interests in us would be reduced.

         ADS HOLDERS MAY BE SUBJECT TO POTENTIAL LOSSES ARISING OUT OF EXCHANGE
RATE RISK ON THE INDIAN RUPEE AND RISKS ASSOCIATED WITH THE CONVERSION OF RUPEE
PROCEEDS INTO FOREIGN CURRENCY.

         Holders of ADSs as well as our shareholders located outside India will
be subject to currency fluctuation risks and convertibility risks, since our
equity shares are quoted in rupees on the Indian stock exchanges on which they
are listed. Dividends on our equity shares will also be paid in rupees, and then
converted into US dollars for distribution to ADS holders. Holders that seek to
convert the rupee proceeds of a sale of equity shares withdrawn upon surrender
of ADSs into foreign currency and export the foreign currency will need to
obtain the approval of the Reserve Bank of India for each transaction. In
addition, holders that seek to sell equity shares withdrawn from the depositary
facility will have to obtain approval from the Reserve Bank of India, unless the
sale is made on a stock exchange or in connection with an offer made under the
regulations regarding takeovers. Holders of rupees in India may also generally
not purchase foreign currency without general or special approval from the
Reserve Bank of India.

         ADS HOLDERS MAY BE SUBJECT TO INDIAN TAXES ARISING OUT OF CAPITAL
GAINS.

         Generally, capital gains, whether short-term or long-term, arising on
the sale of the underlying equity shares in India are subject to Indian capital
gains tax. For the purpose of computing the amount of capital gains subject to
tax, Indian law specifies that the cost of acquisition of the equity shares will
be deemed to be the share price prevailing on The Stock Exchange, Mumbai or the
National Stock Exchange on the date the depositary advises the custodian to
deliver equity shares upon surrender of ADSs. The period of holding of equity
shares, for determining whether the gain is long-term or short-term, commences
on the date of the giving of such notice by the depositary to the custodian.

         Investors are advised to consult their own tax advisers and to consider
carefully the potential tax consequences of an investment in our ADSs.


                                       11
<PAGE>


         ADS HOLDERS MAY NOT BE ABLE TO ENFORCE A JUDGMENT OF A FOREIGN COURT
AGAINST US.

         We are a limited liability company incorporated under the laws of
India. All our directors and executive officers are residents of India and
almost all of our assets and the assets of such persons are located in India.
India is not a party to any international treaty in relation to the recognition
or enforcement of foreign judgments. We have been advised by counsel that
recognition and enforcement of foreign judgments is provided for on a statutory
basis and that foreign judgments shall be conclusive regarding any matter
directly adjudicated upon except where:

         o    the judgment has not been pronounced by a court of competent
              jurisdiction;

         o    the judgment has not been given on the merits of the case;

         o    it appears on the face of the proceedings that the judgment is
              founded on an incorrect view of international law or a refusal to
              recognize the law of India in cases in which Indian law is
              applicable;

         o    the proceedings in which the judgment was obtained were opposed
              to natural justice;

         o    the judgment has been obtained by fraud; or

         o    the judgment sustains a claim founded on a breach of any law in
              force in India.

         It may not be possible for holders of our ADSs or our shareholders to
effect service of process upon us or our directors and executive officers and
experts named in the report that are residents of India outside India or to
enforce judgments obtained against us or them in foreign courts predicated upon
the liability provisions of foreign countries, including the civil liability
provisions of the federal securities laws of the United States.

         Moreover, it is unlikely that a court in India would award damages on
the same basis as a foreign court if an action is brought in India. Furthermore,
it is unlikely that an Indian court would enforce foreign judgments if it viewed
the amount of damages as excessive or inconsistent with Indian practice. The
Indian Contract Act recognizes the payment of only actual and quantifiable
damages and not consequential damages and hence an Indian court may not enforce
a foreign judgment involving more than actual and quantifiable damages.

         ALTHOUGH ANNOUNCED POLICY INDICATES THERE IS NO INTENTION TO DO SO,
POSSIBLE SALES OF OUR EQUITY SHARES BY THE GOVERNMENT OF INDIA COULD AFFECT THE
VALUE OF OUR ADSS.

         The government of India holds 354,372,740 equity shares, or 56.25%, of
our outstanding equity shares. The current government of India has announced its
intention to divest its shareholdings in loss-incurring government companies by
offering significant equity stakes in those companies to strategic partners
through a competitive bidding process or through equity offerings in the market.
There have been no indications that the current government of India plans to
further reduce its shareholding in us.

         In addition, on January 7, 2000, the government of India offered to
sell up to 14 million equity shares, representing approximately 2.2% of our
outstanding equity shares, to our employees at a discount as compensation in
connection with the restructuring of the DOT. None of our employees accepted
this offer before it expired on December 31, 2000. The government is considering
whether to allow the company to make a similar new offer to our employees.

         Any future disposal of equity shares by the Indian government could
adversely affect the trading price of our equity shares and ADSs.


                                       12
<PAGE>


ITEM 4.  INFORMATION ON THE COMPANY


                     HISTORY AND DEVELOPMENT OF THE COMPANY

HISTORY AND DEVELOPMENT OF THE INDIAN TELECOMMUNICATIONS INDUSTRY

         Until the mid-1980s, the telecommunications sector in India was a
monopoly controlled by the government of India through the Department of Posts
and Telegraphs of the Ministry of Communications, providing all
telecommunications services, both domestic and international. The Indian
Telegraph Act of 1885 established the government of India's monopoly in the
sector and, together with the Indian Wireless Telegraphy Act of 1933, provided
the legal framework for the regulation of the Indian telecommunications
industry.

         Development of the telecommunications sector historically was seen as a
relatively low priority and received limited budgetary support from the
government of India. As a result, the telecommunications infrastructure in India
grew relatively slowly. In the mid-1980s, faced with rapidly increasing demand
for telecommunications services and equipment, the government of India commenced
a reorganization of the sector designed to facilitate the rapid introduction of
new technology, stimulate the growth of the telecommunications industry and tap
the resources of the private sector in facilitating such technological
innovation and growth. The reorganization included the division of the
Department of Posts and Telegraphs into the DOT and the Department of Posts.

         As part of the reorganization, we were incorporated on February 28,
1986 under the Companies Act as a wholly-owned government of India company and,
on April 1, 1986, assumed responsibility for the control, management and
operation of the telecommunications networks in Delhi and Mumbai, two of the
largest metropolitan areas in India. VSNL was established at the same time to
provide international telecommunications services and the DOT retained
responsibility for providing all other telecommunications services throughout
India. The DOT also assumed regulatory authority over the Indian
telecommunications industry. Simultaneously, the Telecom Commission was
established in 1986 as an executive body under the Ministry of Communications to
make policy decisions and to accelerate the development of all aspects of the
telecommunications sector and the implementation of new telecommunications
policies.

         In December 1991, with a view to fulfilling its objective of
facilitating the rapid introduction of new services and technology, the DOT
invited bids from Indian companies with a maximum of 49% foreign ownership for
two non-exclusive GSM cellular licenses in each of the cities of Kolkata
(formerly called Calcutta), Chennai (formerly called Madras), Delhi and Mumbai.
After protracted litigation, licenses were awarded in 1994 and the private
operators commenced cellular services in late 1995. In October 1997 we were
permitted to provide GSM cellular service in Mumbai and Delhi, and since then
one additional private-sector cellular operator has been awarded a cellular
license for each of Delhi and Mumbai. Beginning in 1995, the DOT also invited
tenders and awarded cellular licenses for the regional "circles" established for
the purpose of licensing cellular services in the rest of India. We believe that
as of March 31, 2004, there were approximately 26.1 million cellular subscribers
in India.

         Since 1992, as part of its general policy of gradually reducing its
holdings in public sector enterprises, the Indian government sold a portion of
its equity holdings in us and VSNL to certain mutual funds, banks and financial
institutions controlled by the government of India. In our 1997 global
depositary receipt offering, the Indian government sold 40 million of our equity
shares represented by 20 million global depositary receipts, constituting 6.3%
of our then outstanding equity shares. Additionally, in 1997 and 1999, the
Indian government sold additional equity shares of VSNL in the form of global
depositary receipts, thereby reducing its equity interest in the company to 51%.
In February 2002, the government of India divested an additional 25% interest in
VSNL to the Tata Group through a competitive bidding process.

         In May 1994, the government of India announced its National Telecom
Policy, which was aimed at achieving accelerated telecommunications growth and
network expansion. The broad objectives of this policy were higher national
telephone penetration, reduction of waiting lists, improvement in the quality of
networks, improved rural access to telecommunications services, introduction of
value-added services and private sector participation in the provision of basic
and cellular services.



                                       13
<PAGE>


         In order to achieve these objectives, the Indian government decided to
permit private sector involvement in basic telecommunications services, which,
in the Indian context, includes basic fixed-line access service and a number of
other telecommunications services (including CDMA-based fixed wireless and
mobile services (without roaming)), other than long distance services, cellular
service and Internet access. Accordingly, in September 1994 the Indian
government announced its "Guidelines for Private Sector Entry into Basic Telecom
Services," and beginning in 1995 began to invite tenders from companies with no
more than 49% foreign ownership for basic service licenses for the regional
"circles" established for licensing basic telecommunications services. After a
period of consolidation, the most prominent private-sector providers of basic
telecommunications services currently include Bharti Infotel, Tata Teleservices
and Reliance Infocomm, each of which operates in multiple circles. Tata
Teleservices and Reliance Infocomm both operate in the circles that include
Mumbai and Delhi, and hence now compete with us in those areas. Bharti Infotel
also provides basic services in Delhi.

         In February 1997, a multilateral agreement on basic telecommunications
services was agreed to among member governments of the World Trade Organization.
As part of this agreement, the Indian government has reaffirmed its commitment
to further liberalize the Indian telecommunications sector through the licensing
of new basic and cellular service providers.

         In March 1997, the government established the Telecom Regulatory
Authority of India (TRAI), an independent regulatory authority with broad
regulatory powers over the telecommunications industry in India, including the
power to set rates on domestic and international telecommunications services and
determine the terms and conditions of interconnect arrangements between service
providers. These regulatory powers had previously been vested in the DOT, which
controls us and is part of the Ministry of Communications. However, the power to
grant, renew or revoke licenses remains with the DOT.

         In November 1998, the government of India announced its Internet
policy, which aims to increase Internet usage by, among other things, allowing
up to 49% foreign ownership of Internet service providers and declaring a
license fee moratorium for five years.

         In March 1999, the government of India announced its New Telecom Policy
1999 which sets forth as one of its central goals the fostering of increased
competition in the Indian telecommunications industry and the liberalization of
government telecommunications regulation.

         Additionally, effective May 1, 1999, the TRAI implemented the 1999
tariff order pursuant to which the TRAI seeks to align tariffs charged by
service providers with the corresponding costs associated with such services so
as to limit cross-subsidization of services by a provider while allowing
providers to set tariffs at any level below certain maximum levels. The TRAI has
since adjusted tariffs several times under the tariff order.

         In November 2003, the DOT issued guidelines for Unified Access License
which cover within a service area both basic telecommunications services and
cellular services. In the Indian context, "basic telecommunications services" or
"basic services" include basic fixed-lined access service and a number of other
telecommunications services, other than long distance services, cellular service
and Internet access. Basic services also include CDMA-based fixed wireless and
mobile services (without roaming). We are considering whether to seek a Unified
Access License.

         In October 1999, the DOT, which had both performed the role of licensor
and policy maker for the Ministry of Communications and operated as India's
domestic long distance service provider and basic service provider (except for
the areas of Delhi and Mumbai, which are covered by us), was bifurcated into two
departments. The DOT/Telecom Commission, or the DOT, now performs the role of
licensor and policy maker, and the Department of Telecom Services, functioned as
the government of India's local and long distance network service provider. In
October 2000, the Department of Telecom Services' local and long distance
business was corporatized into a new company named BSNL. The Indian government
has also recently established an independent Information Technology Department
within the Ministry of Communications (now formally known as the Ministry of
Communications and Information Technology). The IT department will, among other
things, promote the Internet, e-commerce and knowledge based industries.
Internet licensing functions will remain with the DOT. The DOT controls the
equity shares in us that are held by the Indian government and appoints all of
the directors on our 12-seat board. Two of our board seats are for DOT officers.



                                       14
<PAGE>


         The following chart illustrates the current operational and regulatory
structure of India's telecommunications services industry:


*   SUPREME COURT OF INDIA

    ->   TELECOM DISPUTE SETTLEMENT APPELLATE TRIBUNAL
            o    Adjudicates disputes between licensor and licensee and
                 between/among industry players, consumer groups

    ->   MINISTRY OF COMMUNICATIONS
    ->   DEPARTMENT OF TELECOMMUNICATIONS/TELECOM COMMISSION
            o    Policy role and licensor

            o    Control of 56.25% of Mahanagar Telephone Nigam Limited, 26.12%
                 of Videsh Sanchar Nigam Limited and 100% of Bharat Sanchar
                 Nigam Limited

    ->   TELECOM REGULATORY AUTHORITY OF INDIA
            o    Regulation (excluding licensing) and supervision

            o    Makes recommendations to the Department of Telecommunications

      -->  Mahanagar Telephone Nigam Limited
            o    Basic services in Mumbai and Delhi

            o    GSM cellular service in Mumbai and Delhi

            o    Internet and other services

            o    Has been issued LOI for ILD services

      -->   Bharat Sanchar Nigam Limited
            o    Domestic long distance services

            o    Basic and GSM cellular services other than for Mumbai and Delhi

            o    Internet Access services

      -->   Private ILD Licensees (including VSNL)

      -->   Private Internet Licensees
            o    Internet Access services

            o    Privately owned

      -->   Private Cellular Licensees
            o    Local cellular mobile services

            o    Privately owned

      -->   Private Basic Licensees
            o    Basic services within circles

            o    Privately owned

      -->   Private NLD Licensees
            o    Licenses have been issued to some bidders


         For more information on regulation of the Indian telecommunications
industry, see " -Telecommunications Regulation in India" below.

MAHANAGAR TELEPHONE NIGAM LIMITED

         Mahanagar Telephone Nigam Limited is the principal provider of
fixed-line and other basic telecommunications services in Delhi and Mumbai.
Delhi and Mumbai are two of the largest, most densely populated and wealthiest
metropolitan areas in India. At the end of fiscal 2004, our fixed-line
telecommunications networks in Delhi and Mumbai had an aggregate of
approximately 4.4 million working lines, or access lines in service. In February


                                       15
<PAGE>


2001, we launched our cellular services using global system for mobile
communications, or GSM, technology in Delhi and Mumbai and had approximately
360,000 subscribers as of March 31, 2004. GSM is the European and Asian standard
for digital mobile telephone networks. We launched CDMA-based services in 1997,
and at the end of fiscal 2004 had approximately 106,000 mobile subscribers and
approximately 36,000 fixed wireless subscribers in Mumbai and Delhi. CDMA is a
digital wireless technology that increases network capacity by allowing more
than one user to simultaneously occupy a single radio frequency band with
reduced interference. We began providing Internet service in both Delhi and
Mumbai in February 1999 and had approximately 56,000 Internet access subscribers
at the end of fiscal 2004. We also seek to enter the market for domestic long
distance service, which has been opened for competition.

         We believe that the size of the markets in Delhi and Mumbai, the
economic environment, the Indian government's ongoing liberalization of the
telecommunications industry and the low level of penetration of fixed-line,
mobile and cellular services in these two areas and the low level of penetration
of Internet services in India provide opportunities for future industry growth.

         The number of our access lines in service grew at a compound annual
growth rate of 4.5% from March 31, 2000 to March 31, 2003. In fiscal 2004 these
lines declined by 3.5% primarily due to migration of subscribers to cellular
services. At March 31, 2004, our network included approximately 2.0 million
access lines in service in Delhi and approximately 2.4 million access lines in
service in Mumbai. In addition, our access lines in service per employee
increased from 66 at March 31, 2000 to 80 at March 31, 2004.

         We derive our revenue primarily from local, domestic long distance and
international calls that originate on our network. In fiscal 2004, 40% of our
revenue was derived from call revenue, 23% from rentals of telephones, access
lines and other telecommunications equipment and use of our value-added services
and 13% from public call offices. Interconnect revenue, which is revenue derived
from other telecommunications service providers for calls made into our network,
accounted for 21% of our revenues in fiscal 2004. Local calls are carried on our
network, unless the termination point is in the network of one of the cellular
operators or one of the new private-sector basic service providers in the
locality, while all domestic long distance calls continue to be passed from our
network to the domestic telecommunications network operated by BSNL, although we
have entered into interconnect agreements with the new private-sector domestic
long distance service providers. In addition, all international calls continue
to be passed from our network to international gateways operated by VSNL,
India's former government-controlled international long distance carrier,
although we have entered into interconnect agreements with the new
private-sector international long distance carriers.

         We expect competition to continue to increase in all major sectors of
the Indian telecommunications industry, as both government and private-sector
companies continue to invest in capacity expansion and seize opportunities to
enter new geographical areas and lines of business. See "-- Business
Overview--Competition" below.

         Our principal executive offices are located at 12th floor, Jeevan
Bharati Tower--1, 124 Connaught Circus, New Delhi--110001, India, and our
telephone number is +91-11-2374-2212.

LICENSES/LICENSE AREAS

         We provide all of our telecommunications services, other than Internet,
under a single, general, non-exclusive license. The license initially granted to
us in 1986 was effective for a five-year period ended March 31, 1991. The term
of the license has been extended for a 25-year period ending March 31, 2013 for
basic services.

         In October 1997, our license was amended to explicitly include cellular
services and radio paging, and our license for such additional services
currently extends to October 2017. The license is not specific as to the type of
cellular technology that we may use. The license covers areas within the
territorial jurisdiction of the State of Delhi and the areas covered by the
municipalities of Mumbai, Navi Mumbai and Thane. The DOT has extended the scope
of our license to allow us to provide cellular services in certain surrounding
areas of Delhi and Mumbai covered by other cellular operators in those cities.
The license specifies that we may provide local, domestic long distance access
(through interconnection with domestic long distance operators) and
international long distance access (through interconnection with networks of
international long distance operators), as well as telex and leased line
services. Specifically, our license permits us to


                                       16
<PAGE>


originate, terminate and transit domestic and international long distance calls.
However, we believe that our license would need to be amended if we wanted to
enter the market for domestic long distance utilizing our network. We expect to
be licensed to provide for full international long distance service in the near
future.

         The DOT retains the right to revoke our license after giving one
month's notice to us. The DOT also retains the right, after giving notice to us,
to modify the terms and conditions of our license at any time if in their
opinion it is necessary or expedient to do so in the interest of the general
public or for the proper operation of the telecommunications sector. A
revocation of the license or a change in significant terms of the license, such
as its duration, the amount of license fee payable, the range of services
permitted and the scope of exclusivity could limit our ability to operate
particular lines of our business or result in increased costs in the form of
increased license fees or costs associated with applying for new licenses, or
contesting limitations on our licenses.

         We provide our Internet services in Delhi and Mumbai under separate
non-exclusive license agreements. These licenses were granted in November 1998,
and currently extend to September 7, 2017. In addition, our wholly owned
subsidiary, Millennium Telecom Limited, provides Internet access services
throughout India under a license granted in 2000 for an initial period of 15
years.

         Delhi. According to the government of India's provisional 2001
population census data, Delhi had a total population of approximately 12.8
million. In addition to being India's political capital, Delhi has the highest
per capita income of all the states in India. Delhi has a high concentration of
service and manufacturing industries and houses the central government, the head
offices for many major public sector enterprises, embassies, high commissions
and various government missions and development agencies.

         Mumbai. The city of Mumbai, the financial capital of India and the
capital of the State of Maharashtra, is India's most populous city, with a
population of approximately 16.4 million according to the 2001 census data.
Mumbai accounted for 36% of India's income tax contributions in fiscal 2000.

STRATEGY

         Key elements of our strategy include the following:

         o    Expand GSM Cellular and CDMA Mobile Services in Delhi and Mumbai.
              We launched our cellular services using GSM technology in Delhi
              and Mumbai in February 2001, currently have an installed capacity
              of 225,000 GSM cellular connections in each of those cities and
              are in the final stage of testing 400,000 additional connections
              in each of Delhi and Mumbai. We believe that current penetration
              rates in Mumbai and Delhi remain attractive for continued high
              growth in subscriber base. In addition, we have launched
              lower-cost CDMA-based limited mobility mobile services in each of
              Mumbai and Delhi, currently have approximately 106,000
              subscribers and have awarded contracts to achieve an installed
              capacity of 550,000 CDMA connections (most of which are to employ
              the more advanced CDMA 2000 1X technology) in each city. We
              believe that this new mobile service enables us to target a wider
              customer base that is more price sensitive than GSM customers and
              that does not require India-wide and international roaming
              facilities. We intend to compete effectively in these growing
              markets by providing high quality service at affordable rates.

         o    Focus on Customer Service. In order to strengthen the loyalty of
              our customers, attract cellular subscribers and improve our
              competitive position, we have a program to improve customer
              service and become more responsive to the needs of our
              subscribers. We have introduced improved bill collection and
              payment procedures (including bill payment over the Internet and
              via credit card), opened Tele-marts at which most subscriber
              services are available, introduced telephone directories on the
              Internet and on CD-ROM and implemented a customer service
              management system. Our customer service management system enables
              our staff to provide customers with access to a range of
              "on-line" services, including registration for new telephone
              lines, changes of address and issuances of bills, and allows us
              to monitor complaints from a single point of contact. We have
              identified high usage "commercially important persons" and are


                                       17
<PAGE>


              employing efforts to strengthen our relationship with these
              subscribers.

         o    Further Develop and Modernize our Network. We intend to continue
              to invest in expanding and upgrading our network to improve the
              quality of service. We also plan to continue to add tandem
              switches based on NGN - next generation network in Delhi and
              Mumbai, expand an overlay data network, implement synchronous
              digital hierarchy technology and improve local access in both
              markets. We are continuing to implement fiber-in-local-loop and
              wireless-in-local-loop technologies where appropriate. We plan to
              introduce broadband technology based on DSL, capable of providing
              triple play services (video broadcast, video-on-demand, voice
              over IP), in a significant way. Through expansion and
              modernization of our network, we seek to improve the capacity of
              our network, reduce network failure rates, improve call
              completion rates and decrease average waiting time for new lines
              as well as support our Internet and value-added services.

         o    Selectively Target International Opportunities. We plan to
              selectively target expansion opportunities outside India where we
              can leverage our expertise and relationships. Our Nepal joint
              venture, United Telecom Limited, in which we hold a 26.7%
              interest, has commenced wireless in local loop services as the
              first private-sector telecommunications operator in that country.
              We have also been awarded licenses to provide basic, mobile and
              international long distance service in Mauritius. We plan to
              launch services in Mauritius in the current fiscal year. We are
              examining other international opportunities.

         o    Enter the Market for International Long Distance Services. We
              have obtained a letter of intent from the Indian regulator for a
              license to provide international long distance service. Once the
              license is received, we will have roll-out obligations requiring
              rapid deployment, and intend to deploy the services as rapidly as
              possible.

         o    Expand Internet Services. We commenced our Internet service
              provider operations in February 1999 with an initial network
              capacity to support up to 5,000 subscribers in each of Delhi and
              Mumbai. As of March 31, 2004, we had approximately 56,000
              Internet access subscribers. Our other telephone customers also
              have access to our network on a per minute basis. We have
              approximately 700,000 such users. We intend to further increase
              capacity in each city in fiscal 2005.

         o    Enter the Market for Domestic Long Distance Services. We have
              applied for a license to enter the market for domestic long
              distance services, which has been opened for competition. We are
              exploring several options by which we may enter this market,
              including forming a joint venture with one or more partners.

         o    Enhance Value-added Services. We provide our subscribers with
              value-added services such as call-waiting, call-forwarding,
              wake-up calls, absent subscriber service and caller
              identification at no charge or for a nominal fee. We also provide
              our Intelligent Network services to subscribers, which include
              our calling card services, a toll-free calling service, a premium
              rate "0900" number service and a televoting service. We also
              provide high speed data transmission services using integrated
              services digital network technology, which allows simultaneous
              high speed transmission of voice, data and images. We intend to
              implement asymmetric digital subscriber loop technology in both
              Delhi and Mumbai. We expect that our value-added service
              offerings will increase use of our network, enhance overall
              customer satisfaction and provide new sources of revenue. We plan
              to expand our intelligent network (IN) platform in both Delhi and
              Mumbai in the current year. These are for freephone service and
              other similar applications, which require special routing.



                                       18
<PAGE>


                                BUSINESS OVERVIEW

SERVICES

         Our primary business is providing basic telecommunications services in
Delhi and Mumbai, which include:

         o    basic fixed-line access (including phone plus facilities) in
              Mumbai and Delhi;

         o    public call offices, which consist of both manned offices where
              people can make local, long distance and international calls, and
              coin operated telephone booths;

         o    value-added telephone in GSM cellular services such as
              call-waiting, call-forwarding, wake-up calls, absent subscriber
              service (informing callers that the subscriber is unavailable)
              and caller identification, friends & family, night talk, VMS call
              conference and WAP;

         o    phone plus facilities in basic fixed-line such as abbreviated
              dialing, call transfer, hotline facility, three party
              conferencing, absentee facility, CLIP facility, call hunting,
              call alert, morning alarm. These facilities are free;

         o    mobile and fixed-wireless services based on CDMA technology;

         o    high speed data transmission;

         o    interconnection with domestic international long distance
              carriers and with basic and cellular operators in Delhi and
              Mumbai;

         o    leased line services;

         o    telex; and

         o    Intelligent Network services.

         We also provide:

         o    GSM cellular services (including value-added services) in Delhi
              and Mumbai;

         o    Internet access services; and

         o    Broadband services.

         Basic Access. Our subscribers are provided basic fixed-line access,
which consists of installation and provision of basic voice telephony services.
Rental charges include maintenance of connections between a subscriber's
premises and our network, 60 pulses of calls per month as well as the use of a
basic handset (although subscribers may elect to buy their own handset and have
their installation charges reduced accordingly).

         Local, Domestic Long Distance and International Calls. We provide local
telephone services in Delhi and Mumbai as well as domestic and international
long distance through our connectivity with BSNL's domestic long distance
network and VSNL's international gateways. We derive revenues from tariffs we
collect on local, domestic long distance and international calls that originate
on our network. Tariffs, or usage charges, consist of charges for local,
domestic long distance and international calls. Usage is measured by pulses,
which are time-based units of measure, metered at the relevant exchanges. A set
of pulse durations is established for each category of calls (i.e., local,
domestic long distance or international long distance), and within each
category, pulse durations vary depending on one or more of the following
factors: call distance; time of day; type of network on which the call is
terminating (i.e., fixed, GSM cellular or CDMA mobile); destination country (for
international long distance only); subscriber plan (for local calls only); and


                                       19
<PAGE>


whether the call is within a circle or between two different circles (for
domestic long distance only). We estimate that, based on recent sample data,
local calls constitute approximately 74% of our total pulses, while domestic
long distance and international calls constitute approximately 19% and 7% of our
pulses, respectively. We are focused on increasing call volumes by promoting use
of our value-added services and the use of long distance services. We have
received a letter of intent for a license to enter the international long
distance service market and intend to launch this service as soon as the license
is finalized.

         Public Call Offices. In addition, we provide both coin-operated and
franchised public call offices. At March 31, 2004, public call offices accounted
for 4.05% of our total access lines in service. The coin-operated public call
offices offer only local call service, while the franchised public call offices
offer local, domestic long distance and international call services. We pay a
commission to the franchisees amounting to 40.0% of the tariffs charged by the
franchisee on local calls and 20-30% of the tariffs charged by the franchisee on
domestic long distance depending on the number of calls per fortnight and
international calls. The franchisees charge the same tariffs we do for these
services. For coin-operated public call offices, our tariff for local calls is
fixed at Rs.1.00 per pulse, which is lower than our highest rate of Rs.1.20 per
pulse charged to our fixed-line customers. We plan to continue to increase the
number of public call offices in the future.

         Value-Added and Other Services. We provide our subscribers with
value-added services such as:

         o    call-waiting (for free);

         o    voice mail (for free);

         o    call-forwarding (for a monthly charge);

         o    wake-up calls (for a per-call charge);

         o    absent subscriber services (for a monthly charge);

         o    caller identification;

         o    voice mail (for a monthly charge or per message charge);

         o    call conference (for a monthly charge);

         o    WAP (for free);

         o    friends & family (for a monthly charge or per message); and

         o    night talk (for a monthly charge or per message charge)

         These services are available over approximately 95% of our network. We
also earn revenues from:

         o    the transfer of registration of a telephone connection from one
              subscriber to another;

         o    shifting a subscriber's telephone connection upon a change of
              address;

         o    reconnecting a subscriber's telephone connection that had been
              disconnected;

         o    operator-assisted calls; and

         o    directory services on CD-ROM.



                                       20
<PAGE>


         We have been introducing our Intelligent Network services over our
entire network which, at present, include:

         o    calling card services;

         o    a toll-free calling service;

         o    a premium rate "0900" number service; and

         o    a televoting service.

         GSM Cellular Services. In February 2001, we launched our cellular
mobile services using GSM technology (the European and Asian standard for
digital cellular telephony) in Delhi and Mumbai under the brand name Dolphin. In
2002 we introduced our prepaid cellular services under the brand name Trump. As
of March 31, 2004 we had 360,550 GSM cellular subscribers. We provide national
roaming facilities for our GSM cellular customers through the networks of BSNL
outside Mumbai and Delhi and international roaming facilities with 45 operators
in around 40 countries, and we have established roaming facilities for our
customers in a total of around 154 countries. As of March 31, 2004 we had
installed networks with a capacity of 225,000 GSM cellular connections in each
of Delhi and Mumbai and are currently ready, after completion of testing, to
expand the capacity of each of those networks by 400,000 GSM cellular
connections.

         CDMA Fixed Wireless and Mobile Services. In May 1997, we began
implementing wireless-in-local-loop services using CDMA technology for fixed
wireless and mobile operations on a commercially experimental basis with a
single exchange and capacity for 1,000 subscribers in Delhi.
Wireless-in-local-loop services use wireless links from a local exchange in
place of conventional cables. Two types of service are provided. One type
employs a handset that is fixed to a subscriber's premises for "fixed wireless"
service, while the other employs a mobile telephone for "mobile" or "limited
mobility" services.

         We have since upgraded our CDMA equipment and receiving stations and,
in October 1999, we opened subscriptions for up to an additional 9,000 CDMA
mobile and fixed wireless connections in Delhi and dedicated 40% of these
connections for fixed wireless. The capacity was subsequently increased to
approximately 150,000 lines in each of Delhi and Mumbai. At March 31, 2004, we
had approximately 106,100 operational CDMA mobile connections and approximately
36,000 operational fixed wireless connections. We have awarded contracts to
expand our CDMA capacity by an additional 400,000 in each of Delhi and Mumbai.
These new connections will employ the more advanced CDMA 2000 1X technology,
which can provide subscribers high-speed data transmission capabilities and
greater access to value-added services. Our CDMA mobile service offers only
limited mobility within Delhi and Mumbai, and currently we are not permitted to
offer roaming facilities on this service. If we obtain the newly-available
Unified Access License we will be able to offer full mobility.

         CDMA fixed wireless is a substitute for fixed-line access. Fixed
wireless allows us to enhance basic service penetration, provide quicker
installation and cover areas where the installation of cable would not be
economical.

         Our CDMA mobile service is marketed under the brand name Garuda. We
believe that our GSM cellular and CDMA mobile services businesses currently
complement each other more than they conflict with each other. Our GSM cellular
subscribers are able to use their mobile phone throughout India and much of Asia
and Europe. Our CDMA mobile services are targeted at a different group of
subscribers, who seek only limited mobility and few if any value-added services.
Because usage charges for CDMA mobile services are generally significantly lower
than for GSM services, we believe that our CDMA mobile services allow us to
capture the market for subscribers that benefit from limited mobility but that
are unwilling or unable to pay the higher GSM fees for wider roaming privileges
and access to value-added services.

         In November 2003, the government issued guidelines for unified access
licensing. We are considering obtaining a Unified Access License that will
permit full mobility depending on the financial terms on which such licenses
will be available to us.



                                       21
<PAGE>


         Internet Services. We commenced our Internet service provider
operations in February 1999 with initial equipment capacity to support up to
5,000 subscribers in each of Delhi and Mumbai. We experienced significant demand
for this service and have since expanded our Internet services capacity to
support additional subscribers in each of Delhi and Mumbai. We plan to expand
our capacity in each city in fiscal 2005. As of March 31, 2004, we provided our
Internet services to a total of approximately 56,000 subscribers in Delhi and
Mumbai.

         We also enable our customers to access the Internet without having to
subscribe for Internet service. They can access the service and later be billed
on the basis of calling line identification usage. The number of customers who
use this service is much higher than the number of Internet subscribers we have.

         We have formed a subsidiary, Millennium Telecom Limited, which was
granted a license to provide Internet access services throughout India for an
initial period of 15 years.

         High Speed Data Transmission. We provide narrow-band ISDN services that
allow subscribers to send high speed data, make telephone calls with high
quality voice transmission and hold desktop video conferences over a single
line. In the past, the development of independent networks for a variety of
services (such as voice, telex, packet-switched data and leased lines) made each
of them relatively expensive. ISDN technology allows a wide range of data
services to be made available to the subscriber through a single connection and
at a reduced cost. We believe these high speed data transmission products will
help us to attract high usage subscribers. We introduced narrow-band ISDN
services in August 1996, and, at March 31, 2004, we had approximately 21,000
subscribers to this service. We are currently experiencing increased usage of
our ISDN services due to our revision of our tariff structure which determines
charges based on the amount of a subscriber's use of this service.

         We also offer data communications services through our packet switched
data network. This service allows the transmission of data on standard
international data protocols and access via dedicated lines or dial-up
facilities. We plan to deploy broadband services on a large scale, based on the
ADSL technology. The services will include triple play of video, data and voice.
Further, we plan to establish, an MPLS (Multi Protocol Label Switching) based
core network to provide VPN (virtual private network) services to corporate
users across the country". ADSL means asymmetric digital subscriber loop, a
technology that allows combinations of services including voice, data technology
and one-way full motion video to be compressed and delivered over existing
copper cables. We expect to experience significant demand for these high speed
data services from large corporate, financial, media, public service and
educational institutions. We have launched the tender process for equipment for
our broadband services in Delhi and Mumbai. This equipment will allow users of
our broadband services to download data and upload information at high speeds,
and to subscribe to services such as video-on-demand, broadcast video, games,
etc.

         Interconnection. We connect our network with BSNL and have entered into
interconnect agreements with certain other domestic long distance service
carriers to provide our customers with domestic long distance service. We
connect our network with VSNL and have entered into interconnect agreements with
certain other international long distance carriers to provide our customers with
international long distance service. We connect our network with the other basic
and cellular operators in Mumbai and Delhi to offer our customers comprehensive
access in our coverage areas. The terms and conditions of our interconnect
arrangements are governed by regulations of the TRAI and interconnect agreements
that we have with many of these other operators. The TRAI is also responsible
for ensuring technical compatibility among operators. Effective May 1, 2003,
under the authority's new interconnection usage charges regulation, interconnect
charges have been established for all major types of interconnection based on a
"calling party pays" principle. See "--License Fees and Network
Utilization/Interconnection Arrangements" and "--Telecommunications Regulation
in India."

         Leased Line Services. We provide point-to-point leased line services
for local, domestic long distance and international connectivity. Subscribers
can use our leased lines to assemble their own private networks between offices
within Delhi and Mumbai or together with BSNL, between Delhi and Mumbai and to
other Indian cities. Leased line services can be used for voice and data
transmission at various bandwidths. In addition, we earn revenues from leasing
circuits to cellular operators in Delhi and Mumbai to interconnect their
networks to our network. At March 31, 2004, we had approximately 43,000 leased
line subscribers. We have experienced increased demand for these services and
expect demand to increase further in the near future.



                                       22
<PAGE>


         Telex Service. At March 31, 2004, we had approximately 1,500 telex
subscribers. With the expansion and modernization of our network, telex is being
replaced by facsimile, currently the most frequently used means of text
communication in Delhi and Mumbai. Although we expect to continue to provide
telex services in the future, we expect total demand to continue to decline.

RECENTLY INTRODUCED SERVICES

         o    We have introduced Internet Broadband services having capacity of
              3000 lines using ADSL technology in 8 exchange areas each in
              Delhi and Mumbai.

         o    We have launched Payment Portal website for viewing and payment
              of telephone bills for PSTN and Garuda telephones.

         o    We have introduced SMS based and web-based customers services
              like Directory Enquiry, STD/ISD Enquiry, Change Number
              Information, Utility Services Information, Bill details, Booking
              of complaints, etc. to provide efficient and quick service to the
              customer.

         o    We have launched Bill Presentation System where customers can
              print bills along with details through Internet.

         o    We have introduced Operator Assistance (1501) for sending SMS to
              subscribers.

         o    We have introduced 1500 call service for services like conversion
              of PSTN line for Internet, registration of Internet Line,
              provision of ADSL and Phone Plus facility.

         o    We have commissioned a "Certification Authority" business under
              the brand name "MtnlTrustline" with a capacity to issue 500,000
              certificates. With this, MTNL has become an important Public Key
              Infrastructure service provider.

         Technologies and Services under Development. We have begun to offer
customers the ability to create VPN's, "virtual private networks." These systems
employ user-specific hardware and software to provide high usage subscribers
with the functional equivalent of a seamless dedicated private national and
international voice and data network. Virtual private network features are
similar to multiple-site private networks, but use our network's resources. The
economies of scale available from our network, both in switching and
transmission, allow virtual private networks to be cost effective compared with
private networks. We are expanding managed leased-line networks (MLLN) service
in both cities (Delhi and Mumbai) and expect to deploy a core network based on
state-of-the-art MPLS/IP technology.

TELECOMMUNICATIONS SERVICES IN OTHER COUNTRIES

         We are selectively targeting expansion opportunities outside India
where we can leverage our expertise and relationships. United Telecom Limited, a
joint venture involving us (26.68%), Telecommunications Consultants India
Limited (26.66%), VSNL (26.66%) and Nepal Ventures Private Limited (20%),
commenced wireless in local loop services as the first private-sector
telecommunications operator in Nepal. We have also been awarded licenses to
provide basic and international long distance service as well as mobile services
in Mauritius. Through a Mauritius subsidiary, we intend to begin the build out
of our network there and commence services in the current fiscal year.

TARIFFS AND OTHER CUSTOMER CHARGES

         Fixed-Line Services. Tariffs, or usage charges, consist of charges for
local, domestic long distance and international calls. Usage is measured by
pulses, which are time-based units of measure, metered at the relevant
exchanges. Pulses vary, depending on one or more factors. Local call pulse
duration depends upon the type of network on which the call is terminating
(i.e., fixed, GSM cellular or CDMA mobile) and the subscriber plan chosen, while
domestic long distance call pulse duration depends upon the call distance, time


                                       23
<PAGE>


of day, type of network on which the call is terminating and whether the call is
within a regional circle or between two circles. International call pulse
duration varies depending upon the country of destination. For operator assisted
domestic and international calls, a slab system of tariffs applies which differs
depending upon the speed at which the call is completed. The subscriber is
billed at a fixed price per pulse that depends upon the subscriber plan chosen
and usage volume (low usage customers are offered a lower price per pulse). We
currently offer several fixed-line plans, tailored to meet the needs of
different user profiles. One of the plans is the standard plan, which, under
TRAI regulations, we are required to offer all customers and the terms of which
the authority establishes.

         For fixed-line services, customers also pay access charges consisting
of a one-time refundable security deposit, installation charges and monthly
subscription/rental charges.

         We have adopted a policy not to reduce our basic tariffs and related
charges unless in a response to tariff reductions by competitors. However, since
the 1999 tariff order, the TRAI has in several stages significantly reduced
tariffs on domestic and international long distance calls. Effective July 20,
2002, international long distance call rates were reduced by about 40%. Because
we retain the remainder of prices of domestic and international long distance
calls originating on our network, net of interconnect charges, by lowering long
distance rates the tariff reductions have reduced the revenue we receive per
call. While these rate reductions have been part of a "rebalancing" effort aimed
at reducing cross-subsidization between long distance (historically priced at a
premium) and local calls (historically subsidized) by at the same time phasing
out subsidization of local calls, the negative impact of the long distance rate
reductions have to date outweighed any positive impact of other aspects of the
tariff rebalancing effort. Also effective May 1, 2003, as part of its effort to
reduce subsidies, the TRAI changed the standard plan that we must offer all
customers by increasing monthly rentals for basic services by 12% from Rs. 250
to Rs.280, reduced the local call pulse duration (for calls made to fixed and
fixed wireless lines) from three minutes to two minutes and the number of free
monthly call pulses.

         GSM Cellular Services. We offer our GSM cellular subscribers in Delhi
and Mumbai a choice of several plans, tailored to meet the needs of different
user profiles. One of the plans is the standard plan, which, under TRAI
regulations, we are required to offer all customers and the terms of which the
authority establishes. Generally, in addition to call charges for local and long
distance calls, our plans include the following types of charges: refundable,
non-interest bearing security deposit; installation charges; monthly rental
charges; and airtime charges. Effective February 1, 2004, with the adoption by
the TRAI of the interconnection usage charge regulation and the "calling party
pays" principle, charges for incoming cellular calls (other than any roaming
charges) have been eliminated. In addition, we provide the following value-added
services free to all our GSM cellular subscribers:

         o    roaming between Delhi and Mumbai;

         o    call forwarding/divert;

         o    call hold;

         o    call waiting;

         o    caller identification; and

         o    WAP.

         However, airtime charges on use apply to these services. In addition,
we offer our GSM cellular subscribers the following value-added services for a
fee.

         o    national roaming (for Rs.30 per month);

         o    caller identification (for Rs.50 per month);

         o    voice mail (for Rs.100 per month or Rs.2 per minute on message
              retrieval);



                                       24
<PAGE>


         o    Short Message Service; o charges for outgoing messages - Rs.0.80.

               o    charges for incoming messages - free
               o    charges to other Services/National - Rs.1.00 per message
               o    charges to other Services/International - Rs.2.50 per
                    message

         o    content-based Short Message Service (Rs.1.00 per message for
              regular service);

         o    call conference (for Rs.50 per month);

         o    friends & family for a maximum of any two local numbers (for
              Rs.30 per month and local call charges Rs.0.90); and

         o    night talk (for Rs.49 per month and local call charges Rs.0.90)

         In fiscal 2002, we introduced pre-paid GSM cellular services under the
brand name "Trump" in Delhi and Mumbai. This market is also highly competitive,
with rates changing with market conditions.

         Other Services. For CDMA mobile services, including the use of a CDMA
handset, our subscribers are charged a refundable security deposit, a monthly
charge and a monthly handset rental, in addition to airtime charges. We have not
charged users for incoming calls. We offer our CDMA mobile subscribers a choice
of several plans, tailored to meet the needs of different user profiles. One of
the plans is the standard plan, which, under TRAI regulations, we are required
to offer all customers and the terms of which the authority establishes.

         For access to narrow-band ISDN services, we charge our subscribers a
monthly rental and no registration fee. Subscribers can also have primary rate
access for an initial fee of Rs.15,000. Usage charges for local, domestic long
distance and international calls are the same as for the basic fixed-line
telephone.

         Tariffs charged by public telephone operators for telephone usage are
at a fixed rate of Rs.1.20 per pulse, with long distance pulse durations varying
depending upon the distance, the time of the day and whether it is a holiday.
Tariffs for coin payphones are set at a flat rate of Rs.1.00 per call for local
calls.

         We do not charge any registration fees for our Internet access
services. Our Internet access fees have been falling considerably in response to
competitive pressures. Internet users do not have to subscribe for Internet
services. They can access the service and later be billed on the basis of
calling line identification usage.

         Subscribers for point-to-point leased line services are charged an
annual fee based on the type of service offered, the distance between the points
and the duration of the lease entered into by the subscriber.

LICENSE FEES AND NETWORK UTILIZATION/INTERCONNECTION ARRANGEMENTS

         License Fees and Network Utilization Charges. Under our previous
arrangement with the DOT, the license fees for providing basic services was
fixed at Rs.900 per access line in service. This arrangement expired on March
31, 2000. In the absence of any new arrangement with the DOT, we continued to
pay license fees during fiscal 2001 on the same terms as our previous
arrangement. On April 9, 2001, the DOT communicated that the annual license fees
will be revised and shall be payable at 12% of adjusted gross revenue from basic
telephone service effective from August 1, 1999, as applicable to private
operators from that date. On September 5, 2001, the DOT amended its position and
indicated that the date from which the revised license fees will be payable will
be notified later. However, in the absence of an agreement for payment of
license fees and any clarification from DOT to date, we have paid license fees
on the revised basis communicated by DOT for fiscal 2002 and 2003. Further,
subsequent to the year ended March 31, 2004, in a meeting held between DOT, BSNL
and the Company to resolve the ambiguity with respect to license fees and
networking charges it was agreed that the license fees were payable at 12% of
AGR and networking charges as per TRAI regulations with effect from August 1,
1999. This has resulted in an incremental charge of Rs.3.5 billion in the
consolidated statements of income on account of license fee and a benefit of
Rs.1.5 billion on account of networking charges for periods up to March 31,
2003.



                                       25
<PAGE>


         Cellular License Fees and Spectrum Allocation Charges. Each Indian
cellular service provider operating in top-tier circles, including us, currently
pays a cellular license fee of 10% of adjusted gross revenues received from its
cellular services plus spectrum charges of 2% of adjusted gross revenues for up
to 4.4 MHz of spectrum allocation and 3% of adjusted gross revenues for spectrum
allocation of up to 6.2 MHz. License fee has been revised from April 01, 2004 at
10% of adjusted gross revenue.

         Unified Access License. In November 2003, the DOT issued guidelines for
Unified Access License which cover within a service area both basic
telecommunications services and cellular services. In the Indian context, "basic
telecommunications services" or "basic services" include basic fixed-lined
access service and a number of other telecommunications services, other than
long distance services, cellular service and Internet access. Basic services
also include CDMA-based fixed wireless and mobile services (without roaming). We
are considering whether to seek a Unified Access License depending on the
financial terms on which such license will be available to us.

         New Interconnection Usage Charges Regulation. Effective May 1, 2003,
under the TRAI's new interconnection usage charges regulation, and further
amended and implemented since February 1, 2004, interconnect charges have been
established for all major types of interconnection. Under this regulation, we
are entitled to specified interconnection revenues with respect to incoming
calls from operators that are linked to our network, and are required to make
specified payments in respect of outgoing calls from our network into another
operator's network. For this reason, this regulation is said to be based on the
"calling party pays" principle. As a result of this regulation, for the first
time, we are accruing interconnect fees payable by BSNL in respect of the
domestic long distance calls that come into our network from that company's
network. In addition, as a result of related tariff changes, we no longer charge
cellular or CDMA-based mobile users for incoming calls, as we are now entitled
to interconnect payments from the caller's service provider. The terms of all
interconnect agreements are subject to the interconnect charges specified in the
regulation.

         Network Utilization--Bharat Sanchar Nigam Limited. Under our previous
arrangement with BSNL, we paid network utilization charges to that company as a
fixed percentage of the amount of usage and other charges billed to our
customers for our services. Our network utilization arrangement with BSNL
expired on March 31, 2001. For fiscal 2002 the interconnection charges on
domestic long distance and international long distance calls were accrued on the
basis of the rates payable by other basic service operators in the country, and
for fiscal 2003 the interconnection charges on domestic long distance calls were
again accrued on the basis of the rates payable by the other basic service
operators in the country. Since beginning of fiscal 2003, we have been accruing
international long distance calls on the basis of interconnect agreements that
we signed with VSNL and others. Since the beginning of fiscal 2004, the
Telecommunication Interconnect Usage Charges (IUC) Regulation (2 of 2003) 2003
covers arrangements among Service Providers for Payment of Interconnection Usage
Charges for Telecommunication Services, Covering Basic Service which includes
WLL(M) Services, Cellular Mobile Service Providers and Long Distance Operators
throughout the territory of India.

         We are in the process of negotiating network utilization and domestic
long distance agreements with BSNL. We are responsible for collecting payments
for calls from our subscribers and bear the risk of non-collection of these
charges. Until the May 1, 2003 effectiveness of the interconnection usage
charges regulation, we did not receive any payments for calls coming into our
network from BSNL's network. We have also signed interconnect agreements with
several private-sector domestic long distance service providers, but to date
still rely on BSNL for substantially all of our domestic long distance
interconnection.



                                       26
<PAGE>


         The following table indicates, on a revenue-sharing basis, how we
accrued amounts owed to BSNL for specified business activities in fiscal 2004:

<TABLE>
<CAPTION>
                                                                  SHARES OF REVENUES
                                                               MTNL            BHARAT SANCHAR
                                                                                NIGAM LIMITED
<C>                                                                       <C>        <C>
1.    Telephone rental and calls(1)
      (a)   Installation and monthly rental                                100 %       --
      (b)   Local and domestic long distance calls       *As Per IUC regulation
                                                         of TRAI
      (c)   Phonograms (telegrams booked via telephone)                     --        100 %
      (d)   Miscellaneous income(2)                                        100 %       --

2.    Operator-assisted calls                                             66.7 %     33.3 %

3.    Telex
      (a)         Rental                                                   100 %       --
      (b)         Call charges gatex (international telex)                  50 %       50 %
      (c)         Telexograms (telex booked via telephone)                  --        100 %
      (d)         Miscellaneous income(2)                                  100 %       --

4.    Leased line circuits (long distance)                                  10 %       90 %

<FN>

(1)  Includes revenues from value-added services.

(2)  Includes revenues from telephone accessories, reconnection or replacement
     charges, transfer of a telephone registration from one subscriber to
     another and shifting a telephone connection for a subscriber.

</FN>

</TABLE>

         In fiscal 2004, revenue sharing with BSNL and other operators for
incoming and outgoing domestic long distance or subscriber trunk dialing calls
was done on the basis of TRAI's Interconnect Usage Charges Regulation 2003 (1 of
2003) implemented from May 1, 2003 and modified by Interconnect Usage Charges
Regulation 2003 (2 of 2003) effective February 1, 2004. For April 2003, these
charges were accounted per the earlier arrangement.

         In fiscal 2002 and 2003, the basic service operators paid an access
charge of Rs. 0.48 per pulse for domestic long distance calls. This is the rate
we accrued charges owed to BSNL for domestic long distance calls that originated
on our network. We no longer pay charges to BSNL for local calls in our network
but the settlement is in line with the IUC regulation of TRAI.

         In fiscal 2002, the basic service operators paid an access charge of
Rs.0.66 per pulse for international long distance calls. This is the rate we
accrued charges owed to BSNL for international long distance calls that
originated on our network. We did not pay interconnect fees directly to VSNL for
international long distance charges prior to fiscal 2003. We now pay the
negotiated per minute charge to VSNL for carriage and termination of
international calls which varies depending on the country of destination.

         International Long Distance Interconnect Arrangements. In 2002 and
2003, we entered into interconnect agreements with several international long
distance carriers, including VSNL. These agreements took effect on April 1,
2002, and as a result, we accrued interconnect charges on international long
distance calls on the basis of the agreed rates and no longer make payments to
BSNL in respect of international long distance calls originating on our network.
These agreements provide for payments by the international long distance
operators for incoming calls, in addition to payments by us for outgoing
international long distance calls. Although we have signed interconnect
agreements with several international long distance carriers, we continue to
rely on VSNL for substantially all of our outgoing international long distance
traffic.


                                       27
<PAGE>


         Interconnect Arrangements with Other Cellular and Basic Service
Providers in Mumbai and Delhi. We have entered into interconnect agreements with
the other cellular and basic service providers in Mumbai and Delhi to formalize
our network integration with them. In addition to usage-based interconnect
charges, each cellular operator in Delhi and Mumbai pays us an annual fee for
lines leased from us to connect to our network.

         Customers and Customer Service. We classify our subscribers by use
level and estimate that in last two months of fiscal 2004, approximately 19% of
our access lines in service accounted for 65% of our call units. The following
table sets forth certain information with respect to our subscribers for the
final two months of fiscal 2004:

<TABLE>
<CAPTION>
                                                  AVERAGE NUMBER OF        AVERAGE CALL UNITS
                                              SUBSCRIBERS PER SEGMENT AS    PER SEGMENT AS A
                                                A PERCENTAGE OF TOTAL      PERCENTAGE OF ALL
                                                     SUBSCRIBERS             METERED CALLS
 SUBSCRIBER SEGMENTS
 (USE OF PULSES ON A BI-MONTHLY BASIS)
<S>                                                     <C>                       <C>
 0-100                                                  23.71                     0.81
 101-500                                                38.61                    15.51
 501-1,000                                              18.46                    18.85
 1,001-2,000                                            11.60                    23.17
 2,001-5,000                                             6.34                    27.21
 Greater than 5,000                                      1.28                     14.8

</TABLE>

         Our general marketing strategy is to stimulate demand for telephone
services in order to increase average usage and revenue per line in service. We
have identified high usage subscribers as "commercially important persons" and
are taking initiatives to strengthen our relationship with these individuals.
These initiatives include regular visits and conducting surveys to obtain
feedback and determine client-specific needs and introduce value-added services
tailored to commercially important persons. Also, in certain areas we have
constructed a digital local loop network with better quality transmission
dedicated for use by commercially important persons. Some of the commercially
important persons are also being connected to our network via
fiber-in-local-loop technology. We also use print advertising to educate the
general public about our telephone services and other value-added services.

         No single subscriber accounted for more than 5% of our revenues in
fiscal 2002, 2003 or 2004. Government of India entities in the aggregate
constitute the largest user of our services. We deal, however, with the various
departments and agencies of the government of India as separate subscribers and
the provision of services to any one department or agency does not constitute a
material part of our revenue.

         Our subscribers are billed by mail or courier once every billing
period. Subscribers with access to long distance service are billed monthly;
subscribers with access to local services only are billed bi-monthly. We have
introduced four billing cycles in respect of each billing period which enables
us to bill different subscribers at different times in the billing period. Cycle
billing reduces the burden on the billing system at any particular time of the
month and provides more consistent cash flow.

         Billing is computerized and processing takes place at decentralized
bill processing facilities in Delhi and Mumbai for ease of operation and better
handling of customer complaints. A subscriber can inquire by an automated
telephone service or at one of our customer service centers to determine the
amount of his bill. Payment may be made by mail or at a collection center such
as a national bank, a customer service center or at a mobile van, which we
operate. Payments may also be made under our voluntary deposit scheme, where
customers set up an interest bearing deposit with us, or under our electronic
clearance system, where payment is directly debited from the subscriber's bank
account. We have also introduced a program through which subscribers can pay
bills through the Internet or at any of our Tele-mart centers. We allow
subscribers to pay bills using a credit card and at the post office, and plan to
allow subscribers to pay bills at local merchants and through other mechanisms
to improve bill collection and remittance. We have also introduced a co-branded
credit card with American Express Bank. Subscribers that give standing
instructions for payment of their bills with this card receive a 1.7% discount
on their annual billings from us.


                                       28
<PAGE>


     We have developed our billing system jointly with Tata Consultancy Services
in Delhi and Mumbai. This billing system is a part of a customized software
program known as a "customer service management system." The billing system is
an integrated revenue billing system which includes pre-connection and
post-connection services, accounting, billing collection and access to
subscriber records. Other benefits of this system are one point data capture for
all subscribers, increased efficiency and reduction of lead time to process
queries. This system enables our staff to handle, at a single point of contact,
various activities "on-line such as registration of a new telephone connection,
change of address and category, issuance of work orders, issuance of duplicate
bills, requests for transfer of telephone for domestic long distance and
international connectivity, collection of payments of bills, status of
outstanding bills, and monitoring of subscriber complaints.

     Payment is due within 21 days from the date of issue of the bill. If the
charges are not paid on time, we generally give a reminder by telephone after
the due date, cut off outgoing service after 45 days and cut off all service
after 60 days of the date of issue of the bill. Subscribers with large amounts
overdue may have their telecommunications services terminated earlier.
Subscribers are charged a surcharge on amounts overdue after 21 days (with
maximum surcharge being Rs.4,000) and a reinstatement fee of Rs.100.

     We provide operator assisted services, including value-added products such
as wake-up calls, as well as operator connected and reverse charge calls to all
of our subscribers. In addition, we provide free operator assisted directory
services. Our strategy is to continue to enhance the level of subscriber
satisfaction by increasing access to operators and improving the quality of
subscriber interface, while also improving operational efficiency and
productivity. In March 1999, we published a Delhi directory, and we published a
Mumbai directory in February 2000. Both of these directories are available free
of charge on our website. We have recently introduced directory information on
CD-ROMs, which are available for Rs.50 each, as well as an on-line directory
inquiry service which is available to telephone users with personal computers
and communication software.

     In order to address subscriber disputes more quickly, we regularly hold
telephone "adalats," or courts. These adalats are presided over by our senior
management and, although their judgments are non-binding, we have resolved a
large number of disputes at these adalats. We also hold "open house" sessions to
obtain feedback from subscribers, enabling us to take steps to improve customer
service. Our service centers also provide various types of services such as
registration for new connections, shifting telephone connections, billing
information and collection of bill payments. We have customer service centers in
many locations in both Delhi and in Mumbai. Generally, three to five employees
provide these services in each center.

INSURANCE

     We maintain comprehensive insurance in the amount of approximately Rs.73
billion for our assets, primarily buildings and equipment and the market value
of our inventories. Our insurance is held under policies, which are renewable
annually. The majority of our insurance policies are renewed in April of each
year. We do not anticipate having any difficulty in renewing our insurance
policies and believe our insurance coverage is reasonable and consistent with
industry standards in India.

COMPETITION

     One of the primary objectives of the 1999 telecom policy is to encourage
competition within India's telecommunications industry. Accordingly, we will
encounter increased competition in each of our markets as existing and
additional service providers actively seek to penetrate these markets through
the introduction of high quality products and services.

     The 1999 telecom policy allows the DOT to license, at its discretion,
multiple additional basic and cellular service providers in any service area.
Adoption of Unified Access License guidelines in November 2003 facilitates this.
Tata Teleservices Limited and Reliance Infocomm Limited are currently competing
with us in the market for basic services in both Mumbai and Delhi, and Bharti
Infotel Limited is also competing with us in the basic services market in Delhi.
All of these companies already have significant telecommunications
infrastructure in Delhi and Mumbai, including, with respect to Tata Teleservices
and Reliance Infocom, low-cost CDMA mobile and fixed wireless technology. With
approximately 65% of our call units having been derived from approximately 19%


                                       29
<PAGE>


of our access lines in service (last two months of fiscal 2004), we are
particularly vulnerable to losing market share if these or other new operators
aggressively target our largest subscribers.

     We experience significant and growing competition in the market for GSM
cellular and Internet services. Bharti Cellular Limited and Hutchison Essar
Telecom Limited, which offer GSM services under the brand names Airtel and
Hutch, respectively, have been servicing the Delhi market since 1995. In Mumbai,
Hutchison Max Telecom Limited, which offers GSM service under the brand name
Orange, and BPL Mobile Limited have been servicing the cellular market since
1995, and Bharti Cellular commenced cellular operations there in July 2002. All
of these service providers enjoy significant penetration in these markets, have
established brand names and have more experience operating a cellular network
than we do. In addition, the Birla Group, Tata Group and AT&T have combined
their cellular operations into one business, Idea Cellular Limited, which has
begun operating in the Delhi market, among other places. Cellular operators also
face significant competition from rapidly growing CDMA-based mobile services,
which are priced considerably lower than GSM cellular services.

     We commenced providing our Internet services in Delhi and Mumbai in
February 1999. The competition among Internet service providers throughout India
is intense with approximately 189 licenses for providing Internet services
issued as of March 31, 2004.

     There has been significant consolidation in the telecommunications industry
in India. For example, the Birla Group, the Tata Group and AT&T have combined
their interests in GSM cellular operators into one business, and the Tata Group,
which controls Tata Teleservices, acquired a controlling interest in India's
dominant international long distance carrier, VSNL, and Tata Teleservices has
acquired Hughes Tele.com, a basic service provider in Mumbai. We expect the
trend toward consolidation to continue, resulting in larger, more diversified
competitors in the Indian market.

     Our revenues from international calls are adversely affected by competition
from "call-back" services. Call-back services were officially declared illegal
by the Ministry of Communications in July 1995. Nevertheless, the volume of
international calls made from India through call-back services has continued to
grow.

     We have also applied for a license to enter the international long distance
business and the regulator has acted by issuing us a letter of intent to license
us for that service. We expect to experience significant competition in the
international long distance market from VSNL and from private operators such as
Bharti Infotel Limited and the Reliance Group, both of whom have announced their
intention to enter this market.

     Increased competition has kept and will likely continue to keep downward
pressure on prices and has required and will likely continue to require us to
increase our capital investment to improve and expand our services. These
developments, in turn, have had and may continue to have a negative impact on
our profitability. In the tariff order, no minimum tariff levels are specified
and service providers have the flexibility to determine the tariff below the
maximum levels. Our board of directors has determined not to reduce fixed line
tariffs unless such a reduction is in response to a tariff reduction by a
competitor. However, the TRAI may prescribe minimum tariffs or prohibit
providers from reducing tariffs in response to competition. Additionally, the
tariff order prescribes tariffs based on the estimated cost to provide
particular services. These estimates and corresponding tariffs may not
accurately reflect our actual costs.

     In order to compete with other basic and cellular operators and Internet
service providers, we are increasingly focused on the timely introduction of new
and improved products and services and pay increased attention to customer
service. An inability to compete effectively would also damage our longer-term
business prospects through loss of customers and market share.


                                       30
<PAGE>


                                LEGAL PROCEEDINGS

     Except as described below and except with respect to regulatory proceedings
described elsewhere, we are not currently a party to any material legal or
arbitration proceedings or disputes.

DEDUCTIBILITY OF LICENSE FEES

     Income Taxes. The Central Income Tax Authority of India has disallowed the
license fee paid by the Company to the Department of Telecommunication (DOT) for
the years ended March 31, 1995 through March 31, 2002 as a tax deductible
expense and has raised a demand for payment of taxes on increased taxable income
relating to such expenses.

     The amounts demanded, including interest on account of such disallowance,
for the years ended March 31, 1995 to March 31, 2002 are Rs.13,266 million. As
of March 31, 2004 we have paid deposits totaling Rs.11,877 million under
protest, as part of the appeals process.

     Re-assessment proceedings have also been initiated against us in respect of
the above matter for the year ended March 31, 1994, which is currently being
litigated by us. However, no additional demand has been made in respect of
license fee paid to DOT for the year ended March 31, 1994.

     We have been deducting license fees from our taxable income for income tax
purposes. We have received orders from the Income Tax Authority, for the payment
of 100% penalty on tax allegedly evaded on license fee disallowance for the year
ended March 31, 1996. Penalty proceedings have also been initiated against the
company for the years ended March 31, 1997 to March 31, 2002. In December 2000,
the appellate authority upheld our appeal and cancelled the penalty for the year
ended March 31, 1996. However, the penalty proceedings for the year ended March
31, 1997 to March 31, 2002 have not yet been concluded.

     We have contested all these claims and believe that we have a valid defense
to the disallowance of license fees paid to DOT as a tax-deductible expense.
During the year, we obtained a favorable decision from the Income tax appellate
tribunal with respect to the license fee disallowed for assessment year
1997-1998 and filed a refund claim with income tax authorities on the basis of
the said decision. The said decision has not yet been contested by the revenue
authorities. We are of the view that the claims will eventually be decided in
our favor.

     However, if we are ultimately unsuccessful in our defense we would be
required to pay tax including interest amounting to Rs.7,971 million from April
1, 1993 to March 31, 1994 and from April 1, 2001 to March 31, 2004 and penalty
amounting to Rs.12,507 million from April 1, 1993 to March 31, 1995 and April 1,
1996 to March 31, 2004 in addition to the Rs.13,266 million demanded. We have
not accrued the tax charge on license fee in the financial statements. We will
receive interest on the Rs.11,877 million (2003; Rs.8,540 million) deposit paid
to the tax authorities if the case is decided in their favor.

SALES TAX

     We have received a demand from the Maharashtra state government for payment
of sales tax on certain telecommunications revenues, mainly telephone rental
charges, and received notice from the Delhi state government seeking further
information in aid of an investigation into whether a similar demand should be
made upon us. For more information, see "Key Information--Risk Factors--Risks
Relating to Our Business."

CONTRIBUTIONS TO GENERAL PROVIDENT FUND

     General Provident Fund is a scheme applicable to our employees who have
opted for the Government Pension rules. In the absence of any rules available
for deposit of such contribution the amounts have been retained by us pending
notification from the Government in this regard.

     The Central Income Tax Authority of India has added to the income of the
company the contributions made by the employees towards the General Provident
Fund for the year ended March 31, 2001 and 2002, which had been retained by us.


                                       31
<PAGE>


The amount of additional income tax demanded together with interest amounts to
Rs.530 million and Rs.636 million for the years ended March 31, 2001 and 2002
respectively. We have deposited Rs.1,166 million (2003; Rs.530 million) under
protest to the tax authorities as a part of the appeals process. The same has
been included as a part of restricted assets. We believe that we have a valid
defense against the addition of such contribution to their taxable income.
However, if we are unsuccessful in our defense we would be required to pay tax
including interest amounting to Rs.3,725 million on amounts retained from
November 1, 1998 (the date of absorption of non executive employees) to March
31, 2004. This will not have any impact on our tax expense except to the extent
of interest and penalty, if any.

OTHER DISPUTES

     We have accounted for Rs.6,924 million for interconnection usage charges
for the year ended March 31, 2004 payable to BSNL on the basis of Inter Connect
Usages Regulations whereas BSNL has raised a bill of Rs.12,165 million for the
interconnection usage charges for the calls originating from our network and
terminating/transiting at/from BSNL. Our contention is that the claim is not
adequately supported by BSNL and hence not accepted by us. We are in the process
of reconciling the said claim with BSNL and may be required to pay an additional
amount based on the final settlement.

     In the absence of an interconnection agreement, MTNL had provided NLD/ILD
access charges for the period ended March 31, 2002 at the rates lower than those
demanded by BSNL. Subsequent to the year ended March 31, 2004, in a meeting
held between DOT, BSNL and the Company, the rates for NLD calls for the year
ended March 31, 2002 were agreed and accordingly the Company has accounted
additional liability of Rs.233 million in this regard. The Company may be
required to pay ILD access charges amounting to Rs.195 million (2003: Rs.428
million) for the period April 1, 2001 to January 31, 2002 on the settlement of
the dispute with BSNL in this regard.

     On April 1, 2004, Precision Electronics Ltd. was awarded Rs.86 million
against us in the Arbitral Tribunal of the Indian Council of Arbitration. These
claims arise out of a dispute with respect to the calculation of the purchase
price of certain optical fiber systems pursuant to purchase orders executed in
1994. We are appealing this award.

     In 1998, M&N Publications made claims for approximately Rs.5.4 billion
against us. These claims arise out of contracts for the printing of telephone
directories for Delhi and Mumbai. Each of these claims includes claims for loss
of reputation and loss of business opportunities aggregating Rs.2.0 billion. We
have made claims of Rs.4.2 billion against M&N Publications for failure to
perform the contracts. These claims are pending before a sole arbitrator.
Although it is not possible at this time to make an assessment of the outcome of
these arbitration proceedings, we believe that we have valid defenses to these
claims.

                            ORGANIZATIONAL STRUCTURE

     We are controlled by the Indian government and are not part of any group.

     We have no subsidiaries which are considered "significant subsidiaries".


                                       32
<PAGE>


                          PROPERTY, PLANT AND EQUIPMENT

INFRASTRUCTURE

     We have invested approximately Rs.97.3 billion for the development of our
network since April 1, 1994. We believe that we have created one of the most
technologically advanced networks in India. Our network capacity has grown
rapidly in the ten-year period ended March 31, 2004 by 2.5 million additional
access lines in service.

     We operate entirely separate but similar networks in each of Delhi and
Mumbai. Each network comprises a switching and transmission network, which we
refer to as our "switching network" and a local loop network. The local loop
network principally consists of copper wire based lines, connecting subscribers
to the main exchanges or the remote line units. A number of subscribers are
connected to the switching network via fiber-optic cable and
wireless-in-local-loop technology. The switching network includes the trunk
automatic exchanges, which are used for routing domestic long distance and
international calls, the main switching exchanges, through which all calls are
routed, and remote line units, which are connected to the main exchanges. The
local loop network comprises all connections between the main exchanges or the
remote line units and the subscriber. Subscribers are either connected directly
to the main exchanges or, depending upon the distance from the main exchanges,
via remote line units. All domestic long distance traffic, including traffic
between Delhi and Mumbai, is routed through BSNL's network.

SWITCHING EQUIPMENT

     All of our exchanges are fully automated and our switching capacity is 100%
digital. Our switching network consisted of 329 nodes in Delhi and 183 nodes in
Mumbai as of March 31, 2004. Each node consists of either one or more remote
line units or exchanges, or a combination of the two. Each node has a capacity
of between 1,000 and 100,000 lines.

     At March 31, 2004, there were 98 main exchanges and 231 remote line units
in Delhi and 82 main exchanges and 101 remote line units in Mumbai. Because one
or more main exchanges in each node are connected to one or more main exchanges
in every other node, traffic is routed in a "mesh" configuration. We have also
installed high capacity tandem switches in Delhi and Mumbai to more efficiently
route traffic between exchanges. A majority of calls to our main exchanges are
now being routed through the tandem switch to another node. This has resulted in
a more integrated network and has reduced the amount of capital expenditure
required to install additional capacity in our switching network.

     Each node is connected to each trunk automatic exchange. Interconnection to
basic service providers, private cellular operators and Internet service
providers is provided by dedicated access to the main exchanges or tandem
switches. Our entire switching network is connected by fiber optic links.


                                       33
<PAGE>


<TABLE>
<CAPTION>
OVERVIEW OF OUR NETWORK

                                                                          AT MARCH 31,
                                                          2000      2001      2002     2003    2004
     Delhi
     <S>                                                  <C>       <C>       <C>      <C>     <C>
     Access lines in service (access lines in service)    1,818     1,980     2,065    2,155   2,003
     (thousands)
     Equipped capacity (thousands) (1)                    2,124     2,429     2,775    2,967   3,154
     Number of exchanges:
     TAXs (2)                                                 3         3         3        4       4
     Main exchanges and RLUs (3)                            192       203       251      309     329
     Digital lines (thousands) (1)                        2,065     2,429     2,775    2,967   3,154
     Digitalization rate (4)                              97.2%      100%      100%     100%    100%

     Mumbai
     Access lines in service (access lines in service)    2,213     2,353     2,431    2,445   2,408
     (thousands)
     Equipped capacity (thousands) (1)                    2,515     2,692     2,876    2,886   2,806
     Number of exchanges:
     TAXs (2)                                                 4         4         4        4       4
     Main exchanges and RLUs (3)                            148       162       180      183     183
     Digital lines (in thousands) (1)                     2,492     2,692     2,876    2,886   2,806
     Digitalization rate (4)                              99.0%      100%      100%     100%    100%

----------

(1)  Represents lines that are connected to digital switches.

(2)  TAX means trunk automatic exchange, a switch that routes calls to BSNL's
     domestic fixed-line network and VSNL's international gateways.

(3)  RLU means remote line units, which are switches that connect a subscriber
     to the main exchange.

(4)  Percentage of total equipped capacity that consists of digital lines.

</TABLE>

     Our modernization and expansion program has been funded primarily from cash
flow from operations. During the ten-year period ended March 31, 2004, we
invested a total of approximately Rs.97.3 billion in network expansion and
modernization, primarily by the addition of access lines in service and
digitalization of the switching network.

TRANSMISSION

     Our transmission network consists largely of plesiochronous digital
hierarchy, or PDH, and synchronous digital hierarchy, or SDH, optical fiber. PDH
and SDH are transmission standards for digital signal transmission. We plan to
continue to deploy SDH optical fiber and synchronous transfer mode terminals to
improve network efficiency. We also plan to deploy wave length division
multiplexing, or WDM, technology to further increase the capacity of our
transmission network. WDM is the next generation standard for digital signal
transmission.

ACCESS NETWORK

     We construct our access network with copper cable which is extended to
distribution points to terminate connections. We have commenced deploying five
pair underground cable into subscribers' premises where an internal distribution
point is installed. We believe this access network will reduce the number of
telephone poles and improve reliability of the service.

     We have also implemented fiber-to-the-curb/building access and offer
increased bandwidth for business and high usage subscribers.
Fiber-to-the-curb/building is also intended to supplement existing copper wire
with optic fiber. We have provided digital loop carriers, or DLCs, for this
purpose. In fiscal 2004, we added 122 access terminals in our network.


                                       34
<PAGE>


         We have installed wireless-in-local-loop services using CDMA technology
where feasible in Delhi and Mumbai as a substitute for fixed-line access to
enhance basic service penetration, provide quicker installation and cover areas
where the installation of cable would not be economical.

QUALITY OF OUR NETWORK

     We are conducting an ongoing program to improve the quality of services
offered. Our principal quality measures are call completion rate and fault rate.
The table below shows the quality improvements we have made since our inception
in 1986. We achieved this primarily by focusing on improvements to our switching
network. Part of our local loop network is comprised of old paper core copper
cables which are a principal cause of network faults. We are in the process of
upgrading and replacing copper access lines and believe that this will have a
positive impact on call completion rates and fault rates.

<TABLE>
<CAPTION>
                                            YEAR ENDED MARCH 31,
                                  1986     2000   2001   2002   2003    2004
                                (INCEPTION)
     Fault rate/100 (1)
     Telephones/month:
     <S>                          <C>      <C>    <C>    <C>    <C>     <C>
     Delhi                        34.9     30.3   20.0   21.4   18.7    12.3
     Mumbai                       21.2     13.3   11.0   11.8    9.8     8.8
     Call completion rate (2)
     Delhi
     Local calls                  77.3%    44.0   50.2   51.0   52.25   57.0
     Domestic long distance       30.0%    31.8   39.5   41.07  28.0    28.0
     calls
     Mumbai
     Local calls                  93.0%    52.6   58.3   58.15  58.0    50.3
     Domestic long distance       23.9%    37.2   45.0   45.9   33.94   36.6
     calls

----------

(1)  The fault rate is calculated by dividing the total number of verified
     customer complaints of malfunctioning telephone equipment and services by
     the total number of access lines in service and multiplying the result by
     100.

(2)  For dates covering years after 1986, the call completion rate was measured
     on the basis of actual calls completed. Call completion rates measured on
     this basis are lower than if measured on a free-to-free test basis since
     calls that are not answered because the recipient's line is engaged or
     where the network cannot complete the call because of congestion are deemed
     incomplete. Call completion rates measured on different bases are not
     comparable.

</TABLE>


SUPPLIERS

     In carrying out our development program, we have used a core group of
international equipment suppliers to purchase key switching equipment in order
to maintain technological compatibility while simultaneously decreasing
dependence on any one vendor. We believe that we have developed stable
relationships with our suppliers.

DEVELOPMENT ACTIVITIES

     Development activities are carried out by a planning group in each of the
Delhi and Mumbai operations, with overall planning activity coordinated at the
corporate office in Delhi. The main focus of each planning group is the
expansion of existing services, the development of new services and the
introduction of new technologies that are tested for their reliability,
compliance with internal and DOT technical specifications and compatibility with
our network.

GSM CELLULAR AND CDMA NETWORKS

     In order to build out our GSM cellular service infrastructure, we have
purchased, on an installed turn-key basis, mobile switching centers and mobile
base stations. We have had to upgrade and modify our customer service and
support operations to support these services and have incurred additional costs
in the form of rent for the placement of base stations, employee training


                                       35
<PAGE>


expenses and other operating and installation costs. In fiscal 2004, we have
installed infrastructure providing for an additional 400,000 GSM cellular
connections in each of Mumbai and Delhi, to be deployed upon completion of
testing.

     We have similarly built out our CDMA network through purchases, on an
installed turn-key basis, of wireless base stations and associated network
elements. We have incurred other expenditures related to the establishment and
operation of our CDMA wireless in local loop network. We have awarded contracts
for infrastructure providing for an additional 400,000 connections in each of
Mumbai and Delhi employing the more advanced CDMA 2000 1X technology, which can
provide subscribers high-speed data transmission capabilities and greater access
to value-added services. We are expecting deployment of these connections by
December 2004. Our CDMA network supports both CDMA fixed wireless services and
CDMA mobile services, and a CDMA connection can be employed for either service.

NETWORK MODERNIZATION

     We have historically planned our capital expenditures on five-year programs
that are subject to approval by the DOT and the Planning Commission of the
Indian government. The Ninth MTNL Plan was the five-year investment plan
covering the period from April 1, 1997 to March 31, 2002, and the Tenth MTNL
Plan covers the five-year period from April 1, 2002 to March 31, 2007.
Generally, five-year plan investment targets are much higher than actual
investment levels. Additionally, rapid changes in communications technology and
customer preferences render detailed investment planning for five years
impossible.

     Our current estimate for capital expenditures for fiscal 2005 is Rs.21.6
billion; however, based on our experience in past years, we expect that the
actual amount of capital expenditures for the year will be less than our
estimate. Our estimate does not include amounts that we may spend to enter the
market for international long distance service.

     The following table shows our network-related capital expenditures for the
periods indicated.

<TABLE>
<CAPTION>
                                                                  (RS. IN MILLIONS)
                                                                 YEAR ENDED MARCH 31,
<S>                                                         <C>         <C>           <C>
                                                              2002        2003          2004
     Local switching and access lines (including CDMA)/
     Transmission/Network Modernization/Expansion
     Abroad                                                  9,024       8,507         7,227

     Information technology                                    301         132            98
     Land, buildings and vehicles                              810       1,169         1,511
     Build-out of GSM cellular networks                        200         731           824

     Total                                                  10,335      10,539         9,660

</TABLE>


     We have funded our recent capital expenditures to the extent incurred, and
intend to fund the remaining capital expenditures, primarily from cash flow from
operations and existing cash balances. Our capital expenditures may be higher as
we introduce international long distance service, if demand for our GSM cellular
service or CDMA-based mobile service is higher than anticipated or if we
otherwise enter new markets or provide additional services.

PROPERTIES

     Our principal executive offices are located in Delhi and are leased from
the Life Insurance Corporation of India. We have interests in various properties
in Delhi and Mumbai that consist of land and buildings for offices,
administrative centers and technical facilities. We believe that all of our
owned and leased properties are well maintained and adequate for their present
use.

     In 1987, the assets and properties of the DOT located in Delhi and Mumbai
were transferred to us by an order of the government of India and a deed of
sale. Indian law generally requires that to perfect the transfer or lease of


                                       36
<PAGE>


real property, the transfer should be evidenced by a formal duly stamped deed of
transfer and registered with the Central Land Registrar within a specified
period after the execution of the deed of transfer or lease. A formal transfer
deed for real property of the DOT transferred by the government of India to us
has been executed but has not been registered with the appropriate authorities.
The formal transfer deed and the physical delivery of possession of the DOT's
non-real estate assets has resulted in the transfer of these non-real estate
assets of the DOT to us in Delhi and Mumbai. We believe that our use of these
properties is not affected by the fact that this deed has not been registered
with the appropriate authorities.

     Indian law requires payment of stamp duty (at rates which vary among
states) on instruments which effect transfer of title to real estate or in
respect of leases of real estate. Applicable stamp duty has not been paid in
respect of any of the properties acquired or leased by us. Accordingly, we may
be liable for stamp duty and related penalties if a deed is executed by us in
the future under the applicable rates of stamp duty and penalty payable in the
state where the property is located (other than with respect to the DOT
properties acquired from the government of India as at March 30, 1987). All
liabilities for stamp duties in respect of the DOT properties acquired by us
from the government of India as at March 30, 1987 are to be borne by the
government of India. We have been advised by our counsel that although we have
valid possession to all of the property, including the risks and rewards of
ownership and title, to enable us to perfect and thereby acquire marketable
title to real property in our possession, we would need to have relevant
documents relating to transfer or lease of real property duly stamped and
registered. In preparing our financial statements, the provision for this stamp
duty has been made on a best estimate basis.

                     TELECOMMUNICATIONS REGULATION IN INDIA

THE TELECOM REGULATORY AUTHORITY OF INDIA

     In March 1997, the Indian government established the TRAI, an independent
regulatory authority under the provisions of the Telecom Regulatory Authority of
India Act. The TRAI is an autonomous body comprised of a chairperson and not
more than two full-time members and not more than two part-time members
appointed by the Central government, and has primary responsibility for:

     o    making non-binding recommendations to the DOT, either at the request
          of the DOT or on its own, as to:

     o    the need for and the timing of the introduction of new service
          providers;

     o    the terms and conditions of licenses to new or existing service
          providers;

     o    revocation of existing licenses for non-compliance

     o    measures to facilitate competition and promote efficiency to
          facilitate growth in the industry;

     o    technology and equipment improvements in providers' infrastructures
          and in the industry generally;

     o    ensuring compliance of providers with license terms;

     o    determining the terms and conditions of interconnection between
          providers;

     o    ensuring technical compatibility between providers;

     o    regulating revenue sharing between providers;

     o    establishing quality standards and ensuring compliance through
          periodic reviews of providers; and

     o    determining time schedules pursuant to which providers will establish
          inter-connection between their networks.


                                       37
<PAGE>


     The TRAI also has the authority to, from time to time, set the rates at
which domestic and international telecommunications services are provided in
India. The TRAI does not have authority to grant licenses to service providers
or renew licenses (those functions remain with the DOT). The TRAI, however, has
the power to:

     o    call upon service providers to furnish information relating to their
          operations;

     o    appoint persons to make official inquiries;

     o    inspect books, and

     o    issue directions to service providers to ensure their proper
          functioning.

     Failure to follow TRAI directives may lead to the imposition of fines.

     The TRAI had previously acted in both a regulatory and an adjudicatory
role. The Indian government has amended the provisions of the Telecom Regulatory
Authority of India Act providing a separate adjudicative body called the Telecom
Disputes Settlement and Appellate Tribunal, also known as the Appellate
Tribunal, to adjudicate disputes between

     o    a licensor (i.e., the DOT) and a licensee;

     o    two or more service providers; and

     o    between a service provider and consumer advocacy groups.

     Additionally, the government of India, any Indian state or local government
or any person may apply to the Appellate Tribunal for adjudication of any of the
disputes listed above or appeal any order of the TRAI to the Appellate Tribunal.

UNIFIED LICENSE

     In July 2003, the TRAI issued a consultation paper on, among other things,
introduction of a unified telecommunications license, under which it would be
possible for a telecommunications service provider to provide both basic
services and cellular services. The consultation paper also addresses the
possibility of licensing the provision of international and national long
distance services and internet services under this one unified license.

     On October 27, 2003, the TRAI recommended that considering the vision of
the government of India through various policies (e.g., NTP94, NTP99,
Convergence Bill), technological development, market trends, international
trends, the need to accelerate growth of telephone density, public interest and
for the proper conduct of the Service/telegraphs, it is recommended that within
six months "Unified Licensing" regime should be initiated for all services
covering all geographical areas using any technology.

     On November 15, 2003, the TRAI's recommendations on unified licensing were
accepted by the Government of India. They provide for implementing Unified
Licensing for all telecom services within a time bound manner, starting with
Unified Access Licensing. Based upon the TRAI's recommendations, the DOT has
issued guidelines for Unified Access (Basic and Cellular) Service License
through their letter No.808-26/2003-VAS dated November 11, 2003.

NEW TELECOM POLICY 1999 AND SUBSEQUENT DEVELOPMENTS

     In March 1999, the Indian government introduced its 1999 telecom policy,
which sets forth a new policy framework for telecommunications regulation in
India. One of the stated goals of the 1999 telecom policy is to foster greater
competition in the telecommunications industry. To that end, the 1999 telecom
policy liberalizes the regulation of the industry by allowing multiple basic
service providers in any service area, with the number of new entrants and their
mode of service to be determined by the government of India. The 1999 telecom


                                       38
<PAGE>


policy allows direct interconnectivity and sharing of infrastructure between a
basic service provider and any other type of service provider in its area of
operations. Such service providers must negotiate the terms of any
interconnection.

     In addition, the 1999 telecom policy provides that either the DOT (now
operating through BSNL) or Mahanagar Telephone Nigam Limited may be licensed as
an additional cellular operator in any service area it wishes to enter.
Additional cellular service operators may be licensed in the future, based on
the recommendation of the TRAI, following its ongoing review (to occur at a
minimum of at least once every two years) of frequency spectrum utilization by
existing providers, the optimal use of available spectrum and the requirements
of the market, competition and the public interest.

     Further, the 1999 telecom policy states that competition in the
international long distance market will be reviewed by 2004 and VSNL would no
longer have monopoly in this field. Subsequently, the Indian government
announced that this market will be opened for competition beginning April 1,
2002. Licenses have recently been granted to a few companies like the Reliance
Infocomm Limited, Bharti Infotel Limited, Data Access (India) Limited and BSNL
for provision of international long distance services. We have obtained a letter
of intent from the DOT for, and complied with various formalities to obtain,
such a license and intend to deploy this service as soon as the license is
issued.

     The 1999 telecom policy states that the Indian telecommunications industry
must expand at a significantly greater pace and the Indian government must
liberalize regulation commensurate with worldwide trends in order for the Indian
telecommunications industry to fully develop in terms of technology, services,
quality and market penetration. As the teledensity has reached a level of 7% in
India, the industry has achieved a major requirement of the country in terms of
policy objectives.

     The TRAI has issued the IUC regulation 2 of 2003, dated October 29, 2003.
The IUC Regulation (2 of 2003) covers arrangements among service providers for
payment of Interconnection Usage Charges for Telecommunication Services,
covering Basic Service, which includes WLL (M) services, Cellular Mobile Service
Providers and Long Distance Operators throughout the territory of India.

     The recommendations of the 1999 telecom policy, and certain important
subsequent developments, are as follows:

BASIC SERVICES, INCLUDING CDMA-BASED FIXED WIRELESS AND MOBILE SERVICES

     The 1999 telecom policy permits direct interconnectivity between basic
service providers and any other type of service provider (including another
basic service provider or a cellular service provider) in their areas of
operation and sharing of infrastructure with any type of service provider. It
allows the basic service providers to directly interconnect with VSNL after the
opening up of national long distance service from January 1, 2000. The basic
service providers have been permitted to utilize last mile linkages or
transmission links within its service area made available by other service
providers.

     In accordance with the 1999 telecom policy, the TRAI undertook a review of
interconnectivity between providers in different service areas. In July 2002 the
authority adopted a reference interconnect offer regulation which includes the
model reference interconnect offer/draft agreement and the reference
interconnect offer guidelines. Pursuant to this, service providers are permitted
to interconnect with other service providers on the basis that they shall not
discriminate as to the terms and conditions offered to different service
providers. Effective May 1, 2003, the authority implemented a regulation
providing a complete set of interconnect usage charges. The regulation adopts a
calling party pays principle, so that the operator responsible for origination
of a call bears liability for payment of the interconnect fees for transmission
and/or termination.

     In January 2001 the DOT issued guidelines for basic services, including
provisions for wireless access systems limited within the local area. In April
2001, the Indian government announced that all basic licensees, including us,
may offer wireless-in-local loop services under their basic service licenses.


                                       39
<PAGE>


CELLULAR SERVICE

     The 1999 telecom policy also provides for greater competition among
cellular service providers. The government of India proposes to review spectrum
utilization from time to time in view of emerging spectrum availability, optimal
use of spectrum, market requirements, competition and the public interest. The
TRAI will provide recommendations to the government of India with respect to new
licenses at least every two years.

     The 1999 telecom policy permits direct interconnectivity between licensed
cellular service providers and any other type of service provider (including
another cellular service provider) in their area of operation including sharing
of infrastructure with any other type of service provider. The cellular service
providers have been allowed to directly interconnect with the VSNL after opening
of national long distance from January 1, 2000. Interconnectivity between
service providers in different service areas is now governed by the July 2002
reference interconnect offer regulation and the May 2003 interconnection usage
charges regulation. With the interconnection usage charges regulation and
related tariff changes, the TRAI introduced the calling party pays principle,
resulting in the elimination of customer charges (other than roaming charges)
for incoming cellular calls.

UNIFIED ACCESS LICENSE

     In November 2003, the DOT issued guidelines for the Unified Access (Basic
and Cellular) Services License; which permit the provision of both basic and
cellular services (with mobility) within a service area.

DOMESTIC LONG DISTANCE

     On August 13, 2000, the Indian government published guidelines for the
liberalization of the domestic long distance market subsequent to which
applications were received for domestic long distance licenses. The Bharti Group
and Reliance Group have been awarded domestic long distance licenses. These
guidelines do not restrict the number of new entrants into this market, but
entrants must satisfy a number of requirements.

     In addition, entrants into the domestic long distance market must pay a one
time entry fee of Rs.1 billion and provide bank guarantees of Rs.4 billion which
will be refunded upon completion of their network obligations.

INTERNATIONAL LONG DISTANCE

     The Indian government has recently issued licenses to several private
sector companies for the provision of international long distance services. In
addition, the Tata Group, which controls Tata Teleservices, acquired a
controlling interest in VSNL, which had been government-controlled.

     On our application, the government of India has issued us a letter of
intent for an international Long Distance Service License. We have submitted our
papers and required Bank Guarantee in this regard and the license is likely to
be issued in the near future. We have already planned to start providing ILD
services at the earliest opportunity.

INTERNET POLICY

     In November 1998, the government of India announced a new Internet policy,
which aims to increase the usage of the Internet by allowing private Internet
service providers:

     o    foreign ownership not exceeding 49%;

     o    a license fee moratorium for the first five years;

     o    the autonomy to fix tariffs;

     o    direct interconnectivity between any two Internet service providers;


                                       40
<PAGE>


     o    to set up international gateways for Internet access after obtaining
          the necessary security clearances; and

     o    to offer "last mile" linkages within local areas either by optical
          fiber cable or radio communications after obtaining the necessary
          approvals.

     Effective April 1, 2002, the Indian government adopted guidelines under
which internet service providers could provide internet telephony services.

     The government of India passed the Information Technology Act, 2000 to
facilitate the development of a secure environment for electronic commerce. This
act establishes a regulatory authority for electronic commerce, provides legal
validity to information in the form of electronic records and permits, unless
otherwise agreed, an acceptance of a contract to be expressed by electronic
means of communication. It facilitates electronic intercourse in trade and
commerce by providing the legal framework for authentication and origin of
electronic record/communication through digital signature and eliminates
uncertainties over writing and signature requirements.

     We believe that as of March 31, 2004 there were approximately 189 licenses
for providing Internet services issued in India.

THE TARIFF ORDER

     Effective May 1, 1999, the TRAI implemented The Telecommunications Tariff
Order 1999. The intention of the tariff order was to protect consumers by
aligning tariffs that telecommunications providers may charge for the service
provided while ensuring the commercial viability of the various service
providers and so encouraging the expansion of the Indian telecommunications
industry. This "rebalancing" of tariffs is to take place in stages. The first
stage of tariff rebalancing in May 1999 reduced the charge per pulse from
Rs.1.40 to Rs.1.20, decreased local call pulse durations from five to three
minutes (effectively increasing local call charges), increased domestic and
international call pulse durations (effectively reducing domestic long distance
and international call charges) and increased monthly line rental rates for
subscribers that generate more than 200 pulses per month from Rs.190 to Rs.250.
The second stage of tariff rebalance further reduced domestic long distance and
international call charges effective October 1, 2000 and increased monthly line
rental rates to Rs.250 for all subscribers effective February 1, 2001. Domestic
long distance call charges were further reduced significantly with effect from
January 14, 2002, March 7, 2003 and May 1, 2004, and international long distance
call charges were subject to further significant reduction with effect from July
20, 2002, October 21, 2003 and April 10, 2004. Effective May 1, 2003, as part of
its effort to balance the effects of prior tariff reductions, the TRAI changed
the standard plan that we must offer all customers by increasing monthly rentals
for basic services from Rs. 250 to Rs.280, reduced the local call pulse duration
(for calls made to fixed and fixed wireless lines) from three minutes to two
minutes and the number of free monthly call pulses.

     The TRAI has issued the Telecommunication Tariff (28 amendments) (5 of
2003) dated July 5, 2003.

     A tariff plan once offered by an Access Provider shall be available to a
subscriber for a minimum period of 6 months from the date of enrollment of the
subscriber to that tariff plan.

     Because we retain the remainder of prices of domestic and international
long distance calls originating on our network, net of interconnect charges, by
lowering long distance rates the tariff reductions have reduced the revenue we
receive per call. We believe that, to date, the tariff order has not resulted in
significantly higher long distance usage and that, accordingly, the tariff order
has had a negative impact on our revenues and earnings as the lower charges have
not been offset by higher usage.

     The tariff order prescribes a reporting requirement such that a service
provider must report any change in tariff to the TRAI within seven days from
implementation.


                                       41
<PAGE>


ITEM 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     You should read the following discussion in conjunction with the "Selected
Financial and Operating Data" and our consolidated financial statements and the
related notes, which appear elsewhere in this report. Our consolidated financial
statements have been prepared in accordance with U.S. GAAP.

                                OPERATING RESULTS

OVERVIEW

     A number of recent developments have significantly affected our results of
operations. These developments and a number of potential developments may affect
our results of operations, liquidity, capital resources and capital expenditures
in future periods. Recent developments include:

     o    recent regulatory changes such as the May 1999 tariff order and
          several further reductions in long distance call charges;

     o    adoption of the comprehensive interconnection usage charges regulation
          based on the calling party pays principle, with effect from May 1,
          2003;

     o    our expansion into new businesses such as providing cellular and
          CDMA-based fixed wireless and mobile services and the rapid
          introduction by several other operators of low-cost CDMA-based
          technologies that can be used for both fixed wireless and mobile
          services;

     o    growing competition;

     o    our expansion into foreign markets - to date Nepal and Mauritius;

     o    new interconnect arrangements with international long distance
          carriers, including revenue sharing on incoming calls;

     o    industry consolidation;

     o    our investment programs to expand and modernize our network; and

     o    revised basis of calculation of license fee and networking charges
          with effect from April 1, 2001.

     Potential future developments include:

     o    increased competition from basic and cellular operators, including the
          continued rapid introduction by several operators of low-cost
          CDMA-based technologies that can be used for both fixed wireless and
          mobile services;

     o    continued consolidation in the industry;

     o    further rate reductions as a result of intensifying competition or
          tariff reductions;

     o    new interconnect agreements, including with BSNL;

     o    license fee revisions, including revisions that may be applied
          retroactively;

     o    our procuring a unified license regime;

     o    possible direct or reverse merger with BSNL;


                                       42
<PAGE>


     o    the implementation of voluntary retirement schemes for our employees;

     o    requirement to pay sales tax on certain revenues, including historical
          revenues;

     o    transfer of our trunk auto exchanges to BSNL on the directions of DOT;
          and

     o    further regulatory changes.

     Our future results of operations are also likely to be affected by
macroeconomic trends such as the rate of growth of the Indian economy,
particularly in Delhi and Mumbai, and the introduction of new technologies and
products by our competitors and us. Many of these factors are beyond our
control.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     Up to the fiscal year ending March 31, 2003 we prepared our consolidated
financial statements in accordance with IAS reconciled to US GAAP. For fiscal
year 2004, we have prepared the consolidated financial statements in accordance
with US GAAP, and accordingly the financial statements for each of the years
ended March 31, 2002, March 31, 2003 and March 31, 2004 are so presented.

     Our accounting policies are described in Note 2 of the Notes to our
consolidated financial statements. Our consolidated financial statements which
are part of this Annual Report are prepared in conformity with US GAAP, which
require us to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the year. Actual results could differ from those estimates. We
consider the following policies to be most critical in understanding the
judgments that are involved in preparing our financial statements and the
uncertainties that could impact our results of operations, financial condition
and cash flows.

     Recognition of Revenues. Revenues include amounts invoiced for call
revenue, fixed monthly rental charges, roaming charges, activation fees,
internet services, access and interconnection revenue and fees for value added
services ('VAS').

     Revenues for fixed line and cellular telephonic services are recognized
based upon metered call units (MCU) of traffic processed. Rental revenues and
leased circuits rentals are recognized based upon contracted fees schedule.
Revenues from internet services are recognized based on usage by subscribers.

     Revenues associated with access and interconnection for usage of the
Company's telephone network by other operators for local, national long distance
and international long distance calls are recognized in accordance with the
Interconnect Usage Charges Regulation released by TRAI. TRAI regulation
specifies per minute rates for metered call units (MCU) of traffic terminated on
the Company's network.

     Revenues are shown net of service tax and applicable discounts and
allowance.

     Unbilled receivables represent revenues recognized in respect of
services provided from the last bill cycle date to the end of the year. These
are billed in subsequent periods as per the terms of the billing plans.

     Amounts charged for the new connection given to existing and new
customers are deferred and released to the consolidated income statements over
the average life of the customer relationship. In addition to amount so
deferred, deferred revenue includes amounts billed in advance for services to be
rendered.

     A significant portion of our revenue is derived from interconnect and
access charges for calls terminating at our network. The related rules and
telecommunication industry related policies are framed and determined by the
Government of India through its departments and regulatory authorities such as
DOT and TRAI. Since, interconnect and access charges are presently governed by
IUC regime, the Company has not entered into separate agreements with certain
other operators. Any subsequent amendment to the presently applicable guidelines
with retrospective effect relating to tariff and interconnect/access charges
will impact our revenues significantly.

     License Fees. We are paying license fee and spectrum charges to DOT in
accordance with conditions governing license fee for Basic Telephone Service and
Cellular Telephone Service prescribed by DOT under the Revenues Sharing Regime,
whereby license fee is computed at a specified percentage of adjusted gross
revenue. The license fee is expensed as incurred.

     In view of the uncertain political environment and the fact that the
license fee is determined on the basis of guidelines prescribed by regulatory
authorities, the license fees is subject to change in the event any of these
guidelines are modified subsequently with retrospective effect.

     Network Charges. Charges associated with access to and interconnection to
other operators' network by the Company for local, national long distance and
international long distance calls are recognized in accordance with the
Interconnect Usage Charges Regulation released by TRAI, where applicable, and in
accordance with the terms of agreements entered into with other operators. TRAI
regulation specifies per minute charges for metered call units (MCU) of traffic
terminated on the other operators' network.

     In view of the uncertain political environment and the fact that the
network charges are determined on the basis of guidelines prescribed by
regulatory authorities, the network charges are subject to change in the event
any of these guidelines are modified subsequently with retrospective effect.


                                       43
<PAGE>


     Pension and Other Retirement Benefits. We sponsor pension and other
retirement plans in various forms covering substantially all employees who meet
eligibility requirements. Several statistical and other factors, which attempt
to anticipate future events, are used in calculating the expense and liability
related to the plans. These factors include assumptions about the discount rate,
expected return on plan assets and rate of future compensation increases as
determined by us, within certain guidelines. In addition, we also use subjective
factors such as withdrawal and mortality rates to estimate these factors. The
actuarial assumptions used by us may differ materially from actual results due
to changing market and economic conditions, higher or lower withdrawal rates or
longer or shorter life spans of participants. These differences and the fact we
have not invested pension and other retirement benefit funds to cover retirement
liability may result in a significant impact to the amount of pension and other
retirement benefit expense recorded by us.

     Income Taxes. In accordance with the provisions of SFAS 109, Accounting for
Income Taxes, income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the statements of income in the period such changes are
enacted. Based on management's judgment, the measurement of deferred tax assets
is reduced, if necessary, by a valuation allowance for any tax benefits for
which it is more likely than not that some portion or all of such benefits will
not be realized.

     Legal Contingencies. We are currently involved in certain legal proceedings
and have accounted for contingencies in accordance with Statement of Financial
Accounting Standard (SFAS) No. 5, "Accounting for Contingencies." SFAS No. 5
requires that we record an estimated loss from a loss contingency when
information available prior to issuance of our financial statements indicates
that it is probable that an asset has been impaired or a liability has been
incurred at the date of the financial statements and the amount of the loss can
be reasonably estimated. This estimate has been developed in consultation with
outside counsel handling our defense in these matters and is based upon an
analysis of potential results, assuming a combination of litigation and
settlement strategies. We do not believe these proceedings will have a material
adverse effect on our consolidated financial position. While we believe that our
accruals for these matters are adequate, if the actual loss from a loss
contingency is significantly different than the estimated loss, our results of
operations may be over or understated.

     Allowance for Accounts Receivable. We estimate the amount of uncollectible
receivables each period and establish an allowance for uncollectible amounts.
The amount of the allowance is based on the age of unpaid amounts, information
about the creditworthiness of customers, and other relevant information.
Estimates of uncollectible amounts are revised each period, and changes are
recorded in the period they become known.

REVENUE

     We derive a substantial portion of our revenue from local, domestic long
distance and international calls that originate on our network and from
telephone rentals. We realize revenue in the form of installation charges,
ongoing subscription/rental charges and usage charges. We also derive revenues
from providing Internet services, our Intelligent Network services, public call
office or public payphone services, interconnection with basic service, long
distance service and cellular operators, narrow-band ISDN services, leased-line
services, telex services, GSM cellular services in Delhi and Mumbai, those
value-added services for which we charge a fee and, since December 2001,
CDMA-based mobile and fixed wireless services in Delhi and in Mumbai.

     We only began receiving interconnect payments in respect of incoming
international long distance calls since April 1, 2002, when several interconnect
agreements, including our agreement with VSNL, took effect. In fiscal 2004,
revenue sharing with BSNL and other operators for incoming and outgoing domestic
long distance or subscriber trunk dialing calls was done on the basis of TRAI's
Interconnect Usage Charges Regulation 2003 (1 of 2003) implemented from May 1,
2003 and modified by Interconnect Usage Charges Regulation 2003 (2 of 2003)
effective February 1, 2004. For April 2003, these charges were accounted per the
earlier arrangement. Call revenue is generally a function of the number of
access lines in service, the volume of traffic carried and the level of call
charges. Telephone and other rental revenue is a function of the number of
access lines in service and the rental tariffs we charge. Public call office
revenue is driven by the number of MTNL public call offices, the volume of
traffic carried and the level of call charges. Interconnect revenue is a
function of the contractual and legal/regulatory rates prescribed for
interconnection and the level of call volumes originating from sources that pay
interconnect fees. From March 31, 2000 to March 31, 2004 growth in our call
office revenue, telephone and other rentals and public call revenue was driven
primarily by growth in the number of access lines in service, the increased
rental per line with effect from February 1, 2001, and the number of public call
offices in operation. While the volume of traffic we have been carrying has been
increasing, the increase in certain periods has been more than offset by
declining tariffs. Growth in interconnect revenue was driven primarily by growth
in the number of access lines in service and the volume of traffic coming into
our network.



                                       44
<PAGE>



     The May 1999 tariff order provided for a "rebalancing" of tariffs in stages
to reduce subsidization of local calls by long distance users. The first stage
of tariff rebalancing in May 1999 reduced the charge per pulse from Rs.1.40 to
Rs.1.20, decreased local call pulse durations from five to three minutes
(effectively increasing local call charges), increased domestic and
international call pulse durations (effectively reducing domestic long distance
and international call charges) and increased monthly line rental rates for
subscribers that generate more than 200 pulses per month from Rs.190 to Rs.250.
The second stage of tariff rebalancing further reduced domestic long distance
and international call charges effective October 1, 2000 and increased monthly
line rental rates to Rs.250 for all subscribers effective February 1, 2001.
Domestic long distance call charges were further reduced significantly with
effect from January 14, 2002, March 7, 2003 and May 1, 2004, and international
long distance call charges were subject to further significant reduction with
effect from July 20, 2002, October 21, 2003 and April 10, 2004. Primarily as a
result of these tariff reductions, excluding termination revenues, our average
revenue per access line in service has been declining. Any further tariff
rebalancing may result in lower call charges, particularly for domestic long
distance and international calls, which might be offset by an increase in rental
tariffs. We are not able to assess at this time the full long-term impact that
the tariff order will have on subscriber calling patterns or on revenues. As
competition intensifies, we expect call charges will likely decline and, to the
extent that call volumes do not increase as a result of lower call charges,
excluding termination revenues, our revenue per access line in service may
continue to decline.

     We expect that call revenue and revenue from public call offices will
decline as a percentage of total revenue as demand for our other products and
services, particularly our GSM cellular services, increases and if rental
charges increase as a result of further tariff rebalancing.

COST OF REVENUES

     Our operating costs include staff costs, license fees and network
utilization charges, depreciation expenses, maintenance costs and commissions
paid to public call office franchise operators.

     Staff costs. In general, employees receive a base salary and salary-related
housing and other allowances, productivity-based incentive payments and certain
benefits, including a pension/gratuity plan, medical benefits for themselves and
certain members of their immediate families and post-retirement medical benefits
for retired employees. The increase in our staff costs was primarily due to the
enhancement of post-retirement medical benefits and an increase in retirement
benefit charges on account of a fall in the discount rate used to value our post
retirement obligations to employees. This is in line with the general fall in
interest rates in the economy over the same period. The increase is also
attributable to a rise in average pay as a result of a rise in annual increments
and accrual of cost for executives who have opted to become our employees on
higher revised pay and also due to charge on absorption of Group B employees
(executive employees) into the company with retroactive effect from October 1,
2000.

     In fiscal 2000, substantially all of our non-executive employees originally
employed by the DOT decided to terminate their services with the department and
accept employment with us effective November 1998 Under the option given to them
for pension benefits, our absorbed employees could opt to retain pension
benefits in accordance with the Central government pension rules or in
accordance with our retirement rules which are applicable to our directly
recruited employees, and opt to draw pro rata monthly pension until their
absorption. Accordingly, with effect from November 1, 1998 we started accruing


                                       45
<PAGE>


for pension and gratuity for these employees. In August/September 2002, the DOT
indicated that the government would pay for the pension benefits of the
government employees absorbed by us who opted for either the Central government
scheme of pension or for the pro rata pension scheme for the period served with
the DOT. However, the terms of such payments are in the process of finalization.
Once these terms are finalized and the payments are made to DOT for the period
of employment of these employees with us, we expect that our liability for post
retirement obligations would be limited to monthly contributions on the basis of
the rules to be prescribed by the government of India. We do not expect that the
amount that would eventually be payable by us to the DOT would be higher than
the liability outstanding in respect of our post-retirement obligations as at
the end of fiscal 2004.

     Approximately 97% of our executive employees have accepted absorption into
our company and are now our direct employees. These employees are entitled to
certain pension and gratuity benefits from the government of India.

     We have finalized a new compensation structure for our executive employees.
The new structure provides for higher salaries and benefits for our executive
employees. We have been provisioning for the increased costs associated with
this and in 2004 for significant related charges.

     As a public sector enterprise, we abide by general DOT and Department of
Public Sector Enterprises personnel policies that, among other things, limit our
ability to reduce employment levels and control the amount of salaries and other
remuneration that we may pay to our employees. Our employee productivity
measured by access lines in service per employee has been increasing steadily
but remains significantly lower than the Asian and global averages. Our board of
directors has approved a voluntary retirement scheme for certain categories of
our employees. This scheme remains in abeyance and has not been implemented.

     License fees and network utilization charges. Under our previous
arrangement with the DOT, the license fee for providing basic services was fixed
at Rs.900 per access line in service. This arrangement expired on March 31,
2000. In the absence of any new arrangement with the DOT, we continued to pay
license fees during fiscal 2001 on the same terms as our previous arrangement.
On April 9, 2001, the DOT communicated that the annual license fee will be
revised and shall be payable at 12% of adjusted gross revenue from basic
telephone service effective from August 1, 1999, as applicable to private
operators from that date. On September 5, 2001, the DOT amended its position and
indicated that the date from which the revised license fees will be payable will
be notified later. Accordingly, the Company paid license fees based on the
earlier arrangement up to the year ended March 31, 2001 and on the revised basis
from April 1, 2001 onwards. Subsequent to the year ended March 31, 2004 in a
meeting with DOT it has been agreed that the license fee is payable at 12% of
the adjusted gross revenue with effect from August 1, 1999 and the charges for
the same have been accrued in the year ended March 31, 2004. Under our previous
arrangement with BSNL, we paid network utilization charges to BSNL as a fixed
percentage of the amount of usage and other charges billed to our customers for
our services. Our network utilization arrangement with BSNL expired on March 31,
2001. To date no agreement for networking charges has been entered into which
determines the basis of revenue sharing for incoming or outgoing domestic long
distance or subscriber trunk dialing calls through interconnection with BSNL's
network. In absence of the same, for fiscal 2003, the interconnection charges on
domestic long distance calls have been accrued on the basis of the rates that
were payable by other basic service operators in the country. We are in the
process of finalizing a new agreement with BSNL.

     In fiscal 2004, revenue sharing with BSNL and other operators for incoming
and outgoing domestic long distance or subscriber trunk dialing calls was done
on the basis of TRAI's Interconnect Usage Charges Regulation 2003 (1 of 2003)
implemented from May 1, 2003 and modified by Interconnect Usage Charges
Regulation 2003 (2 of 2003) effective February 1, 2004. For April 2003, these
charges were accounted per the earlier arrangement.

     Until the end of fiscal 2002, all outgoing international long distance
calls originating from our network were subject to interconnection fees payable
to BSNL, and we received no revenue from incoming international long distance
calls into our network. We paid interconnect fees to BSNL in respect of outgoing
international long distance calls pursuant to the network utilization
arrangement with BSNL until March 31, 2001 and for fiscal 2002 on the basis of
the rates that were payable by other basic service operators in the country.
Beginning April 1, 2002, we recorded incoming and outgoing international long
distance traffic pursuant to interconnect agreements we have signed with several
international carriers, most importantly, VSNL. As a result of these agreements,
we no longer make payments to BSNL in respect of international long distance
traffic. In addition, our agreements with the international carriers provide for


                                       46
<PAGE>


income in respect of incoming calls, in addition to payments in respect of
outgoing calls originating from our networks.

     For more information on license fees and network utilization charges,
please see "Information on the Company--Business Overview."

INFLATION

     Inflation in India, as measured by the Indian consumer price index, was
4.3% in fiscal 2002, 4.1% in fiscal 2003 and 5.5% in fiscal 2004. We do not
believe that inflation in India has had a material impact on our results of
operations in recent years. However, the TRAI has been granted the authority to
determine tariffs, and we are therefore restricted in our ability to increase
tariffs to compensate for inflation. As a result, inflation could adversely
affect our results of operations. See "Information on the Company--Business
Overview--Tariffs and Other Charges."

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

     There are a number of new accounting standards that have been issued that
will affect our information presented in accordance with US GAAP. For a
description of these recent pronouncements, please see Note 3 to our
consolidated financial statements included elsewhere in this form.

OTHER MATTERS

     See "Information on the Company--Business Overview--Legal Proceedings" and
Note 22 to our consolidated financial statements for information on our
contingent liabilities.

     We are selectively targeting expansion opportunities outside India where we
can leverage our expertise and relationships. We are making investments in Nepal
and Mauritius and are currently examining several other opportunities. We
invested Rs.183 million in fiscal 2003 on the Nepal venture, and Rs.44.7 million
in respect of the Mauritius operations in fiscal 2004.

     We have obtained a letter of intent from the Department of
Telecommunication to provide international long distance service and we intend
to deploy these services as soon as a license is issued. We cannot determine at
this time what impact entry into these markets will have on our revenues and
results of operations.

     In 2003, our Board of Directors approved a voluntary retirement scheme for
certain categories of our employees. This scheme is in abeyance and has not been
implemented.


                                       47
<PAGE>


RESULTS OF OPERATIONS

     The following table sets forth selected income statement data expressed as
a percentage of revenue for the period indicated, prepared in accordance with US
GAAP.

<TABLE>
<CAPTION>

                                                     2002       2003       2004

     <S>                                             <C>        <C>        <C>
     Revenues                                        100.0%       100%       100%
     Cost  of  revenues  (excluding  depreciation
     shown separately below)                          52.3%      54.4%      61.4%
     Gross profit                                     47.6%      45.5%      38.5%
     Selling,    general    and    administrative     13.2%      15.2%      15.8%
     expenses   (excluding    depreciation   show
     separately below)
     Depreciation                                     11.7%      15.4%      14.2%

     TOTAL OPERATING EXPENSES                         25.0%      30.6%      30.0%

     INCOME FROM OPERATIONS                           22.6%      14.9%       8.4%
     Interest and other income, net                    3.4%       4.0%       4.6%

     INCOME  BEFORE  INCOME  TAXES,  AND SHARE OF     26.1%      18.9%      13.1%
     LOSSES FROM AFFILIATE
     Income taxes                                      9.6%       8.6%       4.8%
     Equity in (losses) of affiliate                      -          -          -

     NET INCOME                                       16.4%      10.3%       8.2%

</TABLE>

(1) Net of amounts recoverable from the DOT/BSNL.

COMPARISON OF YEAR ENDED MARCH 31, 2004 WITH YEAR ENDED MARCH 31, 2003

     Revenues. Our total revenues increased by 11% from Rs.55,251 million for
the year ended March 31, 2003 to Rs. 61,084 million for the year ended March 31,
2004. This was driven primarily due to 115% increase in interconnection revenues
from Rs.6,083 million in fiscal 2003 to Rs.13,105 million in fiscal 2004 due to
implementation of IUC regime by TRAI with effect from May 1, 2003, as from that
date we started receiving call termination income from BSNL.

     Cost of Revenues. Our total cost of revenues increased by 25% from
Rs.30,092 million for the year ended March 31, 2003 to Rs.37,531 million for the
year ended March 31, 2004. This was driven primarily by increase in staff costs,
license fee and interconnection charges. The increased staff costs relate
primarily to charges for pension, gratuity, leave encashment and arrears of pay,
on absorption of Group "B" employees (executive employees) into the company with
retroactive effect from October 1, 2000. The increase in license fee and
interconnection charges is primarily due to resolution of the ambiguity with
respect to applicability date of TRAI regulations whereby license fee charges
have been accrued at 12% of AGR with effect from August 1, 1999. The
interconnection charges increased following the implementation of the IUC
regime, which required us to make payments to other operators beginning May 1,
2003

     Gross Profit. Our Gross Profit decreased by 6% from Rs.25,159 million for
the year ended March 31, 2003 to Rs.23,553 million for the year ended March 31,
2004. This was due to increase in costs of revenues in terms of percentage of
revenue, which is primarily due to increase in staff costs.

     Selling, General and Administrative Expenses. Our Selling, General and
Administrative Expenses increased by 15% from Rs.8,405 million for the year


                                       48
<PAGE>


ended March 31, 2003 to Rs.9,701 million for the year ended March 31, 2004. This
was driven primarily by a 17% increase in allowances for doubtful accounts
accounted in fiscal 2004 and increase in other expenses due to higher levels of
activities.  Please also refer to "Risk Relating to Our Business" section in
this document.

     Income from Operations. Intensive competition, gradual decrease in
tariff and increase in cost has resulted in lower income from operations over
the past two years. We have implemented a strategy of increasing volume and
undertaken various cost reduction measures to mitigate the impact of competition
and reduction in tariff.

     Our Income from Operations decreased by 37% from Rs.8,247 million for
the year ended March 31, 2003 to Rs.5,177 million for the year ended March 31,
2004 due to reasons explained above.

     Interest and Other Income. Our Interest and other income increased by 28%
from Rs.2,218 million for the year ended March, 31, 2003 to Rs.2,844 million for
the year ended March 31, 2004. This was driven primarily by higher interest
income due to an increase of 41% in cash and cash equivalents and also due to
taking into income unlinked credits, which date back for several years.

     Income Taxes. Our Income Taxes decreased by 38% from Rs.4,754 million for
the year ended March 31, 2003 to Rs.2,949 million for the year ended March 31,
2004. This was driven primarily due to 42% decline in income from operations.

COMPARISON OF YEAR ENDED MARCH 31, 2003 WITH YEAR ENDED MARCH 31, 2002

     Revenues. Our total revenues decreased by 6 % from Rs.58,735 million for
the year ended March 31, 2002 to Rs.55,251 million for the year ended March 31,
2003. This was driven primarily due to decrease in call revenue because of
tariff reductions during the year.

     Cost of Revenues. Our total cost of revenues decreased by 2% from Rs.30,729
million for the year ended March 31, 2002 to Rs.30,092 million for the year
ended March 31, 2003. This was driven primarily by decline in interconnection
payments to BSNL and also decline in license fees and spectrum charges payable
to DOT over fiscal 2002, which was partially offset by increase in staff costs.

     Gross Profit. Our Gross Profit decreased by 10% from Rs.28,006 million for
the year ended March 31, 2002 to Rs.25,159 million for the year ended March 31,
2003. This was driven primarily by decline in revenues by Rs.3,484 million and
increase in cost of revenues by Rs.637 million over fiscal 2002.

     Selling, General and Administrative Expenses. Our Selling, General and
Administrative Expenses increased by 8% from Rs.7,799 million for the year ended
March, 31, 2002 to Rs.8,405 million for the year ended March 31, 2003. This was
driven primarily by increase in bad debts provision during the year. Please
also refer Risk Relating to Our Business section in this document.

     Income from Operations. Our Income from Operations decreased by 38% from
Rs.13,302 million for the year ended March 31, 2002 to Rs.8,247 million for the
year ended March 31, 2003. This was driven primarily due to decrease in revenues
by Rs.3,484 million and decrease in cost of revenues by 637 million over fiscal
2002.

     Interest and Other Income. Our Interest and other income increased by 8%
from Rs.2,051 million for the year ended March, 31, 2002 to Rs.2,218 million for
the year ended March 31, 2003. This was driven primarily due to low returns on
bank balances as interest rates on rupee deposits in India declined over the
period.

     Income Taxes. Our Income Taxes decreased by 16% from Rs.5,687 million for
the year ended March 31, 2002 to Rs.4,754 million for the year ended March 31,
2003. This was driven primarily due to lower current tax resulting from
decreased profit before tax.

SEGMENT INFORMATION

     We have identified basic and cellular as the two operating segments of
MTNL. However, during fiscal 2003 and fiscal 2004, we did not consider cellular
services to be a reportable segment because it does not meet the thresholds of
significance. Our business in conducted exclusively in India, which for
reporting purposes is considered a single geographic area.


                                       49
<PAGE>


                         LIQUIDITY AND CAPITAL RESOURCES

     A summary of our cash flows appears below:

<TABLE>
<CAPTION>
                                                                        (IN MILLIONS OF RS.)
                                                                         YEAR ENDED MARCH 31
                                                                      2002        2003        2004
     <S>                                                             <C>         <C>         <C>
     Net cash provided by the operating activities                   17,164      23,456      19,885
     Net cash used in investing activities                           (9,945)    (14,739)     (9,315)
     Net cash from financing activities                              (7,591)    (15,011)     (3,198)
     Net increase/(decrease) in cash and cash equivalents              (372)     (6,294)      7,372
     Cash and cash equivalents at the beginning of the year          24,828      24,456      18,162

     Cash and cash equivalents at the end of the year                24,456      18,162      25,534

</TABLE>

     We have historically met our working capital and capital expenditure
requirements principally from cash flow generated from operations. We have also
from time to time undertaken external borrowings. As of March 31, 2004, we had
no borrowings. We expect to meet our planned capital requirements for the next
two years primarily from cash flow generated from operations, together with
existing cash balances and supplemented by market borrowings, whenever required.
At March 31, 2004, we had cash and cash equivalents of Rs.25.53 billion. We do
not expect to have any liquidity problem in regard of possible adverse results
in our pending litigations as we would expect to discharge any obligations from
cash on hand.

OPERATING ACTIVITIES

     Net cash flow from operating activities was Rs.23.5 billion in fiscal 2003
and Rs.19.9 billion in fiscal 2004. The decrease in cash generation from
operating activities during the current year is attributable to an increase in
accounts receivable balances and restricted assets.

INVESTING ACTIVITIES

     Net cash used in investing activities has decreased from Rs.14.7 billion
for fiscal 2003 to Rs.9.3 billion for fiscal 2004. This decrease is mostly due
to a decrease in purchase of fixed assets from Rs.12.2 billion in fiscal 2003 to
Rs.9.3 in fiscal 2004 and also nil investments in held to maturity securities in
fiscal 2004 as compared to 2.5 billion investment in fiscal 2003.

FINANCING ACTIVITIES

     Net cash used in financing activities has decreased from Rs.15 billion for
fiscal 2003 to Rs.3.2 billion for fiscal 2004. This decrease is mostly due to a
nil payments of loans to DOT in fiscal 2004 as compared to 12 billion payments
of loans to DOT in fiscal 2003.

CONTRACTUAL OBLIGATIONS

     The following table shows our contractual payment obligations for the
specified future periods:

<TABLE>
<CAPTION>
                                                             (IN MILLIONS OF RS.)
                                                            PAYMENTS DUE BY PERIOD
                                               TOTAL     LESS       1-3      3-5      MORE
                                                         THAN      YEARS    YEARS     THAN
                                                        1 YEAR                      5 YEARS
<S>                                            <C>      <C>        <C>     <C>        <C>
Operating lease obligations                      332        48      142       142      --
Purchase obligations (capital commitments)     6,483     6,483       --        --      --
TOTAL                                          6,815     6,531      142     7,609      --

</TABLE>

     We do not expect to have any difficulty repaying such amounts, and may do
so entirely from cash flow generated from operations. As of March 31, 2004, we
had no debt outstanding and no credit facilities.


                                       50
<PAGE>


OFF-BALANCE SHEET ARRANGEMENTS

     As of March 31, 2004, we were not a financial guarantor of obligations of
any unconsolidated entity, and we were not a party to any similar off-balance
sheet obligation or arrangement.

CAPITAL EXPENDITURE

     See "Property, Plant and Equipment - Network Modernization" for a
discussion of our capital requirements for capital expenditures.


                            RESEARCH AND DEVELOPMENT

     We did not make research and development expenditures in the last three
fiscal years.

                                TREND INFORMATION

     For a discussion of other important trends affecting us, see "--Operating
Results--Overview" above.

ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES


                         DIRECTORS AND SENIOR MANAGEMENT

     The government of India controls us and has the power to elect all of our
directors and to determine the outcome of almost all actions requiring approval
of our board of directors or shareholders. The Department of Telecommunications,
as the representative of our majority shareholder, the government of India, also
has the authority to exercise the special powers granted to the President of
India under our articles of association. These include the right to appoint our
Chairman-cum-Managing Director and to issue directives with respect to our
business. See "Additional Information- Memorandum and Articles of
Association-Powers of the President of India".

DIRECTORS

     The Board of Directors has ultimate responsibility for the administration
and management of our affairs, except for certain matters that are reserved by
our articles of association for the approval of the President of India. Our
articles of association provide for a board of not less than four and not more
than 18 directors. The directors are appointed by the government of India. The
President of India is empowered by Article 66A of our articles of association to
appoint one-third of the total number of our directors sitting at any time for
an indefinite term and to designate our Chairman-cum-Managing Director. Our
remaining directors serve for three-year terms with one-third of these set term
directors retiring each year at our annual general meeting.

     We currently have 9 directors, two of whom are our most senior officers. We
refer to these directors as "full-time directors". Our Executive Director,
Mumbai and our Executive Director, Delhi are ex-officio members of the Board.
Two of our directors are officers of the DOT. Finally, there are three directors
who are neither our employees nor employees of the DOT. We refer to these
directors as "part-time" directors". All of our directors were appointed by the
DOT. Three board seats are currently vacant i.e. two full-time directors and one
part-time director.


                                       51
<PAGE>


     The business address of each of the directors is our registered office. The
names of our current directors, their ages and their positions as at the date of
this report appear below:

     Name                  Age   Position

     R.S.P.Sinha           53    Director(1)/ Chairman-cum-Managing Director
     V.Shivkumar           55    Director(1) Director(Personnel)
     R.L.Dube              57    Director(2) / Executive Director, Mumbai
     A.K.Girotra           59    Director(2) / Executive Director, Delhi
     J.S.Sarma             56    Director / Additional Secretary, DOT
     A.C.Padhi             49    Director / Dy. Director General (Finance), DOT
     Adhik Shirodkar       73    Director(3)
     A.S.Vyas              53    Director(3)
     Jagdish Shettigar     57    Director(3)

(1) Full-time director

(2) Director ex-officio

(3) Part-time director

OTHER PRINCIPAL EXECUTIVE OFFICERS

     The business address of each of our principal executive officers is our
registered office. In addition to those officers who are members of the board of
directors, our principal executive officers and their ages and positions as at
the date of this report are as follows:

NAME                  AGE   POSITION

     K.C. Gupta       55    Executive Director, Technical
     S.C. Ahuja       58    Company Secretary

     Mr. R.S.P. Sinha has been our Chairman -cum-Managing Director since
November 2003 and a member of our board as Director (Fin) since April, 2002.
Prior to joining us, he was Director (Finance) of Videsh Sanchar Nigam Ltd. He
is a Fellow of the Institute of Cost & Works Accountants of India. Mr. Sinha has
21 years experience in senior financial positions both in the private sector and
the public sector, including 11 years experience as full-time director of the
board of Public Sector Undertakings. Mr. Sinha worked as Director (Finance) on
the board of VSNL from January 1999 to February 2002 and Director (Finance),
MTNL from April, 2002 to October 2003.

     Mr. V. Shivkumar has been our Director (Human Resources) and a member of
our board since April, 2002. He has a Post Graduate Degree in Personnel
Management & Industrial Relations, a Post Graduate Diploma in Industrial
Engineering & Management and Bachelor of Law Degree from Jabalpur University.
Prior to joining us he served as the Executive Director (HR) at Bharat Earth
Movers Ltd.

     Mr. R.L. Dube has been our Executive Director, Mumbai and an ex-officio
member of our board since December 2003. Mr. Dube joined the Indian
Telecommunications Service and the DOT of India in 1971. He has received
training in Germany, France, Switzerland and Sweden. He has received Indian
awards for outstanding telephone development.

     Mr. A.K. Girotra has been our Executive Director, Delhi and an ex-officio
member of our board since December, 2003. Mr. Girotra joined the Indian
Telecommunications Service in 1968 and has held various positions since then in
different parts of India. He was actively involved in the planning of the first
SDH network of DOT. He also worked as Head of Transmission for Qatar
Telecommunications for five years. Mr. Girotra has a Bachelor of Technology
degree from the Indian Institute of Technology, Kanpur and also holds an MBA.


                                       52
<PAGE>


     Mr. J.S. Sarma has been a member of our board since October, 29, 2003 Mr.
Sarma, a member of the Indian Administrative Services, currently serves as
Additional Secretary in the DOT.

     Mr. A.C. Padhi has been a member of our board since Jan. 16, 2001. Mr.
Padhi joined Indian Posts & Telegraphs Accounts and Finance Service in 1981.
Currently he is the Dy. Director General (Finance) in DOT. Before that, he
served as General Manager (Telecommunications), Finance Advisor of Telecom
Factory, Mumbai and Joint Secretary in the Union Public Service Commission. Mr.
Padhi holds a degree in Zoology from Utkal University and a postgraduate degree
in Education.

     Mr. Adhik Shirodkar has been a member of our board since August 20, 2002.
He has been practicing as a lawyer for the last 46 years in Mumbai. He was
elected to the upper house (Rajya House) of the Indian Parliament from
Maharashtra in February 1996. In December 2001, Mr. Shirodkar was nominated to
become a member of the Indian Board of Wild Life. Mr. Shirodkar holds a law
degree from Mumbai.

     Mr. A.S. Vyas has been a member of our board since August 20, 2002. Mr.
Vyas is currently President of the National Federation of Sales Representatives
Union and the Sales Promotion Employees Association and General Secretary of
Lyka Labs and the Associate Companies Employees Union. Mr. Vyas is also a
convener of various fronts of Mumbai Unit of India's Bhratiya Janta Party.
Earlier, he was a member of Minimum Wage Committee, Drugs and Pharmaceutical
Industry in Maharashtra and the Maharashtra Labour Welfare Board and was the
President of Bharatiya Janta Party, Northeast District, Mumbai.

     Dr. Jagdish Shettigar has been a member of our board since August 20, 2002.
A PhD in Economics, Dr. Shettigar was the Director of the Economic Research
Foundation of the Federation of Indian Chambers of Commerce and Industry from
1989-91 and has been engaged as a consultant and visiting faculty member. He is
a member of the Prime Minister's Economic Advisory Council and a member the
board of Governors, Indian Institute of Technology, Madras.

     Mr.K.C. Gupta has been our Executive Director, Technical, since November
2002. Mr. Gupta joined the Indian Telecommunication Service in 1972 and has held
various posts in different parts of India including service with
Telecommunications Consultants India Limited from 1996-2000. Mr. Gupta holds an
engineering degree from Delhi College of Engineering, Delhi.

     Mr. S.C. Ahuja has been our company secretary since, October, 1988. Prior
to joining us, Mr. Ahuja was a Dy. Comp. Secretary at Engineers India Ltd., a
Government enterprise. Mr. Ahuja is a Fellow Member of the Institute of Company
Secretaries of India. Mr. Ahuja has a Master of Arts (English) degree from
Himachal Pradesh University and a Bachelor of Laws degree from Kurukshetra
University.

                                 AUDIT COMMITTEE

     The Audit Committee of the board of directors reviews, acts on and reports
to the board of directors with respect to the various auditing and accounting
matters, including the recommendation of our independent auditors, the scope of
the annual audits, fees to be paid to the independent auditors, the performance
of our independent auditors and our accounting practices. Currently, the members
of the audit committee are Dr. Jagdish Shettigar (Chairman), Mr. A.S.Vyas, and
Mr. Adhik Shirodkar. Ms. Annie Moraes, GM (Finance) is the permanent invitee to
the Audit Committee, the Company Secretary acts as Secretary to the Audit
Committee. Dr. Shettigar is designated as the independent financial expert on
the Audit Committee.

                     COMPENSATION OF DIRECTORS AND OFFICERS

     The total remuneration and benefits in kind paid by us to all of our
directors and executive officers as a group in fiscal 2004 was approximately Rs.
3.98 million.

     There are no outstanding loans, advances or guarantees of any amounts to
our directors or principal officers. There have been no transactions effected by
us during the current or immediately preceding fiscal year, and there were no
transactions effected during an earlier financial year that remain in any


                                       53
<PAGE>


respect outstanding or unperformed, between us and any of our directors or
principal officers which were unusual in their nature or conditions or
significant to our business.


                                    EMPLOYEES

EMPLOYEES

     At March 31, 2004, we had 55,842 employees, of whom 7,125 were executive
and 48,717 were non-executive employees. We seek to improve employee
productivity through continuing education and training and by emphasizing the
importance of quality of service and subscriber satisfaction. We have placed a
special emphasis on retraining our workforce to meet the demands of modernizing
our network and improving customer satisfaction.

     In general, employees receive a base salary and salary-related housing and
other allowances, productivity based incentive payments and certain benefits,
including a pension plan, medical benefits for themselves and certain members of
their immediate families and post-retirement medical benefits for retired
employees with 10 years of service and certain members of their immediate
families. Substantially all of our non-executive employees have opted to
terminate their services with the DOT and to continue as our employees,
effective November 1, 1998. We believe that this was the result of employee
expectations of increased wages and improved benefits and a desire to remain in
Delhi or Mumbai, as the case may be. In July 2000, we entered into a new 10 year
wage agreement with our non-executive employees, which provided for substantial
wage increases retroactive to November 1998 for wages and November 1999 for
perquisites.

     Under the option given to them for pension benefits, our absorbed employees
could opt to retain pension benefits in accordance with the Central government
pension rules or in accordance with our retirement rules which are applicable to
our directly recruited employees, and opt to draw pro rata monthly pension until
their absorption. Accordingly, with effect from November 1, 1998 we started
accruing for pension and gratuity for these employees. In August/September 2002,
the DOT indicated that the government would pay for the pension benefits of the
government employees absorbed by us who opted for either the Central government
scheme of pension or for the pro rata pension scheme for the period served with
the DOT. However, the terms of such payments are in the process of finalization.
Once these terms are finalized and the payments are made to DOT for the period
of employment of these employees with us, we expect that our liability for post
retirement obligations would be limited to monthly contributions on the basis of
the rules to be prescribed by the government of India. We do not expect that the
amount that would eventually be payable by us to the DOT would be higher than
the liability outstanding in respect of our post-retirement obligations as at
the end of fiscal 2004.

     Approximately 97% of our executive employees have accepted absorption by
us, becoming our permanent employees. These employees are entitled to certain
pension and gratuity benefits from the government of India.

     All of our absorbed executive employees participate in a new compensation
structure with effect from October 1, 2000, and beginning in fiscal 2003, we
have been provisioning for the increased costs associated with this and in
fiscal 2004 for significant related charges (See "Operating Results").

     As a public sector enterprise, we abide by general DOT and Department of
Public Sector Enterprises personnel policies, which, among other things, limit
our ability to reduce employment levels and control the amount of salaries and
other remuneration that we may pay to our employees. Our employee productivity
measured by access lines in service per employee has been increasing steadily
but remains significantly lower than the Asian and global averages. Our board of
directors approved a voluntary retirement scheme for certain categories of our
employees. This scheme remains in abeyance and has not been implemented

     On January 7, 2000, the Indian government offered to sell up to 14 million
equity shares, representing approximately 2.2% of our outstanding equity shares,
to our employees at a discount as compensation in connection with the
restructuring of DOT. Because the terms were not viewed as favorable, none of
our employees accepted this offer before it expired on December 31, 2000.
However, the government is considering allowing us to make a new offer to our
employees. We cannot predict when this new offer will be made.


                                       54
<PAGE>


The mandatory retirement age for all employees is 60 years of age. Upon
retirement, employees and their dependents are entitled to a pension under a
defined benefit plan. The pension amount is based on the employee's years of
service and salary level upon retirement and, in a reduced amount, is
transferable to dependents upon the employee's death. We also provide
post-retirement health care benefits to retired employees and their dependents.

     Almost all of our non-executive employees are members of local unions
organized in each of Delhi and Mumbai. Our executive employees seconded from DOT
are members of national officers' associations, which act as an informal
consultative mechanism for conveying management staff's views regarding
personnel policies to our senior executives.

                                 SHARE OWNERSHIP

     None of our directors or connected persons or our principal executive
officers owned any of our equity shares as of the date of this report.

     On January 7, 2000, the Indian government offered to sell up to 14 million
equity shares, representing approximately 2.2% of our outstanding equity shares,
to our employees at a discount as compensation in connection with the
restructuring of DOT. None of our employees accepted this offer before it
expired on December 31, 2000. The government is considering making a similar
offer to our employees. We cannot predict when this new offer will be made by
the Indian government.

ITEM 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

                               MAJOR SHAREHOLDERS

     The following table sets forth information about the shareholders holding
5% or more of our outstanding equity shares as of March 31, 2004, according to
our register of shareholders:

NAME OF OWNER                                NUMBER OF SHARES         PERCENTAGE

Government of India (1)                        354,372,740              56.25%
Life Insurance Corporation of India (2)         83,065,814              13.19%
The Bank of New York (3)                        45,819,768               7.27%

(1) The equity shares owned by the government of India are registered in the
name of the President of India or his nominees in our register of shareholders.

(2) Life Insurance Corporation of India is also controlled by the government of
India.

(3) These equity shares are held by The Bank of New York as custodian for the
holders of our ADSs.

              CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     We have a number of distinct relationships with the government of India as
outlined below:

GOVERNMENT OF INDIA AS SHAREHOLDER

     The government of India currently owns 56.25% of our outstanding equity
shares. Accordingly, the government of India will continue to have the ability
to control us, elect all of our directors and determine the outcome of
substantially all actions requiring the approval of our board of directors or
shareholders.

         The government of India has announced its intention to divest its
shareholdings in a number of government companies by offering significant equity
stakes in those companies to strategic partners through a competitive bidding
process. To date, there have been no announcements that the government of India
plans to reduce its shareholding in us through this process.


                                       55
<PAGE>


     The DOT acts as representative of our majority shareholder, the government
of India. The DOT also has the authority to exercise the special powers granted
to the President of India under our articles of association. These include the
right to appoint our Chairman-cum-Managing Director and to issue directives with
respect to our business. See "Additional Information-- Memorandum and Articles
of Association--Powers of the President of India."

GOVERNMENT OF INDIA AS REGULATOR

     Our business is subject to comprehensive regulation by the Ministry of
Communications through the Telecom Commission and the DOT pursuant to the
provisions of the Telegraph Act and the terms of the licenses under which we
operate. While the Telegraph Act sets the legal framework for regulation of the
telecommunications sector, much of our supervision and regulation is implemented
more informally through the general administrative powers of the DOT, including
those reserved to the DOT under our license, and of other government of India
agencies. In March 1997, an autonomous body, the TRAI, was established with
quasi-judicial powers to regulate telecommunications services in India. See
"Information on the Company-- Telecommunications Regulation in India--The
Telecom Regulatory Authority of India."

     We operate all of our services under licenses granted by the DOT. The
licenses identify the services that we are permitted to provide, which we
believe covers all of the services that we currently do provide. A license for
any additional service requires the approval of the DOT. The DOT retains the
right, however, after giving us appropriate notice, to modify the terms and
conditions of our license at any time if, in its opinion, it is necessary or
expedient to do so in the interest of the general public or for the proper
operation of the telecommunications sector. The DOT may also terminate our
license before its scheduled expiration upon our breach of any of its terms.
Under the Telecom Regulatory Authority of India Act, the Telecom TRAI has been
granted the authority to determine tariffs.

     So long as the government of India's shareholding in us equals or exceeds
51%, we are deemed to be an Indian government company under the Companies Act
and are subject to regulations generally applicable to public sector enterprises
in India. These regulations concern personnel matters, including appointment of
key management personnel and the hiring, dismissal and compensation of
employees, as well as procurement, capital expenditures and the generation of
funds through the issuance of securities. For example, all appointments to our
board of directors must first be recommended by the Public Enterprises Selection
Board, a government agency, and its recommendations are reviewed by the
government of India, although until recently all appointments to our board have
been recommended only by the government of India. All appointments to our board
of directors are also approved by our shareholders. Disputes between government
of India enterprises (such as us) and government of India departments generally
must be referred to the Committee on Disputes of the government of India for
mediation before either party may bring a claim in a court of law. A single
government of India ministry or department is designated as the primary
supervisor of each public sector enterprise and the DOT has been designated as
our primary supervisor. Our activities are also subject to review by India's
Parliament, and the DOT must submit an annual report to Parliament regarding our
business activities.

     The government of India plays an important role in the preparation of our
financial statements. Under Indian regulations, as a government of India
company, our annual accounts are audited by statutory auditors and branch
auditors which are independent chartered accountants appointed each year by the
government of India at the direction of the Comptroller and Auditor General of
India. See "Additional Information--Memorandum and Articles of
Association--Audit and Annual Report." In accordance with the government of
India's practice with respect to government of India companies, auditors have
generally not been permitted to serve as our branch or statutory auditors for
more than three consecutive years. In addition, the Comptroller and Auditor
General conducts an independent review of our financial statements that are
audited by the statutory and branch auditors. The annual report submitted to the
Parliament includes a copy of our audit report and any comments upon or
supplements to the audit report made by the Comptroller and Auditor General.


                                       56
<PAGE>


THE GOVERNMENT OF INDIA AS CUSTOMER

     The government of India purchases our services on a commercial basis, and
government entities, in the aggregate, constitute the single largest user of our
services. The DOT sets the tariffs for these services which are the same as our
tariffs to our other customers. However, certain limited categories of
high-level government of India officials may not have their telephone
connections disconnected for non-payment of bills.

OUR FINANCING OF THE DEPARTMENT OF TELECOMMUNICATIONS

     As a department of the government of India, the DOT cannot raise funds
through external borrowings from non-government of India entities, and has
historically depended on us to raise funds on its behalf for use in its
telecommunications business. By restructuring us as a corporation, the DOT was
able to create a company which could raise debt in the capital markets to be
used to fund its telecommunications operations. The Indian government guaranteed
these borrowings and we on-lent the proceeds of the borrowings on terms
substantially similar to the terms of the original loan. As a result of the
corporatization of the Department of Telecom Services into BSNL in October 2000,
we no longer borrow funds on behalf of the DOT. All external borrowings that had
made on behalf of the DOT/BSNL have been repaid by us.

RELATED PARTY TRANSACTIONS

     In addition to the transactions and circumstances described above in this
Item 7, we enter into numerous business relationships with entities that have
varying degrees of government control, as well as with the government itself and
subdivisions of the government. For example, as discussed elsewhere in this
report, our principal interconnect arrangements are with BSNL. For more
information on our relationships and transactions with the government of India
and its subdivisions and entities controlled by the government, see Note 4 and
Note 19 to our consolidated financial statements, which appear elsewhere in this
report.

ITEM 8.   FINANCIAL INFORMATION

             CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

     See "Item 18. Financial Statements" and pages F-1 through F-30.

                               SIGNIFICANT CHANGES

RECENT DEVELOPMENTS

     Dividends . Under Indian law, a company pays dividends upon a
recommendation by its board of directors and approval of a majority of the
shareholders at the annual general meeting of shareholders held within six
months of the end of each fiscal year. Shareholders have the right to decrease
but not increase the dividend amount recommended by the board of directors.
Dividends may be paid out of company profits for the fiscal year in which the
dividend is declared after transfer to the reserves of a percentage of our
profits for that year of not less than 2.5%. The Companies Act further provides
that, in the event of inadequacy or absence of profits in any year, a dividend
may be declared for that year out of our accumulated profits, subject to certain
limitations.

     In June 2004, our board of directors recommended the payment of a dividend
of Rs.4.5 per share, amounting to a total of Rs.2,835 million, to record holders
of equity shares on September 8, 2004. This dividend has been approved by our
shareholders at our annual general meeting held on September 29, 2004. The
current rate payable by us on dividend payments to our shareholders is
approximately 13.0% (inclusive of surcharge). Currently, there is no Indian tax
payable by shareholders in respect of dividends received.


                                       57
<PAGE>


     For a description of the tax consequences of dividends paid to our
shareholders, see "Additional Information--Taxation--Indian Taxation--Taxation
of Distributions."

ITEM 9.   THE OFFER AND LISTING

                            MARKET PRICE INFORMATION

EQUITY SHARES

     Our outstanding equity shares are listed on several Indian stock exchanges
and were first quoted on The Stock Exchange, Mumbai on May 13, 1993. Our equity
shares are also traded on the National Stock Exchange in India. The following
table sets forth the high and low closing prices and average daily trading
volume on The Stock Exchange, Mumbai for our equity shares for the periods
indicated:

<TABLE>
<CAPTION>
                                    SHARE PRICE
                                       (RS.)

                                                     AVERAGE DAILY TRADING
        CALENDAR PERIOD           HIGH      LOW             VOLUME
2002
<S>                              <C>       <C>           <C>
First Quarter                      177      109             776,374
Second Quarter                     165      121             471,509
Third Quarter                      154      107             504,800
Fourth Quarter                     115       89             331,643
2003
First Quarter                    119.10    81.05         12,971,589
Second Quarter                   115.40    85.00          8,489,312
Third Quarter                      137     98.50         20,804,253
Fourth Quarter                     141     105.80        18,238,816
2004
First Quarter                    157.15    121.25         1,426,035
Second Quarter                   166.45    92.90         23,242,184
April 2004                       166.45     129          22,775,237
May 2004                         154.80    92.90         28,784,550
June 2004                          138     113.50        18,166,764
July 2004                        140.60    124.05        14,997,217
August 2004                      134.75    120.85        12,661,800

</TABLE>

     On September 24, 2004, the closing price of our equity shares on The Stock
Exchange, Mumbai was Rs.125.90.

     Our global depositary receipts were listed on the London Stock Exchange and
quoted on SEAQ International until we terminated our global depositary receipt
program following the completion of our exchange offer in which we exchanged
global depositary receipts of tendering holders for New York Stock
Exchange-listed American Depositary Shares, or ADSs. The commencement of our ADS
program and the termination of our global depositary receipt program both
occurred in the fourth quarter of calendar year 2001.


                                       58
<PAGE>


     The table below shows the high and low closing prices on the New York Stock
Exchange for our ADSs for the period indicated.


                                        ADS PRICE
CALENDAR PERIOD                   HIGH                LOW
2002
First Quarter                     US$7.50             US$4.75
Second Quarter                       6.60                4.85
Third Quarter                        6.45                4.35
Fourth Quarter                       4.87                3.63
2003
First Quarter                        4.57                3.33
Second Quarter                       4.82                3.72
Third Quarter                        5.75                4.10
Fourth Quarter                       6.25                4.77
2004
First Quarter                        8.21                6.30
April                                8.68                7.54
May                                  7.99                5.40
June                                 7.25                5.86
July                                 7.28                6.70
August                               7.01                6.26

     On September 20, 2004, the closing price of our ADSs on the New York Stock
Exchange was US$6.82 per ADS.

                          THE INDIAN SECURITIES MARKET

     The information in this section has been extracted from publicly available
documents from various sources, including officially prepared materials from the
Securities and Exchange Board of India, The Stock Exchange, Mumbai and the
National Stock Exchange, and has not been prepared or independently verified by
us or any of our affiliates or advisers.

THE INDIAN SECURITIES MARKET

     India has a long history of organized securities trading. In 1875, the
first stock exchange was established in Mumbai.

THE SECURITIES AND EXCHANGE BOARD OF INDIA

     India's stock exchanges are regulated by the Securities and Exchange Board
of India under the Securities and Exchange Board of India Act, 1992, the
Securities Contracts (Regulation) Act, 1956, and the Securities Contracts
(Regulation) Rules, 1957. The Securities Contracts (Regulation) Rules regulate
the recognition of stock exchanges, the qualifications for membership and the
manner in which contracts are entered into and enforced between members.

     The main objective of the Securities and Exchange Board of India, which was
established by the government of India in February 1992, is to promote the
development of and regulate the Indian securities markets and protect the
interests of investors. The Securities and Exchange Board of India may make or
amend an exchange's by-laws and rules, overrule an exchange's governing body and
withdraw recognition of an exchange. In the past, the Securities and Exchange
Board of India's regulation of market practices was limited. The Securities and
Exchange Board of India Act, 1992 granted the Securities and Exchange Board of
India powers to regulate the business of Indian securities markets, including
stock exchanges and other financial intermediaries, promote and monitor
self-regulatory organizations, prohibit fraudulent and unfair trade practices
and insider trading, and regulate substantial acquisitions of shares and
takeovers of companies. The Securities and Exchange Board of India has also
issued:


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<PAGE>


     o    guidelines concerning minimum disclosure requirements by public
          companies;

     o    rules and regulations concerning:

     o    investor protection, insider trading, substantial acquisitions of
          shares and takeovers of companies, buybacks of securities, employee
          stock option schemes, foreign capital market issues, derivative
          instruments and sweat equity; and

     o    debenture trustees, depositaries, development financial institutions,
          venture capital funds, foreign institutional investors, stockbrokers,
          underwriters, merchant bankers, portfolio managers, mutual funds,
          credit rating agencies and other capital market participants; and

     o    rules and regulations regarding the prohibition of fraudulent and
          unfair trade practices relating to the securities market.

     The Securities Contracts (Regulation) Act has been amended to include
derivatives of securities and instruments of collective investment in the
definition of "securities." This has been done with a view to develop and
regulate the markets for derivatives. Trading in index-linked futures currently
takes place on the National Stock Exchange and The Stock Exchange, Mumbai.
Trading in individual stock futures that have been notified by Securities and
Exchange Board of India is now permitted. The Securities and Exchange Board of
India also set up a committee for the review of Indian securities laws, which
has proposed a draft Securities Bill. The draft Securities Bill, if accepted,
will result in a substantial revision in the laws relating to securities in
India.

PUBLIC COMPANY REGULATION

     Under the Companies Act, a public offering of securities in India must
generally be made by means of a prospectus, which must contain information
specified in the Companies Act and be filed with the Registrar of Companies
having jurisdiction over the place where a company's registered office is
situated. A company's directors and promoters may be subject to civil and
criminal liability for misstatements in a prospectus. The Companies Act also
sets forth procedures for the acceptance of subscriptions and the allotment of
securities among subscribers and establishes maximum commission rates for the
sale of securities.

     The Securities and Exchange Board of India has issued detailed guidelines
concerning disclosures by public companies and investor protection. Prior to the
repeal of certain rules in mid-1992, the Controller of Capital Issues of the
government of India regulated the prices at which companies could issue
securities. The Securities and Exchange Board of India guidelines now permit
existing listed companies to price freely their issues of securities, though the
pricing of initial public offerings is subject to certain restrictions. All new
issues governed by the Securities and Exchange Board of India guidelines are
conditional upon a minimum subscription requirement of 90.0% of the securities
being issued. Promoters of companies are required to retain a certain minimum
certified holding of equity share capital, which is subject to a lock-in for
three years. Further, existing shareholders of the company, who are not
promoters, are subject to a lock-in of one year from the date of the initial
public offering. No issuance of bonus shares is permitted within 12 months of
any public issue or rights issue.

     Public limited companies are required under the Companies Act to prepare,
file with the Registrar of Companies and circulate to their shareholders audited
annual accounts, which comply with the Companies Act's disclosure requirements
and regulations governing their manner of presentation. In addition, a listed
company is subject to continuing disclosure requirements pursuant to the terms
of its listing agreement with the relevant stock exchange. Listed companies are
now required to publish quarterly unaudited financial results that are reviewed
by an outside auditor in accordance with a prescribed standard for non-audit
reviews. The Securities and Exchange Board of India has recently notified
amendments to the listing agreement tightening the continual disclosure
standards by corporations and corporate governance measures to be adopted by
listed companies.

     The Companies (Amendment) Bill, 2003, which was recently introduced before
the Indian Parliament, provides for, among other things, the following with
respect to public companies: a change in the number of directors and the
composition board, the requirement of having a minimum number of independent


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<PAGE>


directors, introduction of maximum age for directors, restrictions on the powers
of the board of directors to dispose of corporate assets, additional
disqualifications of auditors and the prohibition of certain non-audit services
by the auditors.

LISTING

     The listing of securities on a recognized Indian stock exchange is
regulated by the Securities Contract Rules.

     Under the standard terms of stock exchange listing agreements, the
governing body of each stock exchange is empowered to suspend trading of or
dealing in a listed security for breach of the company's obligations under such
agreement, subject to the company receiving prior notice of the intent of the
exchange. In the event that a suspension of a company's securities continues for
a period in excess of three months, the company may appeal to the Securities and
Exchange Board of India to set aside the suspension. The Securities and Exchange
Board of India has the power to veto stock exchange decisions in this regard.

     The Securities and Exchange Board of India has issued the Securities and
Exchange Board of India (Delisting of Securities) Guidelines, 2003, which sets
forth the procedure for delisting of securities in the following circumstances:

     o    voluntary delisting sought by the promoters of a company;

     o    any acquisition of shares of the company or a scheme or arrangement,
          by whatever name referred to, consequent to which the public
          shareholding falls below the minimum limit specified in the listing
          conditions or listing agreement that may result in delisting of
          securities;

     o    promoters of the company who voluntary seek to delist their securities
          from all or some of the stock exchanges;

     o    cases where a person in control of management is seeking to
          consolidate his holdings in a company, in a manner which would result
          in the public shareholding in the company falling below the limit
          specified in the listing conditions or in a listing agreement that may
          have the effect of the company being delisted; and

     o    compulsory delisting by stock exchanges (e.g., upon failure by a
          company to pay required listing fees).

INDIAN STOCK EXCHANGES

     There are 24 stock exchanges in India. Most of the stock exchanges have
their governing board for self-regulation.

     It is estimated that the six major exchanges, The Stock Exchange, Mumbai,
the stock exchanges at Ahmedabad, Calcutta, Chennai and Delhi, and the National
Stock Exchange, account for more than 90.0% of the market capitalization of
listed Indian companies. The Stock Exchange, Mumbai and the National Stock
Exchange account for a majority of trading volumes of securities in India. The
Stock Exchange, Mumbai and National Stock Exchange together hold a dominant
position among the stock exchanges in terms of number of listed companies,
market capitalization and trading activity. These two stock exchanges handle
over 1.4 million trades per day with volumes in excess of Rs.20 billion.

     There are generally no restrictions on price movements of any security on
any given day. However, to restrict abnormal price volatility, the Securities
and Exchange Board of India has instructed stock exchanges to apply daily
circuit breakers which do not allow transactions at prices different by more
than 8.0% of the previous closing price for shares quoted at Rs.20 or more. The
Securities and Exchange Board of India has instructed stock exchanges to relax
the circuit breakers by a further 8.0% after half an hour from the time prices
reach the limit of 8.0%. It has allowed stock exchanges to fix circuit breakers
for shares quoted at prices up to Rs.20. There is no circuit filter applicable


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<PAGE>


for trading in shares on rolling settlement and for which derivative instruments
are available. There is, however, a dummy circuit filter applicable in case of a
20% movement on share prices in order to prevent accidental trades. There is a
20% circuit filter applicable for trading in shares on rolling settlement and
for which derivative instruments are not available. There is also an index based
circuit filter based on the BSE SENSEX and NSE S&P CNX Fifty indices wherein
trading in the entire market is halted for a specific period depending upon
whether the index fluctuates in excess of 10%, 15% or 20%. Further, margin
requirements are also imposed by stock exchanges that are required to be paid at
rates fixed by the stock exchanges. The Indian stock exchanges can also exercise
the power to suspend trading during periods of market volatility.

     A settlement cycle is an account period for the securities traded on a
stock exchange. At the end of the period, obligations are settled, i.e., buyers
of securities pay for and receive securities while sellers give securities and
receive payment for them. The obligations are settled on a net basis, i.e., if
some security is both purchased and sold in the same settlement cycle then only
the net quantity of securities is delivered or received and the net amount of
funds paid or received. Typically, the length of the settlement period is two
business days. The Securities and Exchange Board of India has specified certain
shares to be settled by rolling settlement. Under rolling settlement, the length
of the settlement period is one day. All stocks trading under the rolling
settlement system are settled on a T+2-day basis; trades executed on a Monday
are typically settled on the following Monday. Stocks that are not under the
rolling settlement system follow the account period settlement system.

     In December 1993, the Securities and Exchange Board of India announced
a ban on forward trading on the Ahmedabad, Calcutta and Delhi stock exchanges
and The Stock Exchange, Mumbai in order to contain excessive speculation,
protect the interests of investors and regulate the stock market. All
transactions thereafter were required to be for payment and delivery.

     In October 1995, the Securities and Exchange Board of India announced the
introduction of a modified forward trading system to enable buyers and sellers
to defer the settlement of their obligations to the following settlement cycle.
This system began on The Stock Exchange, Mumbai in January 1996 for select
shares. The new system segregates trades into different categories, namely,
carry-forward, delivery and jobbing, with different identification numbers of
the various trades. The Securities and Exchange Board of India has appointed a
committee to recommend modalities for a carry forward mechanism under the
rolling settlement. Once the revised carry forward mechanism is approved,
rolling settlement will be applicable also for shares in the carry forward list.

     In May 2001, the Securities and Exchange Board of India announced that all
shares included in the new system will trade only in the compulsory rolling
settlement system from July 2, 2001. All outstanding deferred positions under
the earlier system would have to be compulsorily liquidated by September 3,
2001.

     In 1992, the Securities and Exchange Board of India promulgated rules and
regulations that prescribe conditions for registration of stockbrokers. A
stockbroker may not buy, sell or deal in securities except pursuant to a
certificate granted by the Securities and Exchange Board of India. The
regulations also prescribe a broker code of conduct and rules for the fair
treatment of investors by brokers, the procedures for registration, the payment
of registration fees, maintenance of appropriate books and records and the right
of inspection of the books of the stockbrokers by the Securities and Exchange
Board of India. Broker liability in cases of default extends to suspension or
cancellation of the broker's registration. The Securities and Exchange Board of
India has issued registration certificates to over 9,000 stockbrokers who are
members of various stock exchanges in India. Before these regulations,
stockbrokers were required to be registered only with the stock exchanges of
which they were members. The Securities and Exchange Board of India regulations
introduced the concept of dual registration of stockbrokers with the Securities
and Exchange Board of India and the stock exchanges, and brought the brokers
under regulation for the first time.

     The Securities and Exchange Board of India has enforcement powers over
secondary market participants for violation of any provisions of the Securities
and Exchange Board of India Act, 1992, the rules and regulations of the
Securities and Exchange Board of India, the Securities Contracts (Regulation)
Act, 1956, or the rules and regulations made thereunder. The Securities and
Exchange Board of India may also take enforcement actions for violations of the
Securities Contract Act or rules made thereunder and rules, regulations and
by-laws of the stock exchanges.


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<PAGE>


     The Securities and Exchange Board of India has also announced SEBI
Regularisation Scheme, 2002, under which parties who are guilty of violating the
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, will
be granted general amnesty on the payment of a fine for each default during the
prescribed period of time.

INTERNET-BASED SECURITIES TRADING AND SERVICES

     The Securities and Exchange Board of India has recently allowed
Internet-based securities trading under the existing legal framework. The
regulations seek to allow the Internet to be used as an order routing system
through stock brokers registered with the Securities and Exchange Board of India
on behalf of clients for executing trades on a recognized stock exchange in
India. Stock brokers interested in providing this service are required to apply
for permission to the respective stock exchange and also have to comply with
certain minimum conditions stipulated by the Securities and Exchange Board of
India. Given the limited life of these new regulations to date, it is possible
that these regulations will continue to evolve in the future.

TAKEOVER CODE

     Disclosure and mandatory bid obligations under Indian law are governed by
the Securities and Exchange Board of India (Substantial Acquisition of Shares
and Takeovers) Regulations, 1997 (Takeover Code) which prescribes certain
thresholds or trigger points that give rise to these obligations. The Takeover
Code is under constant review by the Securities and Exchange Board of India and
was most recently amended in December 2002.

     The most important features of the Takeover Code, as amended, are as
follows:

     o    Any acquirer (meaning a person who, directly or indirectly, acquires
          or agrees to acquire shares or voting rights in a company, either by
          himself or with any person acting in concert) who acquires shares or
          voting rights that would entitle him to more than 5.0% of the shares
          or voting rights in a company is required to disclose the aggregate of
          his shareholding or voting rights in that company to the company
          (which in turn is required to disclose the same to each of the stock
          exchanges on which the company's shares are listed) within two working
          days of (a) the receipt of allotment information; or (b) the
          acquisition of shares or voting rights, as the case may be.

     o    A person has to make a three-stage disclosure when he acquires 5%, 10%
          and 14% of the shares and/or voting rights in a company, of his
          holdings to that company (which in turn is required to disclose the
          same to each of the stock exchanges on which the company's shares are
          listed).

     o    Promoters or persons in control of a company are also required to make
          annual disclosure of their holdings in the same manner.

     o    An acquirer cannot acquire shares or voting rights which (taken
          together with existing shares or voting rights, if any, held by him or
          by persons acting in concert with him) would entitle such acquirer to
          exercise 15.0% or more of the voting rights in a company, unless such
          acquirer makes a public announcement offering to acquire a further
          20.0% of the shares of the company.

     o    An acquirer who, together with persons acting in concert with him,
          holds between 15.0% and 75.0% of the shares cannot acquire additional
          shares or voting rights that would entitle him to exercise a further
          5.0% of the voting rights in the period of a financial year unless
          such acquirer makes a public announcement offering to acquire a
          further 20.0% of the shares of the company.

     o    Any further acquisition of shares or voting rights by an acquirer who
          holds 75.0% of the shares or voting rights in a company triggers the
          same public announcement requirements.


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<PAGE>


     o    In addition, regardless of whether there has been any acquisition of
          shares or voting rights in a company, an acquirer acting in concert
          cannot directly or indirectly acquire control over a company (for
          example, by way of acquiring the right to appoint a majority of the
          directors or to control the management or the policy decisions of the
          company) unless such acquirer makes a public announcement offering to
          acquire a minimum of 20.0% of the shares of the company.

     The Takeover Code sets out the contents of the required public
announcements as well as the minimum offer price.

     The Takeover Code permits conditional offers and provides specific
guidelines for the gradual acquisition of shares or voting rights. Specific
obligations of the acquirer and the board of directors of the target company in
the offer process have also been set out. Acquirers making a public offer are
also required to deposit in an escrow account a percentage of the total
consideration which amount will be forfeited in the event that the acquirer does
not fulfill his obligations. In addition, the Takeover Code introduces the
"chain principle" by which the acquisition of a company will obligate the
acquirer to make a public offer to the shareholders of each subsidiary company
which is listed.

     The general requirements to make such a public announcement do not,
however, apply entirely to bailout takeovers when a promoter (i.e., a person or
persons in control of the company, persons named in any offer document as
promoters and certain specified corporate bodies and individuals) is taking over
a financially weak company but not a "sick industrial company" pursuant to a
rehabilitation scheme approved by a public financial institution or a scheduled
bank. A "financially weak company" is a company which has at the end of the
previous financial year accumulated losses, which have resulted in erosion of
more than 50.0% but less than 100.0% of the total sum of its paid up capital and
free reserves at the end of the previous financial year. A "sick industrial
company" is a company registered for more than five years which has at the end
of any financial year accumulated losses equal to or exceeding its entire net
worth.

     The Takeover Code does not apply to certain specified acquisitions
including the acquisition of shares (1) by allotment in a public and rights
issue, (2) pursuant to an underwriting agreement, (3) by registered stockbrokers
in the ordinary course of business on behalf of clients, (4) in unlisted
companies, (5) pursuant to a scheme of reconstruction or amalgamation or (6)
pursuant to a scheme under Section 18 of the Sick Industrial Companies (Special
Provisions) Act, 1985. Certain exemptions have also been provided for
acquisition of shares pursuant to exercise of a put option or call option in the
subsequent stage of a disinvestment, subject to the prior existence of such put
option or call option having been disclosed in the open offer document. The
Takeover Code does not apply to acquisitions in the ordinary course of business
by public financial institutions either on their own account or as a pledge. In
addition, the Takeover Code does not apply to the acquisition of ADSs so long as
they are not converted into equity shares.

     In case of creeping acquisitions/consolidations of holdings, the ceiling
has been reduced from 10% to 5% of equity shareholding of the target company
with effect from October 1, 2002. No exemptions are available to inter se
transfers among promoters, in the event that the transfers take place at 25%
premium to the market price of equity shares of the company. Change in control
is, however, allowed in the event a special resolution is passed (in addition to
the filing of the postal ballots).

INSIDER TRADING

     The Securities and Exchange Board of India has recently adopted the new
Insider Trading Regulations which require significantly greater disclosure by
the company with regard to the trading of the company's shares.

     Under the Insider Trading Regulations, an insider is as a person who is or
was connected with the company or is deemed to have been connected with the
company, and who is reasonably expected to have access, by virtue of such
connection, to unpublished price sensitive information in respect of securities
of the company, or who has received or has had access to such unpublished price
sensitive information.


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<PAGE>


     Further, under the Regulations, no insider may, either on his own behalf or
on behalf of any other person, deal in securities of a company listed on a stock
exchange on the basis of any unpublished price sensitive information, or
communicate any unpublished price sensitive information to any person, with or
without his request for such information, except as required in the ordinary
course of business or under any law, or counsel or procure any other person to
deal in securities of any company on the basis of unpublished price sensitive
information.

     In accordance with Regulations, the company has promulgated an internal
code of conduct which is applicable to the directors and designated employees of
the company for dealings in shares of the company by the directors and
designated employees of the company, and with regard to access to unpublished
price sensitive information that the directors or the designated employees might
have. The Regulations also require the company to follow strict information
disclosure requirements on a need to know basis.

DEPOSITARIES

     In August 1996, the Indian Parliament enacted the Depositaries Act, 1996
which provides a legal framework for the establishment of depositaries to record
ownership details and effectuate transfers in book entry form. The Securities
and Exchange Board of India passed the Securities and Exchange Board of India
(Depositories and Participants) Regulations, 1996 which provides for the
formation of such depositaries, the registration of participants as well as the
rights and obligations of the depositaries, participants and the issuers. Every
depositary has to register with the Securities and Exchange Board of India.
Pursuant to the Depositories Act, the National Securities Depository Limited was
established by the Unit Trust of India, the Industrial Development Bank of India
and the National Stock Exchange in 1996 to provide electronic depositary
facilities for trading in equity and debt securities. The National Securities
Depository Limited, which commenced operations in November 1996, was the first
depositary in India. Another depositary, the Central Depository Services (India)
Limited, established by The Stock Exchange, Mumbai has commenced operations
since July 15, 1999. The depositary system has significantly improved the
operations of the Indian securities markets.

     Trading of securities in book-entry form commenced in December 1996 and was
available for securities of more than 2,207 companies at April 1, 2001.
Securities are dematerialized by a company recalling and destroying the physical
certificates of an investor and replacing them with an equivalent number of
securities that are credited electronically to the investor's account with a
depository organization. In order to encourage dematerialization of securities,
the Securities and Exchange Board of India has set up a working group comprising
foreign institutional investors, custodians, stock exchanges, mutual funds and
the National Securities Depository Limited to review the progress of securities
and trading in dematerialized form and to recommend scrips for compulsory
dematerialized trading in a phased manner. Accordingly, commencing January 1998,
the Securities and Exchange Board of India has notified scrips of various
companies for compulsory dematerialized trading by certain categories of
investors such as foreign institutional investors and other institutional
investors and has also notified compulsory dematerialized trading in specified
scrips for all retail investors. The Securities and Exchange Board of India has
significantly increased the number of scrips in which dematerialized trading is
compulsory for all investors. The Securities and Exchange Board of India has
also provided that the issue and allotment of shares in public, rights or offer
for sale after a specified date to be notified by the Securities and Exchange
Board of India) shall only be in dematerialized form and an investor shall be
compulsorily required to open a depositary account with a participant.

     However, even in the case of scrips notified for compulsory dematerialized
trading, investors, other than institutional investors, are permitted to trade
in physical shares on transactions outside the stock exchange where there are no
requirements of reporting such transactions to the stock exchange and on
transactions on the stock exchange involving lots of less than 500 securities.


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ITEM 10.  ADDITIONAL INFORMATION

                     MEMORANDUM AND ARTICLES OF ASSOCIATION

     Set forth below is certain information relating to our share capital,
including certain provisions of our articles of association and the Companies
Act. The information is not complete and is qualified in its entirety by
reference to our articles of association.

GENERAL

     Our authorized share capital is Rs.8,000,000,000, divided into 800,000,000
equity shares with a par value of Rs.10 each. At the date of this report,
630,000,000 shares were issued and fully paid.

     Our equity shares are in registered form. The shares are the only class of
share capital currently outstanding. There are no convertible debentures or
warrants currently in existence.

DIVIDENDS

     Our shareholders, acting at the annual general meeting, may declare a
dividend upon the recommendation of the board of directors. The amount of the
dividend declared may not exceed the amount recommended by the board of
directors, although a lesser amount may be declared. Dividends are distributed
and paid within 30 days of the declaration by the shareholders. Our board of
directors also is authorized under our articles of association to declare and
pay interim dividends to shareholders.

     If any dividend remains unclaimed at the end of 30 days, the amount of the
dividend will be transferred to a separate account belonging to us. If it still
remains unclaimed at the end of seven years, this amount will be transferred to
government of India and cannot be claimed by the relevant shareholder. Dividends
are payable only in cash to registered holders on a record date fixed prior to
the relevant annual general meeting.

     Dividends may be paid only out of our profits for the relevant year, after
transfer to our reserves of a percentage of our profits for that year of not
less than 2.5%. The Companies Act further provides that, in the event of
inadequacy or absence of profits in any year, a dividend may be declared for
that year out of our accumulated profits, subject to certain limitations. A
dividend tax of approximately 13.07% (inclusive of surcharge) of distributed
profit for a relevant period is payable by us.

     The following table sets forth, for the periods indicated, the dividend per
equity share and per global depositary receipt and the total amount of dividends
paid on the equity shares, both exclusive of dividend tax.

<TABLE>
<CAPTION>

                      DIVIDEND PER         DIVIDEND PER        TOTAL AMOUNT OF
FOR FISCAL YEAR       EQUITY SHARE            ADS/GDR          DIVIDENDS PAID
                         (RS.)                 (RS.)        (MILLIONS OF RUPEES)
<S>  <C>                  <C>                   <C>                 <C>
     2003                 4.5                   9.0                 2,835
     2002                 4.5                   9.0                 2,835
     2001                 4.5                   9.0                 2,835
     2000                 3.0                   6.0                 1,890
     1999                 3.0                   6.0                 1,890
</TABLE>

     The Ministry of Finance has adopted non-binding guidelines regarding the
payment of dividends by "public sector undertakings" which apply to us.
According to the guidelines, profit-making public sector undertakings which are
commercial enterprises should generally declare a minimum dividend each fiscal
year of 20% of the higher of paid-up share capital as of year-end or profit
after tax for the year. In the case of telecommunications, oil, petroleum,
chemical and other infrastructure industries, the minimum dividend for each
fiscal year is to be 30% of profit after tax for the year. These guidelines have
not been complied with by a substantial number of public sector undertakings,
including us. For fiscal 1998 and fiscal 1999, we retained a greater portion of
our earnings than provided in the guidelines in order to fund our capital
expenditures and we expect to continue to do so in the future.


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<PAGE>


     Future dividends will depend upon our revenues, cash flow, financial
condition and other factors. As an owner of ADSs, holders will be entitled to
receive dividends payable in respect of the equity shares represented by our
ADSs. The equity shares represented by our ADSs rank equally with our existing
shares. At present, we have equity shares issued in India.

FREE DISTRIBUTION OF EQUITY SHARES

     In addition to permitting dividends to be paid out of current or retained
earnings, the Companies Act permits us to distribute bonus shares to
shareholders. Upon any distribution of bonus shares, an amount equal to the face
value of the bonus shares to be distributed is transferred from the general
reserve or share premium account to share capital. The bonus shares must be
distributed to shareholders in proportion to the number of equity shares owned
by them.

PREEMPTIVE RIGHTS AND ISSUE OF ADDITIONAL SHARES

     Subject to the approval of the President of India, we may by ordinary
resolution increase our share capital by the issue of new shares or create a new
class of shares. In addition, the rights attached to the shares of any class may
be varied with the consent of not less than three-fourths of the issued shares
of that class. The Companies Act gives shareholders the right to subscribe for
new shares in proportion to their existing shareholdings unless otherwise
determined by a special resolution to that effect adopted at a general meeting
of shareholders. Such a resolution was adopted with respect to the equity shares
offered by us in the global depositary receipt offering at an extraordinary
general meeting held on November 19, 1997. We must offer shares to existing
shareholders by notice specifying the number of shares offered and the date,
within 30 days from the date of offer, by which the offer must be accepted. The
board of directors is entitled to distribute the shares in respect of which
preemptive rights have not been exercised in the manner that it deems most
beneficial to us.

GENERAL MEETINGS OF SHAREHOLDERS

     We are required to convene an annual general meeting of our shareholders
within six months after the end of each financial year (subject to extensions
which may be granted by the competent authorities) and may convene an
extraordinary general meeting of shareholders when necessary or at the request
of a shareholder or shareholders holding not less than 10% of our paid-up
capital on the date of the request. The annual general meeting of the
shareholders is generally convened by the Company Secretary in accordance with a
resolution of the board of directors. Written notice setting out the agenda of
the meeting must be given at least 21 days (excluding the day of service) prior
to the date of the general meeting to the shareholders whose names are on the
register at the record date. Those shareholders who are registered as
shareholders on the date of the general meeting are entitled to attend or vote
at such meeting.

     The annual general meeting of shareholders must be held at our registered
office or at such other place within the city in which the registered office is
located; meetings other than the annual general meeting may be held at any other
place determined by the board of directors.

     Our articles of association provide that a quorum for a general meeting is
the presence of at least five shareholders, including a representative of the
President of India.

     This year's annual general meeting was held on September 29, 2004.

VOTING RIGHTS

     At any general meeting, voting is by show of hands (where each shareholder
has one vote) unless a poll is demanded by at least 10% of those entitled to
vote on the resolution or those holding shares with a paid-up value of at least
Rs.50,000. Upon a poll, every shareholder entitled to vote and present in person
or by proxy has one vote for every share held by the shareholder. The Chairman
has a deciding vote in the case of any tie. Our articles of association do not
allow shareholders to cumulate their votes.


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<PAGE>


     Any shareholder may appoint a proxy. The instrument appointing a proxy must
be lodged with us at least 48 hours before the time of the meeting. A corporate
shareholder may appoint an authorized representative who may vote in all
respects as if a shareholder, both on a show of hands and upon a poll.

     Ordinary resolutions may be passed by simple majority of those present and
voting at any general meeting for which the required period of notice has been
given. However, certain resolutions such as those relating to the alteration of
our articles of association, the commencement of a new line of business, the
issue of further shares without preemptive rights and a reduction of share
capital require a three-fourth majority of the votes cast in favor of the
resolution (whether by show of hands or upon a poll). The Companies Act has been
amended to require that certain shareholder resolutions only be passed through
postal ballot. We have not yet amended our articles of association to provide
for written postal ballots.

REGISTER OF SHAREHOLDERS, RECORD DATES AND TRANSFER OF SHARES

     Our share transfer agents maintain registers of our shareholders and
beneficial owners of shares held through depositaries. For the purpose of
determining equity shares entitled to annual dividends, the register is closed
for a specified period prior to the annual general meeting. The Companies Act
and our listing agreement with The Stock Exchange, Mumbai (and the other Indian
Stock Exchanges) permit us, according to a resolution of the Board and upon at
least 15 days' advance notice to The Stock Exchange, Mumbai (and such other
stock exchanges), to set the record date and upon seven days' public notice to
close the register of shareholders for not more than 30 days at a time, and not
more than 45 days in a year, in order for us to determine which shareholders are
entitled to certain rights relating to the shares. Trading of shares may,
however, continue while the register of shareholders is closed.

     Following introduction of the Depositories Act, 1996, and the repeal of
Section 22A of the Securities Contracts (Regulation) Act, 1956, which enabled
companies to refuse to register transfers of shares in certain circumstances,
the shares of a company are freely transferable, subject only to the provisions
of Section 111A of the Companies Act. Pursuant to Section 111A, if the transfer
of shares is in contravention of any of the provisions of the Securities and
Exchange Board of India Act, 1992 or the regulations issued thereunder or the
Sick Industrial Companies (Special Provisions) Act, 1985, the Company Law Board
(a statutory body which administers the Companies Act) may, on application made
by an investor, the Securities and Exchange Board of India or certain other
parties, direct the rectification of the register of members. The Company Law
Board may, in its discretion, issue an interim order suspending the voting
rights attached to the relevant shares, before making or completing its inquiry
into the alleged contravention. Pending the inquiry, the rights of a holder to
transfer the shares would not be restricted, although the voting rights attached
to the shares may remain suspended by an order of the Company Law Board.

     The Indian Companies Act, 1956, has been recently amended to provide for
the constitution of a National Company Law Tribunal and dissolution of the
Company Law Board. The National Company Law Tribunal shall exercise all powers
that had been conferred on the Company Law Board or the High Courts by the
Indian Companies Act, 1956. This amendment has not yet been brought into force.

     Shares held through depositories are transferred in the form of book
entries or in electronic form in accordance with the rules and procedures laid
down by Securities and Exchange Board of India. These regulations provide the
regime for the functioning of the depositaries and the participants and set out
the manner in which the records are to be kept and maintained and the safeguards
to be followed in this system. Transfers of beneficial ownership of shares held
through a depositary are exempt from stamp duty.

     The Securities and Exchange Board of India has notified our equity shares
for trading and settlement only in book-entry form for all investors, except for
transactions made outside and which are not required to be reported to the stock
exchange. Transfers of equity shares in book-entry form require both the seller
and the purchaser of the equity shares to establish accounts with depositary
participants appointed by depositaries established under the Depositaries Act,
1996. Charges for opening an account with a depositary participant, transaction
charges for each trade and custodian charges for securities held in each account
vary depending upon the practice of each depositary participant. Upon delivery,
the equity shares shall be registered in the name of the relevant depositary on
our books in book-entry form and this depositary shall enter the name of the
investor in its records as the beneficial owner. The transfer of beneficial


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ownership shall be effected through the records of the depositary. The
beneficial owner shall be entitled to all rights and benefits and subject to all
liabilities in respect of his securities held by a depositary.

     The requirement to hold our equity shares in book-entry form will apply to
the ADS holders when the equity shares are withdrawn from the depositary
facility upon surrender of the global depositary receipts. In order to trade our
equity shares in the Indian market, the withdrawing ADS holder will be required
to comply with the procedures described above.

     We have entered into a listing agreement with each of the other Indian
stock exchanges on which the shares are listed. Clause 40A of the listing
agreements provides that if an acquisition of a listed company's equity shares
results in the acquirer and its associates holding 5% or more of the company's
outstanding equity shares, the acquirer must report its holding to the relevant
stock exchanges. If an acquisition would result in the acquirer and its
associates holding equity shares which carry 10% or more of the voting rights,
then the acquirer must notify the relevant stock exchanges. If an acquisition is
deemed a takeover, the acquirer must, before acquiring shares, offer (in
accordance with Clause 40B of the listing agreements) on a uniform basis to all
remaining shareholders of the company to acquire a minimum of a further 20% of
the total shares of the company at a prescribed price. The acquisition of shares
of a company listed on an Indian stock exchange beyond certain threshold amounts
is subject to regulations governing takeovers of Indian companies. See "The
Offer and Listing--The Indian Securities Market--Takeover Code." Clauses 40A and
40B and such regulations will not apply to shares so long as they are
represented by ADSs.

SHAREHOLDER ACCESS TO CORPORATE RECORDS

     Under the Companies Act, the shareholder register and index, the register
and index of debenture holders and copies of all annual returns together with
copies of certificates and documents required to be annexed thereto, must be
kept at our registered office for inspection by any share or debenture holder
free of charge and by any other person on payment of a fee. The minute books of
the general meetings of our shareholders must be kept at our registered office
and be made available for inspection by our shareholders regardless of the size
of their shareholding.

DISCLOSURE OF OWNERSHIP INTEREST

     Section 187C of the Companies Act generally requires beneficial owners of
shares of Indian companies who are not holders of record to declare to the
company details of the holder of record and holders of record to declare details
of the beneficial owner. While it is unclear whether Section 187C applies to
holders of ADSs of a company, investors who exchange ADSs for shares are subject
to this Section. Failure to comply with Section 187C would not affect the
obligation of a company to register a transfer of shares or to pay any dividends
to the registered holder of any shares in respect of which such declaration has
not been made, but any person who fails to make the required declaration may be
liable for a fine of up to Rs.1,000 for each day the failure continues.
Furthermore, any charge, promissory note or any other collateral agreement
created, executed or entered into by the registered owner of any share in
respect of which a declaration required under Section 187C has not been made is
not enforceable by the beneficial owner or any person claiming through him.

     So long as the government of India's shareholding equals or exceeds 51%,
Section 187C will not apply to holders of our equity securities, including
holders of our ADSs or equity shares.

AUDIT AND ANNUAL REPORT

     At least 21 days before the annual general meeting of shareholders, we must
circulate either a detailed or an abridged version of our audited balance sheet
and profit and loss account and the related reports of our board of directors
and our auditors. We are also required under the Companies Act to make available
upon request of any shareholder a complete balance sheet and profit and loss
account in the case of circulation of abridged accounts.


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     The Comptroller and Auditor General of India, has the power to direct the
manner in which our accounts are audited by the auditors appointed pursuant to
Section 619(2) of the Companies Act, to give the auditors instructions in regard
to any matter relating to the performance of their functions and to conduct a
supplementary or test audit of our accounts by such auditors. The Comptroller
and Auditor General also has the right to comment on or supplement the audit
report to the Comptroller and Auditor General which must be placed before our
annual general meeting at the same time and in the same manner as the audit
report.

POWERS OF THE PRESIDENT OF INDIA

     Under Articles 66A and 66B of our articles of association, the President of
India is entitled to appoint one third of our total number of directors
including our Chairman-cum-Managing Director as well as our whole time
directors. Article 69(i) requires the Chairman to reserve for the decision of
the President of India all proposals, decisions or matters which raise in the
opinion of the Chairman any important issue and which are, on that account, fit
to be reserved for the decision of the President of India. No decision on these
important issues may be taken in the absence of the Chairman appointed by the
President of India. Article 69(ii) lists the matters in respect of which prior
approval of the President of India must be obtained, which include issuance of
debentures and the sale, lease or disposal of any land or building with an
original book value in excess of Rs.1 million. Under Article 71, we may not take
action in respect of any proposal or decision of the board of directors reserved
for approval of the President until his approval is obtained. The President may
modify the board of directors' proposals or decisions.

     Article 70 grants the President of India the power to issue directives in
regard to the conduct of our business and affairs, which are binding on our
board of directors. These powers include the power to give directives to us as
to the exercise and performance of our functions in matters involving national
security or substantial public interest, power to call for returns, accounts and
other information with respect to our properties and activities and to determine
in consultation with the board of directors our financial and economic
objectives.

ACQUISITION BY US OF OUR OWN SHARES

     Until 1998, the Companies Act did not permit a company to acquire its own
equity shares because of the resulting reduction in the company's capital.
However, the government of India amended the Companies Act to allow a repurchase
of shares in certain circumstances. A buy-back requires compliance with specific
buy-back guidelines specified in the Companies Act and by the Securities and
Exchange Board of India.

     Holders of ADSs will be eligible to participate in a buy-back in certain
cases. An ADS holder may acquire shares by withdrawing from the depositary
facility and then selling those shares back to us.

     There can be no assurance that the shares offered by an ADS holder in any
buy-back of shares by us will be accepted by us. Investors are advised to
consult Indian legal advisers prior to participating in any buyback by us,
including in relation to any tax issues relating to such buy-back.

LIQUIDATION RIGHTS

     Subject to the rights of employees, creditors and of the holders of any
other shares entitled by their terms to preferential repayment over the shares,
in the event of our winding up, the holders of our shares are entitled to be
repaid the amount of capital paid up or credited as paid up on their shares. All
surplus assets after payments due to the holders of any preference shares belong
to the holders of the shares in proportion to the amount paid up or credited as
paid up on such shares, respectively, at the commencement of the winding up.

AMERICAN DEPOSITARY SHARES

     Our ADSs were originally issued in an exchange offer during October 2001 in
which we offered ADSs for our global depositary receipts on a one-for-one basis.
Our global depositary receipt program was cancelled and the receipts delisted
from the London Stock Exchange in December 2001. At the end of October 2001, our
ADSs were listed and began trading on the New York Stock Exchange. There have
been no changes to the depositary agreement governing our ADSs since the
exchange offer.


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                               MATERIAL CONTRACTS

     Since April 1, 2004, we have not entered into any material contracts that
were not in the ordinary course of business.

           INDIAN FOREIGN EXCHANGE CONTROLS AND SECURITIES REGULATIONS

RESTRICTIONS ON CONVERSION OF RUPEES

     There are restrictions on the conversion of rupees into dollars. Before
February 29, 1992, the Reserve Bank of India determined the official value of
the rupee in relation to a weighted basket of currencies of India's major
trading partners. In the February 1992 budget, a new dual exchange rate
mechanism was introduced by allowing conversion of 60.0% of the foreign exchange
received on trade or current account at a market-determined rate and the
remaining 40.0% at the official rate. All importers were, however, required to
buy foreign exchange at the market rate except for certain specified priority
imports. In March 1993, the exchange rate was unified and allowed to float. In
February 1994 and again in August 1994, the Reserve Bank of India announced
relaxations in payment restrictions in the case of a number of transactions.
Since August 1994, the government of India has substantially complied with its
obligations owed to the International Monetary Fund, under which India is
committed to refrain from using exchange restrictions on current international
transactions as an instrument in managing the balance of payments. Effective
July 1995, the process of current account convertibility was advanced by
relaxing restrictions on foreign exchange for various purposes, such as foreign
business travel, travel for education, travel for pilgrimage, medical treatment
and others.

              RESTRICTIONS ON SALE OF THE EQUITY SHARES UNDERLYING
                 THE ADSS AND FOR REPATRIATION OF SALE PROCEEDS

     ADSs issued by Indian companies to non-residents have free transferability
outside India. However, under Indian regulations and practice, the approval of
the Reserve Bank of India is required for the sale of equity shares underlying
the ADSs (other than a sale on a stock exchange or in connection with an offer
made under the takeover regulations) by a non-resident of India to a resident of
India as well as for renunciation of rights to a resident of India. Investors
who seek to sell in India any equity shares (other than a sale on a stock
exchange or in connection with an offer made under the takeover regulations)
withdrawn from the depositary facility and to convert the rupee proceeds from
such sale into foreign currency and repatriate such foreign currency from India
will, subject to the foregoing, have to obtain Reserve Bank of India approval
for each such transaction.

LIMITATIONS ON DEPOSITS OF EQUITY SHARES INTO THE ADS PROGRAM

     Under procedures recently adopted by the Reserve Bank of India, the
depositary will be permitted to accept deposits of our outstanding equity shares
and deliver ADSs representing the deposited equity shares to the extent, and
limited to the number, of ADSs that have previously been converted into
underlying equity shares. Under these new procedures, if you elect to surrender
your ADSs and receive equity shares, you may be unable to re-deposit those
outstanding equity shares with our depositary and receive ADSs because the
number of new ADSs that can be issued cannot, at any time, exceed the number of
ADSs converted into underlying equity shares or result in foreign equity in us
exceeding 49%.

     Specifically, in February 2002, the Reserve Bank of India issued operative
guidelines for "limited two-way fungibility." Under the guidelines, a registered
broker in India is now permitted to purchase equity shares of an Indian company
on behalf of persons resident outside India for the purpose of converting the
equity shares so purchased into ADRs or GDRs, provided that (i) the equity
shares are purchased on a recognized stock exchange, (ii) the Indian company has
issued ADRs or GDRs, (iii) the equity shares are purchased with the permission
of the custodian of the ADRs or GDRs of the Indian company, and are deposited
with such custodian, (iv) the number of equity shares so purchased to be
converted into ADRs or GDRs do not exceed the ADRs or GDRs previously converted
into underlying equity shares (the number of equity shares available for


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conversion into ADRs or GDRs is dependent upon the number of equity shares
arrived at after conversion of ADRs into equity shares will have to be checked
with the custodian) and (v) the number of equity shares so purchased to be
converted shall be subject to sectoral caps as applicable and all the concerned
parties shall comply with the Issue of Foreign Currency Convertible Bonds and
Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and the
guidelines issued thereunder.

     Further, paragraph (v) of the guidelines states that the company should not
be involved in the process and the process should be demand driven upon the
request for ADRs or GDRs emanating from overseas investors, and expenses
involved in the overseas transaction would be borne by the investors themselves.

RESTRICTIONS ON FOREIGN OWNERSHIP OF INDIAN SECURITIES

     The government of India regulates ownership of Indian companies by
foreigners. Foreign investment in Indian securities, including the equity shares
represented by the ADSs, is generally regulated by the Foreign Exchange
Management Act, 1999, which permits transactions including the inflow or outflow
of foreign exchange and empowers the Reserve Bank of India to prohibit or
regulate such transactions.

     The Foreign Exchange Management Act permits most transactions involving
foreign exchange except those prohibited or restricted by the Reserve Bank of
India. The extent of control exercised over transactions involving foreign
exchange depends upon the type of transaction involved. Transactions that alter
the assets or liabilities, including contingent liabilities, outside India of
persons resident in India or the assets and liabilities in India of persons
resident outside India are known as capital account transactions. Transactions
other than capital account transactions are known as current account
transactions.

     The Foreign Exchange Management Act has eased restrictions on current
account transactions. However, the Reserve Bank of India continues to exercise
control over capital account transactions. The Reserve Bank of India has issued
regulations under the Foreign Exchange Management Act to regulate various
capital account transactions, including certain aspects of the purchase and
issuance of shares by Indian companies.

     The Reserve Bank of India has issued a notification under the provisions of
the Foreign Exchange Management Act relaxing the requirement of prior approval
for an Indian company making an ADS issue provided that the issuer is eligible
to issue ADSs pursuant to guidelines issued by the Ministry of Finance and has
the necessary approval from the Foreign Investment Promotion Board.

     Under the foreign investment rules, the following restrictions are
applicable on foreign ownership:

     o    under the "foreign direct investment" scheme, foreign individuals may
          own more than 49% of the equity shares of an Indian telecommunications
          company only with the approval of the Foreign Investment Promotion
          Board; this approval is granted on a case-by-case basis;

     o    under the "depositary" scheme, foreign investors may purchase ADSs or
          global depositary receipts, subject to the receipt of all necessary
          government approvals at the time the depositary receipt program is set
          up;

     o    under the "portfolio investment" scheme, foreign institutional
          investors, subject to registration with the Securities and Exchange
          Board of India and the Reserve Bank of India, may be permitted to own,
          in the aggregate, up to an additional 24.0% of our equity shares that
          are not represented by ADSs or global depositary receipts (and up to
          49.0% with the approval of our shareholders); no single foreign
          institutional investor may own more than 10.0% of our equity shares;
          and

     o    under the "portfolio investment" scheme, non resident Indians may own
          up to an aggregate or 10.0% of our equity shares; no single
          non-resident Indian may own more than 5.0% of our total equity shares.


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     We had obtained approvals from the Ministry of Finance, the Foreign
Investment Promotion Board, the DOT and special permission from the Reserve Bank
of India for the offering of our global depositary receipts. Various tax
concessions were also made available with respect to the existing global
depositary receipt offering in accordance with the provisions of Section 115AC
of the Indian Income-tax Act, 1961. Since no new shares were issued or offered
in our exchange offer last year and the exchange offer was related to a change
in the form of depository receipts, the original approvals needed merely to be
taken on file, noted and recorded for modification. We obtained from the
Ministry of Finance, Reserve Bank of India, the Foreign Investment Promotion
Board and the DOT, modifications to the original approvals/special permission
given by them, for our exchange offer.

     As of June 30, 2004 foreign direct investment in us was 22.20% of our
equity shares.

     An investor in ADSs does not need to seek the specific approval from the
government of India to purchase, hold or dispose of its ADSs. However, foreign
investment in our ADSs may not exceed 49% without prior government approval.

     Our outstanding equity shares, including the equity shares underlying the
ADSs, are listed and traded on the Calcutta, Delhi and Chennai Stock Exchanges,
The Stock Exchange, Mumbai and the National Stock Exchange. The prices for
equity shares as quoted in the official list of each of the Indian stock
exchanges are in Indian rupees. The ADS are listed on the New York Stock
Exchange.

     Equity shares which have been withdrawn from the depositary facility and
transferred on our register of shareholders to a person other than the
depositary or its nominee may be voted by that person. However, an ADS holder
may not receive sufficient advance notice of shareholder meetings to enable you
to withdraw the underlying equity shares and vote at such meetings.

     Notwithstanding the foregoing, if a foreign institutional investor,
non-resident Indian or non-Indian corporation were to withdraw its equity shares
from the ADS program, its investment in the equity shares would be subject to
the general restrictions on foreign ownership noted above and may be subject to
the portfolio investment restrictions, including the 10-24% portfolio investment
limitations, and the 5-10% non-resident Indian limitation. The application of
these limitations, however, is not clear. Secondary purchases of securities of
Indian companies in India by foreign direct investors or investments by
non-resident Indians, persons of Indian origin and foreign institutional
investors above the ownership levels set forth above, require government of
India approval on a case-by-case basis. It is unclear whether similar
case-by-case approvals of ownership of equity shares withdrawn from the
depositary facility by foreign institutional investors and non-resident Indians
would be required.

     Further, if an ADS holder withdraws equity shares from the ADS program and
its direct or indirect holding in us exceeds 15.0% of our total equity (under
the Takeover Code), such holder would be required to make a public offer to the
remaining shareholders. If one withdraws equity shares from the depositary
facility, one will not be able to redeposit them with the depositary.

     If one wishes to sell the equity shares withdrawn from the depositary
facility, they will be required to receive the prior approval of the Reserve
Bank of India.

     Under procedures approved by the Reserve Bank of India, the custodian will
be permitted to accept deposits of our outstanding equity shares purchased on a
recognized stock exchange by registered brokers in India on behalf of a foreign
investor. The depositary may issue ADRs evidencing ADSs representing the
deposited equity shares to the extent, and limited to the number, of ADSs that
have previously been converted into underlying equity shares, subject to
applicable foreign ownership restrictions. See "-- Limitations on Deposits of
Equity Shares into the ADS Program" above for more details on these procedures.

OTHER REGULATIONS

     For more information on relevant securities and related regulations, please
see "The Offer and Listing--The Indian Securities Market."


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                                    TAXATION

INDIAN TAXATION

     The following is a summary of the material Indian tax consequences for
holders of ADSs and equity shares received upon withdrawal of such equity shares
who are not resident in India, whether of Indian origin or not. This discussion
is based on the provisions of the Indian Income-Tax Act, 1961, including the
special tax regime for ADSs contained in Section 115AC, which has been extended
to cover additional ADSs that an investor may acquire in an amalgamation or
restructuring of the company, and certain regulations implementing the Section
115AC regime. The Indian Income Tax Act is amended every year by the Finance Act
of the relevant year. Some or all of the tax consequences of the Section 115AC
regime may be amended or modified by future amendments to the Indian Income Tax
Act. Amendments to Section 115AC extend the special tax regime of Section 115AC
to ADSs re-issued, in accordance with procedures established by the Indian
government (operative guidelines issued under the Foreign Exchange Management
notification dated February 13, 2002), against existing shares of an Indian
company purchased by a non-resident investor in foreign currency through an
approved intermediary. Under these guidelines re-issuance of ADSs would be
permitted to the extent of ADSs which have been converted into underlying
shares.

     The summary is not intended to constitute a complete analysis of the tax
consequences under Indian law of the acquisition, ownership and sale of ADSs and
equity shares by non-resident investors. Potential investors should, therefore,
consult their own tax advisers on the tax consequences of such acquisition,
ownership and sale, including specifically the tax consequences under Indian
law, the law of the jurisdiction of their residence, any tax treaty between
India and their country of residence, and in particular the application of the
regulations implementing the section 115AC regime.

RESIDENCE

     For the purpose of the Income Tax Act, an individual is a resident of India
during any fiscal year, if he (1) is in India in that year for 182 days or more
or (2) having within the four years preceding that year been in India for a
period or periods amounting in all to 365 days or more, is in India for period
or periods amounting in all to 60 days or more in that year. The period of 60
days is substituted by 182 days in case of an Indian citizen or a person of
Indian origin who being resident outside India visits India during the financial
year or an Indian citizen who leaves India for the purposes of his employment
during the financial year. A company is resident in India in any fiscal year if
it is registered in India or the control and management of its affairs is
situated wholly in India in that year. A firm or other association of persons is
resident in India except where the control and the management of its affairs are
situated wholly outside India.

TAXATION OF DISTRIBUTIONS

     Dividends distributed by an Indian company after March 31, 2002 are not
subject to tax in the hands of shareholders. A dividend tax of 13.07% (inclusive
of surcharge) of the distributed profit for a relevant period is payable by us.

TAXATION ON REDEMPTION OF ADSS

     The acquisition of equity shares upon a redemption of ADSs by a
non-resident investor will not give rise to a taxable event for Indian tax
purposes.

TAXATION ON SALE OF EQUITY SHARES OR ADSS

     Any transfer of ADSs or equity shares outside India by a non-resident
investor to another non-resident investor does not give rise to Indian capital
gains tax.

     Subject to any relief under any relevant double taxation treaty, a gain
arising on the sale of an equity share to a resident of India or where the sale
is made inside India will generally give rise to a liability for Indian capital
gains tax. Such tax is required to be withheld at source. Where the equity share
has been held for more than 12 months (measured from the date of advice of


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redemption of the ADSs by the Depositary), the rate of tax is 10.46% (inclusive
of surcharge). Where the equity share has been held for 12 months or less, the
rate of tax varies and will be subject to tax at normal rates of income-tax
applicable to non-residents under the provisions of the Indian Income Tax Act,
subject to a maximum of 41.82% (inclusive of surcharge) in the case of foreign
companies. The actual rate depends on a number of factors, including without
limitation the nature of the non-resident investor. During the period the
underlying equity shares are held by non-resident investors on a transfer from
the Depositary upon redemption of ADRs, the provisions of the Avoidance of
Double Taxation Agreement entered into by the government of India with the
country of residence of the non-resident investors will be applicable in the
matter of taxation of any capital gain arising on a transfer of the equity
shares. The double taxation treaty between the United States and India does not
provide U.S. residents with any relief from Indian tax on capital gains.

     For purposes of determining the amount of capital gains arising on a sale
of an equity share for Indian tax purposes, the cost of acquisition of an equity
share received upon redemption of an ADS will be the price of the share
prevailing on The Stock Exchange, Mumbai or the National Stock Exchange on the
date on which the depositary advises the custodian of such redemption, not the
acquisition cost of the ADS being redeemed. The holding period of an equity
share received upon redemption of an ADS will commence from the date of advice
of redemption by the depositary. The exact procedures for the computation and
collection of Indian capital gains tax are not settled.

RIGHTS

     A distribution to non-resident holders of additional ADSs or equity shares
or rights to subscribe for equity shares made with respect to ADSs or equity
shares is not subject to tax in the hands of the non-resident holder.

     It is unclear as to whether capital gain derived from the sale of rights by
a non-resident holder not entitled to exemption under a tax treaty to another
non-resident holder outside India will be subject to Indian capital gains tax.
If rights are deemed by the Indian tax authorities to be situated within India,
as our situs is in India, the gains realized on the sale of rights will be
subject to customary Indian taxation as discussed above.

STAMP DUTY

     A transfer of ADSs is not subject to Indian stamp duty. Normally, upon the
acquisition of equity shares from the depositary in exchange for ADSs
representing such equity shares in physical form, an investor would be liable
for Indian stamp duty at the rate of 0.5% of the market value of the equity
shares at the date of registration. Similarly, a sale of equity shares by an
investor would be also subject to Indian stamp duty at the rate of 0.5% of the
market value of the equity shares on the trade date, although customarily such
tax is borne by the transferee, that is, the purchaser. However, our equity
shares are mandatorily deliverable in uncertificated form and under Indian stamp
law, no stamp duty is payable on the acquisition or transfer of equity shares in
uncertificated/dematerialized form.

OTHER TAXES

     At present, there are no taxes on wealth, gifts and inheritance which may
apply to the ADSs and underlying equity shares.

SERVICE TAX

     Brokerage or commission paid to stockbrokers in connection with the sale or
purchase of shares is subject to a service tax of 10.2%. The stockbroker is
responsible for collecting the service tax and paying it to the relevant
authority.


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UNITED STATES FEDERAL INCOME TAXATION

     The following is a summary of certain United States federal income tax
considerations for U.S. Holders (as defined below) of ADSs or equity shares who
hold ADSs or equity shares as of the date hereof. This summary is based upon
existing United States federal income tax law which is subject to change,
possibly on a retroactive basis. This summary does not discuss all aspects of
United States federal income taxation which may be important to particular
holders in light of their individual investment circumstances, such as ADSs or
equity shares held by holders subject to special tax rules ( e.g., financial
institutions, insurance companies, broker-dealers, tax-exempt organizations, and
non-U.S. Holders) or to persons that will hold ADSs or equity shares as part of
a straddle, hedge, conversion, or other integrated transactions for United
States federal income tax purposes or that have a functional currency other than
the United States dollar, all of whom may be subject to tax rules that differ
significantly from those summarized below. In addition, this summary does not
discuss any state, local, or foreign tax considerations. This summary assumes
that investors hold, and will continue to hold, their ADSs or equity shares as
"capital assets" (generally, property held for investment) under the United
States Internal Revenue Code of 1986, as amended (Code). Holders are urged to
consult their tax advisers regarding the United States federal, state, local,
and foreign income tax considerations, including the "passive foreign investment
company" rules described below, of the ownership and disposition of ADSs or
equity shares.

     For purposes of this summary, a "U.S. Holder" is a beneficial owner of ADSs
or equity shares that is for United States federal income tax purposes (i) an
individual who is a citizen or resident of the United States, (ii) a
corporation, partnership, or other entity created or organized in or under the
law of the United States or any State or political subdivision thereof, (iii) an
estate the income of which is includible in gross income for United States
federal income tax purposes regardless of its source, or (iv) a trust (A) the
administration of which is subject to the primary supervision of a United States
court and which has one or more United States persons who have the authority to
control all substantial decisions of the trust, or (B) that was in existence on
August 20, 1996, was treated as a United States person under the Code on the
previous day, and properly elected to continue to be so treated. The tax
treatment of persons who hold their ADSs or equity shares through a partnership
(including an entity treated as a partnership for United States federal income
tax purposes) will generally depend on the status of the partner and the
activities of the partnership.

GENERAL

     For purposes of United States federal income taxation, a holder of ADSs
will be treated as the owner of his proportionate interest in the underlying
equity shares held by the depositary. Accordingly, no gain or loss will be
recognized upon the exchange of ADSs for the holder's proportionate interest in
equity shares, a holder's tax basis in the withdrawn equity shares will be the
same as his tax basis in the ADSs surrendered in exchange therefor, and such
holder's holding period in the withdrawn equity shares will include the period
during which the holder held the surrendered ADSs.

     A foreign corporation will be classified as a "passive foreign investment
company" (PFIC), for United States federal income tax purposes, if 75% or more
of its gross income or 50% or more of its assets are "passive" as determined
under the PFIC rules. The determination of whether a foreign corporation is a
PFIC is a factual determination and may entail the resolution of certain legal
issues such as the tax treatment of on-lending transactions involving related
parties under the PFIC rules. In addition, such determination is made on an
annual basis and, accordingly, is subject to change from year to year. The
following discussion assumes that we will not be classified as a PFIC for United
States federal income tax purposes. For further PFIC considerations, see "--PFIC
Considerations" below.

U.S.  HOLDERS

     Taxation of Dividends. Any cash distributions paid by us out of our
earnings and profits, as determined under United States federal income tax
principles, will be subject to tax as ordinary dividend income and will be
includible in the gross income of a U.S. Holder upon receipt. Cash distributions
paid by us in excess of our earnings and profits will be treated as a tax-free
return of capital to the extent of the U.S. Holder's adjusted tax basis in his
ADSs or equity shares, and thereafter as gain from the sale or exchange of a
capital asset. Dividends paid in Indian rupees will be includible in income in a
United States dollar amount based on the United States dollar--Indian rupee


                                       76
<PAGE>


exchange rate prevailing at the time of receipt of such dividends by the
depositary. Dividends received on the ADSs or equity shares will not be eligible
for the dividends received deduction allowed to corporations, but generally will
qualify for the reduced income tax rate for qualified dividend income, provided
certain holding period requirements are met.

     Dividends paid on ADSs or equity shares will be treated, for United States
federal income tax purposes, as foreign source income. A U.S. Holder may be
eligible, subject to a number of complex limitations, to claim a foreign tax
credit in respect of any Indian income tax imposed on dividends received on the
ADSs or equity shares. U.S. Holders who do not elect to claim a foreign tax
credit for Indian income tax withheld may instead claim the Indian income tax
withheld as a deduction for United States federal income tax purposes, but only
for a year in which the U.S. Holder elects to do so for all creditable foreign
taxes. In certain circumstances, a U.S. Holder may not claim a foreign tax
credit (and instead may claim a deduction) for foreign taxes imposed on a
dividend if the U.S. Holder (i) has not held the ADSs or equity shares for at
least 16 days in the 30-day period beginning 15 days before the ex-dividend date
during which it is not protected from risk of loss, (ii) is obligated to make
certain payments related to such dividend, or (iii) subject to the promulgation
of future Treasury regulations that are anticipated to be retroactively applied,
holds the ADSs or equity shares in an arrangement in which the expected economic
profit of the U.S. Holder is insubstantial compared to the value of the foreign
tax credit expected to be obtained as a result of the arrangement.

     A distribution of additional shares issued by us to U.S. Holders with
respect to their ADSs or equity shares that is pro rata to all of our
shareholders may not be subject to United States federal income tax. In the case
of such a non-taxable stock dividend, such a distribution will not give rise to
foreign source income and a U.S. Holder will not be able to use the foreign tax
credit arising from any Indian withholding tax imposed in connection with such
distribution unless the foreign tax credit can be applied (subject to applicable
limitations) against United States federal income tax due on other foreign
source income of the U.S. Holder. The tax basis of such additional shares will
be determined by allocating the U.S. Holder's tax basis in the ADSs or equity
shares between the ADSs or equity shares and the additional shares, based on
their relative fair market values on the date of distribution.

     Sale or Other Disposition of ADSs or Ordinary Shares. A U.S. Holder will
generally recognize capital gain or loss upon the sale or other disposition of
ADSs or equity shares in an amount equal to the difference between the amount
realized upon the disposition and the U.S. Holder's adjusted tax basis in such
ADSs or equity shares. Any capital gain or loss will be long-term if the ADSs or
equity shares have been held for more than one year and will generally be United
States source gain or loss. The claim for a deduction in respect of a capital
loss is subject to limitations.

     PFIC Considerations. If we were to be classified as a PFIC in any taxable
year, a U.S. Holder would be subject to special rules generally intended to
reduce or eliminate any benefits from the deferral of United States federal
income tax that a U.S. Holder could derive from investing in a foreign
corporation that does not distribute all of its earnings on a current basis. In
such event, a U.S. Holder of ADSs or equity shares may be subject to tax at
ordinary income tax rates on (i) any gain recognized on the sale of the ADSs or
equity shares and (ii) any "excess distribution" paid on the ADSs or equity
shares (generally, a distribution in excess of 125% of the average annual
distributions paid by us in the three preceding taxable years). In addition, a
U.S. Holder may be subject to an interest charge on such gain or excess
distribution.

                              DOCUMENTS ON DISPLAY

     We file reports, including annual reports on Form 20-F, and other
information with the SEC pursuant to the rules and regulations of the SEC that
apply to foreign private issuers. One may read and copy any materials filed with
the SEC at the Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20459. You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. Since November 4, 2002, subject to some
exceptions, we have been required to file our periodic reports electronically
through the SEC's EDGAR system. Any filings we make electronically are available
to the public over the Internet at the SEC's Website at http://www.sec.gov .


                                       77
<PAGE>


ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

CREDIT RISK

     Financial instruments/investments which potentially subject us to credit
risk include periodic temporary investments of excess cash, trade receivables
and investments in ITI Limited preference shares and bonds of the Maharashtra
Krishna Valley Development Corporation (MKVDC). We place our temporary excess
cash in bank deposits. Credit risk associated with trade receivables is minimal
due to our large customer base. We have not historically experienced significant
losses on trade receivables.

     We hold Rs.1,000 million of 8.75% redeemable cumulative preference shares
of ITI Limited, an Indian government company in the telecom equipment and
distribution business. These shares are redeemable in five equal annual
installments commencing March 2005. We believe the risk in relation to
investments made in ITI Limited is somewhat offset by the clause relating to set
off the amounts receivable in respect of principal outstanding from the dues
payable to ITI Limited, built into the share purchase agreement.

     We hold Rs.2500 million of 11.5% bonds issues MKVDC, a subsidiary of the
government of Maharashtra, which we acquired in 2002. They are redeemable 10
years after issue. The credit risk for the investment in bonds issued by the
MKVDC is minimized due to the payment mechanism envisaged in the prospectus. In
the event that such amount is not transferred, the trustees would be entitled to
invoke the guarantee given by the state government.

EXCHANGE RATE AND INTEREST RATE RISK

     We are not exposed to any material foreign currency exchange risk since our
revenues and expenses are primarily in Indian rupees. We are not exposed to any
material interest rate risk since we do not rely on borrowings to meet our
working capital and capital expenditure requirements. As of March 31, 2004, we
had no debt.

FAIR VALUE

     The fair value of our current assets and current liabilities approximate
their carrying values because of their short-term maturity. Such financial
instruments are classified as current and are expected to be liquidated within
the next twelve months.

     The approximate fair value of investments in held to maturity securities,
as determined by using current interest as of March 31, 2004 is Rs.3,901 million
as compared to the carrying amount of Rs. 3,500 million.

     The approximate fair value of loans to employees, as determined by using
current interest as of March 31, 2004 is Rs.2,647 million as compared to the
carrying amount of Rs.2,765 million.

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable.

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGE AND DELINQUENCIES.

     None.

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
          PROCEEDS

     None.


                                       78
<PAGE>


ITEM 15.  CONTROLS AND PROCEDURES

     (a) Disclosure Controls and Procedures. Our management, with the
participation of our chief executive officer and chief financial officer, has
evaluated the effectiveness of our disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934) as of the end of the period covered by this report. Based on such
evaluation, our chief executive officer and chief financial officer have
concluded that, as of the end of such period, our disclosure controls and
procedures are effective in recording, processing, summarizing and reporting, on
a timely basis, information required to be disclosed by us in the reports that
we file or submit under the Securities Exchange Act.

     (b) Internal Control Over Financial Reporting. There have not been any
changes in our internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act)
during the period to which this report relates that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

     The Board of Directors has determined that Dr. Jagdish Shettigar, Chairman
of the Audit Committee, is an audit committee "financial expert" by reason of
his relevant experience which is discussed in Item 6 of this report.

ITEM 16B. CODE OF ETHICS

     The Company has a Code of Ethics as part of its Rules of Conduct. A copy of
the Code of Ethics may be obtained upon request addressed to the Company
Secretary at the Company's principal office, indicated on the cover of this
report.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     PwC served as our independent registered public accounting firm for the
year, ended March 31, 2003 and 2004 in connection with the audit of the audited
consolidated financial statements being filed with this annual report on Form
20-F.

     The following table presents the aggregate fees for professional services
and other services rendered by PWC to us in 2003 and 2004 in Million Rs.

                             2003       2004
Audit Fees                   2.83       3.10
Other Fees                   2.23       2.43
     (I)  TOTAL              5.06       5.53

     Audit fees are fees agreed upon with PwC for the fiscal years 2003 and 2004
(including related expenses) for the audit of our annual consolidated financial
statements.

     Other Fees is on account of consultancy for obtaining license for the
company of Certification Authority and other consultancy work.

AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES

     Our board of directors requires management to obtain the board's approval
before engaging independent outside auditors to provide any audit or permitted
non-audit services to us. Pursuant to this policy, our board of directors
pre-approves all audit and non-audit services provided by PWC, our principal
auditor. Pursuant to the board's pre-approval process, each year, PWC prepares a
detailed list of services that it proposes to perform during the coming year.
These proposed services are presented to the board of directors, which considers


                                       79
<PAGE>


and approves the services. Management is not permitted to engage our outside
auditors for any audit or non-audit service that is not on the list of services
approved by the board of directors without first returning the board of
directors for approval of such additional services.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

     Not applicable

ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

     Not applicable

ITEM 17.  FINANCIAL STATEMENTS

     Not applicable.

ITEM 18.  FINANCIAL STATEMENTS

     See pages F-1 through F-30.

ITEM 19.  EXHIBITS

NUMBER    DESCRIPTION OF EXHIBIT

1.1       Memorandum and Articles of Association of the Registrant, as amended
          on January 31, 2002./*/

2.1       Form of Deposit Agreement among the Registrant, The Bank of New York,
          as depositary, and the holders from time to time to American
          Depositary Shares issued thereunder, including as an exhibit, the form
          of American Depositary Receipt./**/

4.1       Lease Agreement dated January 16, 1996 between Life Insurance
          Corporation of India and the Registrant./**/

4.2       License Agreement for provision of Internet Services in Delhi dated
          November 6, 1998 between President of India acting through Assistant
          Director General, Ministry of Communications and the Registrant./**/

4.3       License Agreement for provision of Internet Services in Mumbai dated
          November 6, 1998 between President of India acting through Assistant
          Director General, Ministry of Communications and the Registrant./**/

4.4       License Agreement for provision of Internet Services dated October 6,
          2000 between President of India acting through Assistant Director
          General, Ministry of Communications and Millennium Telecom
          Limited./**/

12.1      Certification of Chief Executive Officer

12.2      Certification of Principal Financial Officer

13.1      Certification of Chief Executive Officer

13.2      Certification of Principal Financial Officer

----------

*Previously filed on September 30, 2002, as exhibits to Annual Report on Form
20-F for fiscal 2002.

**Previously filed on September 27, 2001, as exhibits to Registration Statement
on Form F-4 (file number 333-13944).


                                       80
<PAGE>


                        MAHANAGAR TELEPHONE NIGAM LIMITED

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            PAGE

Audited Consolidated Financial Statements Prepared
   in Accordance with Accounting
Principles Generally Accepted in the United States.
Report of Independent Accountants                                            F-2
Consolidated Balance Sheets                                                  F-3
Consolidated Statements of Operations                                        F-4
Consolidated Statement of Changes in Shareholders' Equity                    F-5
Consolidated Statements of Cash Flow                                         F-6
Notes to Consolidated Financial Statements                                   F-7


                                      F-1
<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF MAHANAGAR TELEPHONE NIGAM LIMITED


In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in
shareholders' equity, present fairly, in all material respects, the financial
position of Mahanagar Telephone Nigam Limited and its subsidiaries at March 31,
2004 and 2003, and the results of their operations and their cash flows for each
of the three years in the period ended March 31, 2004, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.


PRICE WATERHOUSE

NEW DELHI, INDIA

SEPTEMBER 30, 2004


                                      F-2
<PAGE>


                        MAHANAGAR TELEPHONE NIGAM LIMITED
                           CONSOLIDATED BALANCE SHEETS
      (INDIAN RUPEES IN MILLION, EXCEPT SHARE DATA AND AS STATED OTHERWISE)

<TABLE>
<CAPTION>
                                                                  AS OF MARCH 31,
                                                        ----------------------------------
                                                            2003        2004       2004
                                                        ----------  ----------  ----------
                                                                              CONVENIENCE
                                                                              TRANSLATION
                                                                             INTO MILLION
                                                                                  OF US $
                                                                              (UNAUDITED)
<S>                                                       <C>         <C>           <C>
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                18,162      25,534         589
  Restricted cash                                               8          11           -
  Accounts receivable, net of
     allowances                                             3,760       6,392         147
  Due from related parties                                 29,644      26,725         615
  Inventories                                               1,416         991          22
  Unbilled revenue                                          5,296       5,379         124
  Deferred income taxes                                     3,675       5,325         123
  Other receivables                                         3,313       3,999          92
                                                        ----------  ----------  ----------
       TOTAL CURRENT ASSETS                                65,274      74,356       1,712

  Deferred income taxes                                     1,464       2,682          62
  Investment in held to maturity securities                 3,500       3,500          81
  Investments in affiliates                                   192         205           5
  Property and equipment, net                              79,259      79,664       1,835
  Restricted assets                                         9,070      13,043         301
  Other assets                                              2,284       2,559          59
                                                        ----------  ----------  ----------
       TOTAL ASSETS                                       161,043     176,009       4,055
                                                        ==========  ==========  ==========

Contingencies and commitments (refer note 23 & 25)

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                          5,442       8,626         199
  Due to related parties                                   18,885      18,561         428
  Accrued expenses and other current liabilities           30,513      31,079         716
                                                        ----------  ----------  ----------
       TOTAL CURRENT LIABILITIES                           54,840      58,266       1,343

  Accrued employee cost                                    10,957      20,404         470
  Deferred income taxes                                    16,265      16,504         380
                                                        ----------  ----------  ----------
       TOTAL LIABILITIES                                   82,062      95,174       2,193
                                                        ==========  ==========  ==========

STOCKHOLDERS' EQUITY
  Equity shares, 800,000,000 shares authorized,
    issued and outstanding - 630,000,000
  shares as of March 31, 2003 and 2004                      6,300       6,300         145
  Additional paid-in capital                                6,649       6,649         153
  Retained earnings                                        65,724      67,578       1,557
  Research and development reserve                            308         308           7

                                                        ----------  ----------  ----------
TOTAL STOCKHOLDERS' EQUITY                                 78,981      80,835       1,862
                                                        ----------  ----------  ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                161,043     176,009       4,055
                                                        ==========  ==========  ==========

  The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                      F-3
<PAGE>


                        MAHANAGAR TELEPHONE NIGAM LIMITED
                      CONSOLIDATED STATEMENTS OF OPERATIONS
      (INDIAN RUPEES IN MILLION, EXCEPT SHARE DATA AND AS STATED OTHERWISE)

<TABLE>
<CAPTION>
                                                     FOR THE YEARS ENDED MARCH 31,
                                          ----------------------------------------------------
                                             2002          2003          2004          2004
                                          ----------    ----------    ----------    ----------
                                                                                   CONVENIENCE
                                                                                   TRANSLATION
                                                                                  INTO MILLION
                                                                                       OF US $
                                                                                   (UNAUDITED)
                                          ----------    ----------    ----------    ----------
<S>                                        <C>            <C>           <C>             <C>
Revenues                                     58,735        55,251        61,084         1,407
Cost of revenues (excluding depreciation    (30,729)      (30,092)      (37,531)         (865)
 shown separately below)                  ----------    ----------    ----------    ----------
Gross profit                                 28,006        25,159        23,553           542
Selling, general and administrative
 expenses (excluding depreciation
 shown separately below)
                                             (7,799)       (8,405)       (9,701)         (224)
Depreciation                                 (6,905)       (8,507)       (8,675)         (200)

                                          ----------    ----------    ----------    ----------
TOTAL OPERATING EXPENSES                    (14,704)      (16,912)      (18,376)         (424)
                                          ----------    ----------    ----------    ----------

INCOME FROM OPERATIONS                       13,302         8,247         5,177           118
Interest and other income, net                2,051         2,218         2,844            65
                                          ----------    ----------    ----------    ----------
INCOME BEFORE INCOME TAXES,                  15,353        10,465         8,021           183
 AND SHARE OF LOSSES FROM AFFILIATE
Income taxes                                 (5,687)       (4,754)       (2,949)          (68)
Equity in (losses) of affiliate                  (4)           (4)          (20)            -

                                          ==========    ==========    ==========    ==========
NET INCOME                                    9,662         5,707         5,052           115
                                          ==========    ==========    ==========    ==========

EARNINGS PER EQUITY SHARE
   -Basic                                  Rs.15.34       Rs.9.06       Rs.8.02         $0.18
   -Diluted                                Rs.15.34       Rs.9.06       Rs.8.02         $0.18

WEIGHTED AVERAGE NUMBER OF EQUITY
 SHARES USED IN COMPUTING EARNINGS
 PER EQUITY SHARE( IN MILLION)
   -Basic                                       630           630           630           630
   -Diluted                                     630           630           630           630

                                          ----------    ----------    ----------    ----------

    The accompanying notes form an integral part of these consolidated financial statements.
</TABLE>


                                      F-4
<PAGE>


<TABLE>
<CAPTION>
                                             MAHANAGAR TELEPHONE NIGAM LIMITED
                                   CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
                           (INDIAN RUPEES IN MILLION, EXCEPT SHARE DATA AND AS STATED OTHERWISE)

                                              COMMON STOCK
                                       --------------------------     ADDITIONAL               RESEARCH AND      TOTAL
                                                                       PAID-IN      RETAINED    DEVELOPMENT   STOCKHOLDERS'
                                          SHARES         AMOUNT        CAPITAL      EARNINGS     RESERVE         EQUITY
                                       ------------------------------------------------------------------------------------
<S>                                     <C>                <C>           <C>          <C>              <C>       <C>
Balance as of April 1, 2001             630,000,000        6,300         6,649        56,314           308        69,571
Net income                                        -            -             -         9,662             -         9,662
Dividends                                         -            -             -       (2,835)             -       (2,835)
Taxes paid on dividends                           -            -             -         (289)             -         (289)
                                       -------------   ----------    ----------    ----------    ----------    ----------
Balance as of March 31, 2002            630,000,000        6,300         6,649        62,852           308        76,109
                                       =============   ==========    ==========    ==========    ==========    ==========
Net Income                                        -            -             -         5,707             -         5,707
Dividends                                                                            (2,835)             -       (2,835)
                                       -------------   ----------    ----------    ----------    ----------    ----------
Balance as of March 31, 2003            630,000,000        6,300         6,649        65,724           308        78,981
                                       =============   ==========    ==========    ==========    ==========    ==========
Net income                                        -            -                       5,052             -         5,052
Dividends                                         -            -                     (2,835)             -       (2,835)
Taxes paid on dividend                            -            -                       (363)             -         (363)
                                       -------------   ----------    ----------    ----------    ----------    ----------
Balance as of March 31, 2004            630,000,000        6,300         6,649        67,578           308        80,835
                                       =============   ==========    ==========    ==========    ==========    ==========

                                                       ----------    ----------    ----------    ----------    ----------
CONVENIENCE TRANSLATION INTO MILLION                         145           153         1,557             7         1,862
OF US $ (UNAUDITED)                                    ==========    ==========    ==========    ==========    ==========

                  The accompanying notes form an integral part of these consolidated financial statements.
</TABLE>


                                       F-5
<PAGE>


                        MAHANAGAR TELEPHONE NIGAM LIMITED
                      CONSOLIDATED STATEMENTS OF CASH FLOW
      (INDIAN RUPEES IN MILLION, EXCEPT SHARE DATA AND AS STATED OTHERWISE)

<TABLE>
<CAPTION>
                                                               FOR THE YEARS ENDED MARCH 31,
                                                     --------------------------------------------------
                                                        2002         2003         2004          2004
                                                     ----------   ----------   ----------   -----------
                                                                                           CONVENIENCE
                                                                                           TRANSLATION
                                                                                           INTO MILLION
                                                                                             OF US $
                                                                                           (UNAUDITED)
                                                     ------------------------------------  ------------
<S>                                                    <C>          <C>           <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES

NET INCOME
                                                         9,662        5,707        5,052           115
Adjustments to reconcile net income to net cash
provided by operating activities:

Depreciation                                             6,905        8,507        8,675           200

Loss / (profit) on sale of fixed assets                    555          (75)         107             2

Deferred taxes                                          (1,824)         873       (2,630)          (61)

Excess liabilities written back                          (224)        (256)       (1,130)          (26)

Other non cash charges                                       -          301          394             9

Allowances for accounts receivables and advances         1,779        2,074        2,417            56

Equity in (losses) of equity affiliate                       4            4           20             -

Changes in assets and liabilities, net

Increase in accounts receivables                          (753)        (837)      (5,132)         (118)

(Increase)/ decrease in inventories                       (557)       1,477          425            10

(Increase)/ decrease in other receivables                3,036       (5,476)       1,370            31

(Increase)/ decrease in restricted assets               (3,697)        (769)      (3,973)          (92)

Increase/(decrease) in accounts payable                   (417)         672        3,184            73

Increase in accrued employee costs                       1,770        1,847        9,447           219

Increase in other payables                                 925        9,407        1,659            38
                                                     ----------   ----------   ----------   -----------
NET CASH PROVIDED BY THE OPERATING ACTIVITIES           17,164       23,456       19,885           456
                                                     ----------   ----------   ----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES

Movements in restricted cash                                 2           (1)          (3)            -

Purchase of fixed assets                               (11,170)     (12,196)      (9,337)         (215)

Proceeds from sale of fixed assets                         740          141           58             1

Refund of short term loans                               1,500            -            -             -

Investments in held to maturity securities              (1,000)      (2,500)           -             -

Investment in affiliate                                    (17)        (183)         (33)           (1)
                                                     ----------   ----------   ----------   -----------
NET CASH USED IN INVESTING ACTIVITIES                   (9,945)     (14,739)      (9,315)         (215)
                                                     ----------   ----------   ----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of loan from DOT                              (4,245)     (12,176)           -             -

Payments under capital lease obligations                  (222)           -            -             -

Dividends paid                                          (3,124)      (2,835)      (3,198)          (74)
                                                     ----------   ----------   ----------   -----------
NET CASH FROM FINANCING ACTIVITIES                      (7,591)     (15,011)      (3,198)          (74)
                                                     ----------   ----------   ----------   -----------
Net increase/(decrease) in cash and cash
   Equivalents                                            (372)      (6,294)       7,372           167

Cash and cash equivalents at the
   beginning of the year                                24,828       24,456       18,162           418
                                                     ----------   ----------   ----------   -----------
CASH AND CASH EQUIVALENTS AT THE END OF
  THE YEAR                                              24,456       18,162       25,534           585
                                                     ==========   ==========   ==========   ===========

     SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest                                   3,245        3,014        3,315            76
Cash paid for income taxes                               8,666        8,447        8,327           192

          The accompanying notes are an integral part of these consolidated financial statements
</TABLE>


                                      F-6
<PAGE>


MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

1.   ORGANIZATION AND NATURE OF OPERATIONS

     Incorporation and history

     Mahanagar Telephone Nigam Limited ("MTNL") is incorporated in India, as a
     limited liability company under the Indian Companies Act, 1956, with its
     registered office in New Delhi, India. MTNL is the principal provider of
     basic or fixed line telecommunications services in Delhi and Mumbai. MTNL's
     license is valid up to March 31, 2013 for fixed line services and covers
     the state of Delhi and the municipalities of Mumbai, Navi Mumbai and Thane,
     which are in the state of Maharashtra. MTNL also provides internet and
     cellular services in both Delhi and Mumbai for which it has licenses valid
     up to September 7, 2017 and October 9, 2017 respectively.

     Millennium Telecom Limited (hereinafter referred to as "MTL"), a wholly
     owned India based subsidiary of MTNL, is engaged in providing web based
     tendering portal solutions.

     Mahanagar Telephone Mauritius Limited (hereinafter referred to as "MTML"),
     also a wholly owned subsidiary of MTNL, has been registered in Mauritius on
     November 14, 2003 to provide public switched telecom services, public land
     mobile services and international long distance services for which a
     license has been awarded on January 27, 2004 by the Government of Mauritius
     for a period of 15 years with service obligation within 18 months of grant
     of license. The MTML has not started operations till March 31, 2004. MTNL
     has paid Rs. 45 million during the year ended March 31, 2004 towards
     subscription of MTML shares, for which the allotment has not yet completed.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (a)  Basis of preparation

          Hitherto, MTNL had been preparing and presenting its consolidated
          financial statements in accordance with the accounting and reporting
          requirements of International Accounting Standards (IAS). MTNL had
          also been presenting reconciliation between net income and
          stockholders' equity prepared in accordance with IAS and in conformity
          with accounting principles generally accepted in the United States

          During the current year, MTNL has changed basis of presenting its
          financial statements. The accompanying consolidated financial
          statements have been prepared in conformity with accounting principles
          generally accepted in United States to reflect the financial position
          and results of operations of MTNL along with its subsidiaries. The
          previous years are adjusted to conform to the current period
          presentation.

     (b)  Principles of consolidation

          The consolidated financial statements present the accounts of MTNL and
          all of its subsidiaries, which are more than 50% owned and controlled
          (hereinafter collectively referred to as "the Company"). All material
          inter-company accounts and transactions are eliminated on
          consolidation. The Company's' investments in business entities in
          which it does not have control, but have the ability to exercise
          significant influence over the operating and financial policies
          (generally 20-50 percent ownership), are accounted for under the
          equity method of accounting.

     (c)  Use of estimates

          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that affect the reported amounts of assets and
          liabilities and disclosure of contingent assets and liabilities at the
          date of the financial statements and the results of operations during
          the reporting periods. Significant estimates and assumptions are used
          for, but not limited to, allowances for uncollectible accounts
          receivable, future obligations under employee benefit plans, the
          useful lives of property and equipment, income tax valuation
          allowances and contingencies. Actual results could differ from these
          estimates. Appropriate changes in estimates are made as management
          becomes aware of changes in circumstances surrounding the estimates.

     (d)  Convenience translation

          The accompanying consolidated financial statements have been reported
          in Indian rupees, the national currency of India which is also the
          functional currency of the Company. Solely for the convenience of the
          readers, the financial statements as of and for the year ended March
          31, 2004, have been translated into United States dollars at the noon
          buying rate in New York city on March 31, 2004, for cable transfers in
          Indian rupees, as certified for customs purposes by the Federal


                                      F-7
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MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

          Reserve Bank of New York of $1= Rs.43.40. No representation is made
          that the Indian rupee amounts have been, could have been or could be
          converted into United States dollars at such a rate or any other rate.

     (e)  Foreign currencies

          The functional and reporting currency of the Company is Indian rupees.
          Monetary assets and liabilities in foreign currencies are translated
          into the functional currency at the rates of exchange prevailing at
          the balance sheet date. Transactions in foreign currencies are
          translated into the functional currency at the rates of exchange
          prevailing at the date of the transaction. The gains or losses
          resulting from foreign currency transactions are included in the
          statement of income.

     (f)  Revenue recognition

          Revenues include amounts invoiced for call revenue, fixed monthly
          rental charges, roaming charges, activation fees, internet services,
          access and interconnection revenue and fees for value added services
          (`VAS').

          Revenues for fixed line and cellular telephonic services are
          recognized based upon metered call units (MCU) of traffic processed.
          Rental revenues and leased circuits rentals are recognised based upon
          contracted fees schedule. Revenues from internet services are
          recognized based on usage by subscribers.

          Revenues associated with access and interconnection for usage of the
          Company's telephone network by other operators for local, national
          long distance and international long distance calls are recognized in
          accordance with the Interconnect Usage Charges Regulation released by
          Telecom Regulatory Authority of India ("TRAI"). TRAI regulation
          specifies per minute rates for metered call units (MCU) of traffic
          terminated on the Company's network.

          Revenues are shown net of service tax and applicable discounts and
          allowances.

          Unbilled receivables represent revenues recognized in respect of
          services provided from the last bill cycle date to the end of the
          year. These are billed in subsequent periods as per the terms of the
          billing plans.

          Amounts charged for the new connection given to existing and new
          customers are deferred and released to the consolidated income
          statements over the average life of the customer relationship. In
          addition to amount so deferred, deferred revenue includes amounts
          billed in advance for services to be rendered.

     (g)  License fee

          The Company is paying license fee and spectrum charges to DOT in
          accordance with conditions governing license fee for Basic Telephone
          Service and Cellular Telephone Service prescribed by DOT under the
          Revenue Sharing Regime, whereby license fee is computed at a specified
          percentage of adjusted gross revenue. The license fee is expensed as
          incurred.

     (h)  Network charges

          Charges associated with access to and interconnection to other
          operators' network by the Company for local, national long distance
          and international long distance calls are recognized in accordance
          with the Interconnect Usage Charges Regulation released by Telecom
          Regulatory Authority of India ("TRAI"), where applicable, and in
          accordance with the terms of agreements entered into with other
          operators. TRAI regulation specifies per minute charges for metered
          call units (MCU) of traffic terminated on the other operators'
          network.

     (i)  Customer deposits

          Customers are required to pay deposits either when included on the
          waiting list for a line or on connection to the telephone network.
          Majority of the deposits received are refundable to the customer on
          termination of service, but can also be offset against outstanding
          amounts, if any, due to the Company. Most classes of customers pay an
          upfront deposit, which is treated as a prepayment against the
          customers' telephone bill each month. Any remaining deposit is
          refundable on termination. These customer deposits, being repayable on
          demand, are classified as current liability.

     (j)  Property and equipment

          Property and equipment are stated at cost less accumulated
          depreciation. Assets acquired under capital leases are stated at the
          present value of minimum lease payments less accumulated depreciation.
          Cost, in the case of the network, comprises all expenditure up to and
          including the cabling and wiring within customers' premises and
          includes contractor's charges and payments in respect of materials and
          direct labour. Capitalization of staff costs, including employees'
          remuneration and benefits, is based on a technical assessment of the
          actual staff costs directly related to such capital expenditure.


                                      F-8
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MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

          Expenditures for improvements that significantly add to the productive
          capacity or extend the useful life of an asset are capitalized, while
          expenditures for repairs and maintenance are expensed as incurred.

          Costs for acquiring software for internal use are capitalized and
          subsequent costs are charged to the statement of income. The
          capitalized costs are amortized on a straight-line basis over the
          estimated useful life of the software.

          Advances paid towards the acquisition of property and equipment
          outstanding at each balance sheet date and the expenditures for
          construction of network systems and other projects prior to the asset
          being ready for its intended use are reflected as capital work in
          progress. The interest cost incurred for funding a qualifying asset
          during the construction period is capitalized based on actual
          investment in the asset and the average cost of funds or specific rate
          of borrowings. The capitalized interest is included in the cost of the
          relevant asset and is depreciated over the estimated useful life of
          the asset.

          Depreciation is recorded on a straight-line basis over the estimated
          useful lives of the assets, with the exception of leasehold
          improvements and assets acquired through capital leases, which are
          depreciated over the lesser of the estimated useful lives of the asset
          or the term of the lease.

          The estimated useful lives of assets are as follows:

               Land - leasehold                    Over the period of the lease

               Buildings                           30 to 60 Years

               Cable and related equipment         20 to 25 Years

               Exchanges and related Equipment     10 Years

               Other fixed assets                  5 to 10 Years

          Fixed Assets are being depreciated over their useful lives which
          exceed the license term since the company believes that its licenses
          will be extended beyond their current term.

     (k)  Accounting for asset retirement obligations

          In June 2001, the FASB issued SFAS No. 143 Accounting for Asset
          Retirement Obligation. SFAS No. 143 is effective for financial years
          beginning after June 15, 2002 and requires that the fair value of a
          liability for an asset retirement obligation be recognized in the
          period in which it is incurred if a reasonable estimate of fair value
          can be made. The associated asset retirement costs are capitalised as
          part of the carrying amount of the long-lived asset. The Company
          adopted this statement effective April 1, 2003.

          The Company is subject to asset retirement obligations in relation to
          certain operating lease agreements primarily relating to sites on
          which the Company's network infrastructure is positioned. These leases
          can include legal obligations to restore the leased site at the end of
          the lease term. Based on the Company's historical experience it is
          expected that a high majority of existing sites will continue to be of
          importance to the network and that, where possible, the Company will
          continue to renew leases on these sites. The adoption of SFAS No. 143
          did not have a material impact on the Company's consolidated financial
          statements.

     (l)  Impairment of long lived assets

          The Company has adopted the provisions of SFAS No. 144 Accounting for
          the Impairment or Disposal of Long-Lived Assets on April 1, 2002. The
          Company reviews long-lived assets for impairment wherever events or
          changes in business circumstances indicate that the carrying amount of
          assets may not be fully recoverable. Each Impairment test is based on
          a comparison of the undiscounted cash flows expected to be generated
          from the use of the asset to its recorded value. If impairment is
          indicated, the asset is written down to its fair value. Assets to be
          disposed are reported at the lower of the carrying value or the fair
          value less cost to sell.

     (m)  Start-up-costs

          Cost of start-up activities including organization costs are expensed
          as incurred.


                                      F-9
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MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

     (n)  Assets given under finance lease

          Assets given under finance lease are recognized as receivables at an
          amount equal to the net investment in the leased assets. The finance
          income is recognized based on periodic rate of return on the net
          investment of the lessor outstanding in respect of the finance lease.

     (o)  Operating Leases

          Lease payments under an operating lease are recognized as an expense
          in the income statement, on a straight-line basis over the lease term.

     (p)  Investment

          The Company has evaluated its investment policies consistent with the
          provisions of SFAS 115, Accounting for Certain Investments in Debt and
          Equity Securities and determined that all of its investments with
          fixed maturity for which the management has the intent and ability to
          hold to maturity, are to be classified as held-to-maturity.
          Held-to-maturity investments are carried at amortised cost using the
          effective yield method, adjusted for the amortization or accretion of
          premiums or discounts. Cost includes transaction cost.

          A decline in the fair value of any held-to-maturity security below
          cost that is deemed to be other than temporary, results in a reduction
          in carrying amount to fair value with a charge to the income
          statement. For securities where quoted market prices are not
          available, fair value is determined using pricing techniques such as
          discounted cash flow analysis. In order to determine whether a decline
          in value is other than temporary, the Company evaluates, among other
          factors, the duration and extent to which the value has been less than
          the carrying value, the financial condition and business outlook of
          the investee including cash flow indicators, current market condition
          and trends in the industry or the ability of the Company to retain the
          investment for a period of time sufficient to allow for any
          anticipated recovery in value. Dividend and interest income are
          recognized, when earned.

     (q)  Investments in affiliates

          The Company accounts for investments by the equity method where its
          investment in the voting stock gives it the ability to exercise
          significant influence over the affiliate. The excess of the cost over
          the underlying net equity of investments in affiliates is allocated to
          identifiable assets based on the fair value at the date of
          acquisition. The unassigned residual value of the excess of the cost
          over the underlying net equity is recognized as goodwill.

          The Company's equity in the profits/losses of affiliates is included
          in the consolidated statements of income, unless the carrying amount
          of an investment is reduced to zero and the Company is under no
          guaranteed obligation or otherwise committed to provide further
          financial support. The Company's share of net assets of affiliates is
          included in the consolidated balance sheets.

     (r)  Inventories

          Inventories are stated at the lower of cost or market value. Cost is
          determined using the weighted average method for all categories of
          inventories. Inventories comprise handsets, cables, exchange equipment
          and other stores and spares which are used in operating and
          maintaining networks. Inventories are reviewed on a periodic basis for
          identification and write-down of slow moving, obsolete and impaired
          inventory. Such write-downs, if any, are included in cost of revenues.

     (s)  Cash and cash equivalents and restricted cash

          The Company considers all highly liquid financial instruments, which
          are readily convertible into cash and have original maturities of
          three months or less on the date of purchase, to be cash equivalents.
          Restricted cash represents bank balances earmarked towards unclaimed
          dividend.

     (t)  Retirement benefits

          Company's employees

          The Company has two sets of retirement schemes for its employees based
          on the option exercised by them. Under one scheme, the employees are
          eligible for provident fund, gratuity, leave encashment and medical
          benefits and in the other scheme, the employees are eligible for


                                      F-10
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MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

          pension, general provident fund, gratuity, leave encashment and
          medical benefits. The entitlement under various schemes is as follows:

          Pension

          Under the pension scheme, after retirement the employees are eligible
          for monthly payments including dearness allowance based on the last
          drawn salary.

          Gratuity

          In accordance with Indian laws, the Company provides gratuity benefits
          to all eligible employees. The plan provides for lump sum payments to
          vested employees at retirement, death while in employment or on
          termination of employment.

          Medical

          The scheme entitles the retirees to reimbursement, in any year,
          limited to half of the monthly emoluments drawn by the employee on the
          date of retirement and reimbursement of hospitalization charges.

          Leave encashment

          Leave encashment benefit comprises encashment of leave balances
          accumulated by employees. These balances are encashable during the
          tenure of the employment or on termination of service or on
          retirement.

          Provident fund

          Provident fund is a defined contribution retirement plan under which,
          in accordance with Indian law, the employer and employee make monthly
          contributions to the plan equal to 12% of the employee's salary (basic
          and dearness allowance). The contribution is paid to the provident
          fund trust established by the Company. The Company is obligated to
          make good any shortfall in statutorily assured rate of return on the
          assets of the trust. Currently, the Company has no further obligation
          under the provident fund beyond its contribution, which is expensed
          when accrued.

          General provident fund

          General provident fund ("GPF") is a scheme applicable to the employees
          who have opted for the Government pension scheme. Under the scheme the
          employee contributes 6% to 100% of their basic pay towards GPF. The
          employer is not required to make any contribution towards the fund.
          The Company is providing interest at the statutorily applicable rate
          of 8% per annum. The Company also entitles the employees to take
          interest free loans up to 90% of the amount contributed by them
          towards the GPF.

          Pension, gratuity, medical benefits and leave encashment are defined
          benefit retirement plans and the liability thereof is provided based
          on actuarial valuation. All actuarial gains and losses are expensed
          off in the year, in which they arise. Prior service cost of medical
          benefits is being over the average remaining service period.

          Employees on secondment from DOT

          The employees who are seconded from DOT are entitled to pension,
          gratuity and leave encashment from the Government. The Company makes
          contributions, to fund the Government's pension, gratuity and leave
          encashment liability in respect of seconded employees, in accordance
          with the rates prescribed by the Government. The Company has no
          further liability in respect of these employees. Additionally, these
          employees are covered under eligible Government medical schemes.

          (u) Income taxes

          In accordance with the provisions of SFAS 109, Accounting for Income
          Taxes, income taxes are accounted for under the asset and liability
          method. Deferred tax assets and liabilities are recognized for the
          future tax consequences attributable to differences between the
          financial statement carrying amounts of existing assets and
          liabilities and their respective tax bases and operating loss
          carry-forwards. Deferred tax assets and liabilities are measured using
          enacted tax rates expected to apply to taxable income in the years in
          which those temporary differences are expected to be recovered or
          settled. The effect on deferred tax assets and liabilities of a change
          in tax rates is recognized in the statements of income in the period
          such changes are enacted. Based on management's judgment, the
          measurement of deferred tax assets is reduced, if necessary,


                                      F-11
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MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

          by a valuation allowance for any tax benefits for which it is more
          likely than not that some portion or all of such benefits will not be
          realized.

     (v)  Dividends

          Dividends are recorded in the consolidated financial statements in the
          period in which they are approved by the shareholders.

     (w)  Earnings per share

          In accordance with SFAS No. 128, Earnings Per Share (EPS), basic
          earnings per share is computed using the weighted average number of
          equity shares outstanding during the period. Diluted earnings per
          share is computed using the weighted average number of equity and
          dilutive equity equivalent shares outstanding during the period,
          except where results would be anti-dilutive.

     (x)  Advertisement expenses

          Advertising and business promotion costs are expensed as incurred and
          totaled Rs. 199 million for the year ended March 31, 2004 (2003: Rs.
          298 million, 2002: Rs. 253 million).

     (y)  Reclassifications

          The Company has reclassified commission to PCO operators and excess
          balances written back for the years ended March 31, 2002 and 2003 from
          selling, general and administrative expenses and revenues. These have
          been presented as reduction from revenue and interest and other income
          respectively to conform to current presentation. These
          reclassifications reduced the previously reported gross profit by Rs.
          2,926 million and Rs. 3,264 million for the years ended March 31, 2002
          and 2003 respectively, with a corresponding decrease in operating
          expenses and revenue. Certain other reclassifications have been made
          to conform prior period data to current presentation. The above
          reclassifications had no impact on the reported net income or
          stockholders' equity.

3.   RECENT ACCOUNTING PRONOUNCEMENTS

     In January 2003, the Financial Accounting Standard Board (FASB) issued FASB
     Interpretation Number 46 (FIN 46), Consolidation of Variable Interest
     Entities, an interpretation of Accounting Research Bulletin No. 51. FIN 46
     is applicable to all variable interest entities created after January 31,
     2003. In respect of variable interest entities created before February 1,
     2003, FIN 46 will be applicable from fiscal periods ending after December
     15, 2003. Further, in December 2003, the FASB issued a revision to FIN 46
     (FIN 46-R) to clarify some of the provisions of FIN No. 46 and to exempt
     certain entities from its requirements. The adoption of FIN 46-R has not
     had a material impact on the Company's consolidated financial statements.

     In May 2003, the EITF reached a consensus on EITF No. 01-08, which
     clarifies certain provisions of SFAS 13, Accounting for Leases, with
     respect to the identification of lease elements in arrangements that do not
     explicitly include lease provisions. Any lease element identified under the
     model of EITF 01-8 should be accounted for under current lease accounting
     literature. EITF 01-8 should be applied prospectively for lessees and
     lessors to arrangements newly agreed to, modified, or acquired in a
     business combination beginning with the first reporting period after May
     28, 2003. The adoption of this consensus has not had a material impact on
     the Company's consolidated financial statements.

     In November 2003, the EITF reached a partial consensus on EITF 03-01, The
     Meaning of Other-Than-Temporary Impairment and its Application to certain
     Investments, which requires that additional information about unrealized
     losses pertaining to certain debt and equity securities and non-marketable
     cost method investments be disclosed. The Company has adopted the
     disclosure provisions of EITF 03-01.

     In December 2003, the FASB issued SFAS No. 132 (Revised 2003), Employers'
     Disclosures about Pensions and Other Post retirement Benefits, which
     revises financial statement disclosures for pension plans and other post
     retirement benefit plans. With respect to health care benefits related
     revised disclosures, the statement is applicable for fiscal years ending
     after December 15, 2003. The Company has adopted the disclosure provisions
     of SFAS No. 132.

     In December 2003, the SEC issued Staff Accounting Bulletin ("SAB") No. 104
     "Revenue Recognition" ("SAB 104"), which supersedes SAB 101, Revenue
     Recognition in Financial Statements. SAB 104's primary purposes is to
     rescind the accounting guidance contained in SAB 101 related to
     multiple-element revenue arrangements that was superseded as a result of
     the issuance of EITF 00-21, Accounting for Revenue arrangements with
     Multiple Deliverables. Additionally, SAB 104 rescinds the SEC's related


                                      F-12
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MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

     Revenue Recognition in Financial Statements Frequently asked questions and
     Answers issued with SAB 101 that had been codified in SEC topic 13, Revenue
     Recognition. While the wording of SAB 104 has changed to reflect the
     issuance of EITF 00-21, the revenue recognition principles of SAB 101
     remain largely unchanged by the issuance of SAB 104, which was effective
     upon issuance. The adopting of SAB 104 did not have a material effect on
     the Company's Consolidated Financial Statements.

4.   RELATIONSHIP BETWEEN DOT/BSNL/VSNL AND THE COMPANY

     The relationship between the Department of Telecommunication ("DOT")/
     Bharat Sanchar Nigam Limited ("BSNL")/ Videsh Sanchar Nigam Limited
     ("VSNL") and the Company falls into the following distinct categories.

     (a)  The Company operates its fixed line business pursuant to a license
          from the DOT which is valid until March 31, 2013. The DOT retains the
          right, however, to revoke the license after giving one month's notice
          to the Company.

     (b)  The Company was granted a cellular license on October 10, 1997 to
          operate in Delhi and Mumbai for a period of 20 years from the date of
          its issue.

     (c)  During 2002, the Company was granted a license by DOT to establish,
          maintain and operate internet services in Delhi and Mumbai for a
          period of 15 years.

     (d)  In October, 1999 the DOT, which had performed the role of both
          licensor and policy maker for the Ministry of Communication and
          operated as India's domestic long distance service provider and
          fixed-line service provider (except for the areas of Delhi and
          Mumbai), was split into two departments. DOT/ Telecom Commission, or
          DOT, now performs the role of licensor and policy maker. The
          Department of Telecom Services, or DTS, functioned as the Government
          of India's local and long distance network service provider till
          September 30, 2000. On October 1, 2000, DTS was incorporated as BSNL
          and carries out the functions of DTS including the determination of
          the networking charges payable for access to its network.

     (e)  Until March 31, 2001, BSNL was the sole service provider for carriage
          of NLD calls. Further it was also carrying ILD calls up to the gateway
          provided by VSNL. However, carriage of NLD and ILD calls has been
          opened to other operators with effect from April 1, 2001 and April 1,
          2002 respectively. Though the Company continues to use BSNL network
          for the carriage of NLD calls, it has entered into arrangements with
          different ILD operators for carriage of ILD calls with effect from
          April 1, 2002. However significant amount of ILD calls traffic is
          being handled by VSNL. During the year, the Company has accrued
          charges amounting to Rs. 1,206 million (2003: 2,002 million, 2002:
          Nil) for carriage of ILD calls originating on its network and Rs.
          1,015 million (2003: 1,677 million, 2002: Nil) as revenue for ILD
          calls terminating on its network.

     (f)  The Company accrued license fee and spectrum charges of Rs. 9,978
          million during the year ended March 31, 2004 (2003: Rs 6,100 million;
          2002: Rs. 6,235 million) payable to DOT and networking charges of Rs.
          6,922 million during the year ended March 31, 2004 (2003: Rs. 7,023
          million; 2002; Rs.11,479 million) payable to BSNL for NLD calls. Also
          refer note 5 below.

     (g)  In accordance with the Interconnect Usage Charges Regulation issued by
          TRAI during the year, the Company has also accrued revenue on account
          of interconnect usage charges aggregating to Rs. 6,236 Million (2003:
          Rs. Nil, 2002: Rs. Nil) from BSNL for carriage of calls terminating on
          company's network.

     Also refer note 19.

5.   LICENSE FEES AND NETWORK CHARGES

     On April 9, 2001, the DOT communicated that the annual license fee will be
     revised and shall be payable at 12% of Adjusted Gross Revenue ("AGR") for
     Basic Telephone Service effective from August 1, 1999, (as against Rs. 900
     per direct exchange line under the earlier arrangement). This was the rate
     applicable to private operators. On September 5, 2001, the DOT, amended its
     position and informed the Company that the date from which the revised
     license fees will be payable will be notified later. The DOT also informed
     the Company that the network charges payable to BSNL will also be revised,
     and that the license fee and the network charges would be reviewed with
     effect from the same date. Accordingly, the license fee and networking
     charges on revised basis were not to be paid till the DOT communicated the
     effective date for such revision. The earlier license fee and networking
     arrangement expired on March 31, 2000 and March 31, 2001 respectively. No
     agreement was entered for payment of license fee and networking charges for
     the fiscal years ended March 31, 2002, 2003 and 2004. In the absence of any


                                      F-13
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MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

     agreement, license fee and networking charges for these years had been
     accrued on the same basis as is applicable to private operators. In the
     fiscal 2001, the Company paid license fee based on earlier arrangement.

     Subsequent to the year ended March 31, 2004 in a meeting held between DOT,
     BSNL and the Company to resolve the ambiguity with respect to license fee
     and networking charges it was agreed that the license fees was payable at
     12% of AGR and networking charges as per TRAI regulations with effect from
     August 1, 1999. Also, the revenue sharing percentages earlier agreed to
     between MTNL and BSNL, other than those governed by TRAI regulations, were
     revised with retrospective effect. This has resulted in an incremental
     charge of Rs. 3,520 million in the consolidated statements of income on
     account of license fee and a benefit of Rs 1,515 million on account of
     networking charges for periods upto March 31, 2003.

6.   CASH AND CASH EQUIVALENTS

     The cost and fair values for cash and cash equivalents are as follows:

<TABLE>
<CAPTION>
                                                                  AS OF MARCH 31,
                                                      --------------------------------------
                                                         2003          2004          2004
                                                      ----------    ----------    ----------
                                                                                 (MILLION OF
                                                                                   DOLLARS)
                                                        (MILLIONS OF RUPEES)      UNAUDITED
                                                      ------------------------    ----------
<S>                                                      <C>           <C>              <C>
        Cash at bank and in hand                          2,394         2,280            53

        Short term bank deposits                         15,768        23,254           536
                                                      ----------    ----------    ----------
                                                         18,162        25,534           589
                                                      ==========    ==========    ==========
</TABLE>

7.   PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                  AS OF MARCH 31,
                                                      --------------------------------------
                                                         2003          2004          2004
                                                      ----------    ----------    ----------
                                                                                 (MILLION OF
                                                                                     US $)
                                                        (MILLIONS OF RUPEES)      UNAUDITED
                                                      ------------------------    ----------
<S>                                                     <C>           <C>            <C>
        Land and buildings                                9,839        11,409           263

        Cable and related equipment                      61,618        65,406         1,507

        Exchanges and related equipment                  60,157        63,415         1,461

        Other fixed assets                                4,275         4,567           105

        Capital work in progress                          7,831         4,313            99
                                                      ----------    ----------    ----------
                                                        143,720       149,110         3,435

        Accumulated depreciation and amortization       (64,461)      (69,446)       (1,600)
                                                      ----------    ----------    ----------
        Property and equipment, net                      79,259        79,664         1,835
                                                      ==========    ==========    ==========
</TABLE>

     Depreciation expense was Rs. 8,675 million for year ended March 31, 2004,
     (2003: Rs. 8,507 million and 2002: Rs. 6,906 million).

     In 1987, the assets and properties of the Department of Telecommunications
     ("DOT") located in Delhi and Mumbai were transferred to the Company by an
     order of the Government of India (the "Government") and a deed of sale was
     executed by the Government in favor of the Company representing irrevocable
     transfer. Indian law generally requires that to perfect the transfer or
     lease of real property, the transfer should be evidenced by a formal, duly
     stamped deed of transfer and registered with the Central Land Registrar
     within a specified period after the execution of the deed of transfer or
     lease. A formal transfer deed for real property of the DOT, transferred by
     the Government to the Company has been executed but has not been registered
     with the appropriate municipal authorities. The formal transfer deed and
     physical delivery of possession of the DOT's non-real estate assets has
     resulted in the transfer of such non-real estate assets of the DOT to the
     Company in Delhi and Mumbai.

     Indian law requires payment of stamp duty (at rates which vary among
     states) on instruments, which effect transfer of title to real estate or in
     respect of leases of real estate. Such stamp duty has not been paid in
     respect of any of the properties acquired or leased by the Company.
     Accordingly, the Company may be liable for stamp duty and penalties thereon
     if a deed is registered by the Company in the future (other than with
     respect to the DOT properties acquired from the Government as at March 30,


                                      F-14
<PAGE>


MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

     1987). All liabilities for stamp duties in respect of the DOT properties
     acquired by the Company from the Government as at March 30, 1987 are to be
     borne by the Government. The Company has been advised by its counsel that
     although the Company has valid possession including the risks and rewards
     of ownership and title to all of its property, to enable the Company to
     perfect and thereby acquire marketable title to real property in its
     possession, it would need to have relevant documents relating to transfer
     or lease of real property duly registered and stamped. Accordingly, the
     Company cannot sell its properties without payment of stamp duties and
     registering the properties in its name. In preparing the consolidated
     financial statements the provision made on a best estimate basis for such
     stamp duty as of March 31, 2004, is Rs. 614 million (2003:Rs. 534 million)
     which has been capitalised. The Company does not intend to sell any of
     these properties In terms of its Articles of Association the Company has to
     obtain prior approval of the President of India in respect of sale or
     disposal of any land or building costing more than Rs.1 million.

8.   LEASES

     The Company incurred operating lease charges in respect of all cancelable
     and non cancelable leases of Rs. 645 million in the year ended March 31,
     2004 (2003: Rs. 677 million; 2002: Rs. 775 million). Such leases are, in
     general, for a period of three to five years, with a renewable option in
     most of the cases and include price escalation clauses varying from 10% to
     30% after 3 years. Minimum future lease commitments under non-cancelable
     operating leases as of March 31, 2004 are as follows:

<TABLE>
<CAPTION>
                                                            (MILLION OF US $)
                                     (MILLION OF RUPEES)            UNAUDITED
                                     --------------------   ------------------
<S>                                                  <C>                    <C>
       Year ending March 31,

       - 2005                                         48                    1

       - 2006                                         71                    2

       - 2007                                         71                    2

       - 2008                                         71                    2

       - 2009                                         71                    2
                                     --------------------   ------------------
                                                     332                    9
                                     ====================   ==================
</TABLE>

9.   INVESTMENTS IN HELD TO MATURITY SECURITIES

     Investments in held to maturities securities include 8.75% redeemable
     cumulative preference shares of ITI Limited, a government company in the
     telecommunication equipment and distribution business. These shares are
     redeemable in five equal annual installments commencing from March 2005.

     Further, it includes Rs. 2,500 million invested in bonds issued by
     Maharashtra Krishna Valley Development Corporation, a wholly owned
     subsidiary of Government of Maharashtra. The same have been allotted to the
     Company on May 31, 2002. The bonds have a coupon rate of 11.5% per annum
     and are redeemable at the end of the 10th year from the date of allotment.

10.  INVESTMENT IN EQUITY AFFILIATE

     MTNL, in consortium with Telecommunications Consultants India Limited, VSNL
     and Nepal Venture Private Limited had formed United Telecom Limited (UTL)
     pursuant to the joint venture agreement entered on July 21, 2001 in order
     to provide wireless in local loop ("WLL") services in Nepal. During the
     year, the Company invested Rs. 33 million (2003: 183 million) in UTL in
     proportion to its holding of 26.7% holding. The Company's equity in losses
     of the affiliate was Rs. 20 million for the period ended March 31, 2004
     (2003: Rs. 4 million, 2002: Rs. 4 million). The carrying value of
     investment in UTL as of March 31, 2004 is Rs. 205 million (2003: Rs. 192
     million).


                                      F-15
<PAGE>


MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

11.  INVENTORIES

<TABLE>
<CAPTION>
                                                                      AS OF MARCH 31,
                                                           ------------------------------------
                                                               2003         2004         2004
                                                           ----------   ----------   ----------
                                                                                     (MILLION OF
                                                                                         US $)
                                                             (MILLION OF RUPEES)      UNAUDITED
                                                           -----------------------   ----------
<S>                                                            <C>           <C>            <C>
        Cabling                                                  612          445           10

        Exchange equipment                                       816          578           13

        Others                                                   341          342            8

        Less: allowance for slow moving / obsolete stock        (353)        (374)          (9)
                                                           ----------   ----------   ----------
                                                               1,416          991           22
                                                           ==========   ==========   ==========
</TABLE>

12.  ALLOWANCES FOR ACCOUNTS RECIEVABLES

     Accounts receivables as of March 31, 2003 and 2004 are stated net of
     allowances for doubtful receivables. Factors analyzed by management in
     determining the adequacy of the allowance include the present and
     prospective financial condition of the debtor and the ageing of the
     receivables. Accounts receivables are not collateralized.

     The activity in allowance for uncollectible accounts is given below:

<TABLE>
<CAPTION>
                                                       FOR THE YEARS ENDED MARCH 31,
                                            ---------------------------------------------------
                                                2002          2003         2004         2004
                                            -----------   -----------   ----------   ----------
                                                                                    (MILLION OF
                                                                                        US $)
                                                      (MILLION OF RUPEES)            UNAUDITED
                                            --------------------------------------   ----------
<S>                                              <C>           <C>          <C>            <C>
           Balance at beginning of year          4,752         6,493        6,144          142

           Charged to expense                    1,779         2,074        2,425           56

           Less: amounts written off               (38)       (2,423)          (8)           -
                                            -----------   -----------   ----------   ----------
           Balance at end of year                6,493         6,144        8,561          198
                                            ===========   ===========   ==========   ==========
</TABLE>

13.  RESTRICTED ASSETS

     Restricted assets include the amount paid to income tax authorities under
     protest (refer note 25).

14.  OTHER RECEIVABLES

<TABLE>
<CAPTION>
                                                                      AS OF MARCH 31,
                                                           ------------------------------------
                                                               2003         2004         2004
                                                           ----------   ----------   ----------
                                                                                     (MILLION OF
                                                                                         US $)
                                                             (MILLION OF RUPEES)      UNAUDITED
                                                           -----------------------   ----------
<S>                                                           <C>          <C>            <C>
        Investment in finance lease                                -          192           4

        Loans to employees                                     2,538        2,765          64

        Advance tax (refer note below)                         1,739        2,006          46

        Accrued interest                                         556          609          14

        Others                                                   764          986          23
                                                           ----------   ----------   ---------
                                                               5,597        6,558         151
        Less: Other assets                                    (2,284)      (2,559)        (59)
                                                           ----------   ----------   ---------
                                                               3,313        3,999          92
                                                           ==========   ==========   =========
</TABLE>

     Advance tax balance is net of income tax liability amounting to Rs. 41,185
     million as of March 31, 2004 (2003: Rs. 35,643 million).


                                      F-16
<PAGE>


MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

     The Company leases handsets to customers under finance leases having
     original term of two years. The following is a summary of the Company's
     investment in finance leases.

<TABLE>
<CAPTION>
                                                                              (MILLION OF US $)
                                                       (MILLION OF RUPEES)            UNAUDITED
                                                       --------------------   ------------------
<S>                                                                  <C>                    <C>
       Year ending March 31,
       - 2005                                                        131                       3
       - 2006                                                         73                       2
                                                       ------------------    --------------------
       Total minimum lease payments to be received                   204                       5

       Less: amount representing unearned income                      12                       -
                                                       ------------------    --------------------
       Present value of investments in finance leases                192                       5

       Less: current portion                                         121                       3
                                                       ------------------    --------------------
                                                                      71                       2
                                                       ==================    ====================
</TABLE>

     Other assets include non-current portion of investments in finance lease
     and loans to employees.

15.  ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

<TABLE>
<CAPTION>
                                                                      AS OF MARCH 31,
                                                           ------------------------------------
                                                               2003         2004         2004
                                                           ----------   ----------   ----------
                                                                                     (MILLION OF
                                                                                         US $)
                                                             (MILLION OF RUPEES)      UNAUDITED
                                                           -----------------------   ----------
<S>                                                           <C>         <C>             <C>
        Interest accrual                                         135          135            3

        General provident fund contribution of employees       7,192        8,072          186

        Deferred income                                        2,094        1,982           46

        Advances from customers and others                       508          521           12

        Customers deposits                                    15,247       15,031          346

        Accrued employee cost                                  1,493        1,858           43

        Other payables and accruals                            3,844        3,480           80
                                                           ----------   ----------   ----------
                                                              30,513       31,079          716
                                                           ==========   ==========   ==========
</TABLE>

     General Provident Fund balance represents amount contributed by the
     employees (net of loans taken) who had opted for the Government pension
     rules. Prior to absorption, this fund was being maintained by DOT. In
     respect of the employee contributions together with the interest accrued to
     date, the Company had raised a claim of Rs. 3,929 million on DOT during the
     year ended March 31, 2003 which have been included in Dues from related
     parties as disclosed in Note 19. Subsequent to absorption, in the absence
     of any rules available for deposit of such contribution the amounts have
     been retained by the Company. The outstanding balance of the fund,
     including claims raised on DOT, net of loans given to employees has been
     classified under Payables as the amount will be deposited in a separate
     trust or with DOT pending notification from the Government in this regard.
     This amount is not segregated and may be used to fund the activities of the
     Company till the time it is transferred to the trust or DOT.


                                      F-17
<PAGE>


MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

16.  INTEREST AND OTHER INCOME, NET

<TABLE>
<CAPTION>
                                                                  FOR THE YEARS ENDED MARCH 31,
                                                       -------------------------------------------------
                                                          2002         2003         2004         2004
                                                       ----------   ----------   ----------   ----------
                                                                                              (MILLION OF
                                                                                                  US $)
                                                                 (MILLION OF RUPEES)           UNAUDITED
                                                       ------------------------------------   ----------
<S>                                                      <C>          <C>            <C>            <C>
         Interest from short term bank deposit             1,474        1,295        1,322           30

         Interest from investment in MKVDC                     -          239          239            6

         Interest payable on DOT funding                  (3,090)      (2,389)           -            -

         Interest recoverable from VSNL                    3,090        2,389            -            -

         Other interest expense, net                        (190)        (201)        (171)          (4)

         Net currency gain/ (loss)                           469           14          (22)          (1)

         Excess liabilities written back                     224          256        1,130           26

         Others                                               74          615          346            8
                                                       ----------   ----------   ----------   ----------
                                                           2,051        2,218        2,844           65
                                                       ==========   ==========   ==========   ==========
</TABLE>

17.  INCOME TAXES

     Total income taxes of the Company is attributable to income from continuing
     operations, which consists of:

<TABLE>
<CAPTION>
                                                                  FOR THE YEARS ENDED MARCH 31,
                                                       -------------------------------------------------
                                                          2002         2003         2004         2004
                                                       ----------   ----------   ----------   ----------
                                                                                              (MILLION OF
                                                                                                  US $)
                                                                 (MILLION OF RUPEES)           UNAUDITED
                                                       ------------------------------------   ----------
<S>                                                       <C>          <C>            <C>            <C>
         Current tax                                       7,511        3,881        5,579          129

         Deferred tax                                     (1,824)         873       (2,630)         (61)
                                                       ----------   ----------   ----------   ----------
                                                           5,687        4,754        2,949           68
                                                       ==========   ==========   ==========   ==========
</TABLE>

     The reconciliation between the income tax expense of the Company and
     amounts computed by applying the Indian statutory income tax rate is as
     follows:

<TABLE>
<CAPTION>
                                                                  FOR THE YEARS ENDED MARCH 31,
                                                       -------------------------------------------------
                                                          2002         2003         2004         2004
                                                       ----------   ----------   ----------   ----------
                                                                                              (MILLION OF
                                                                                                  US $)
                                                                 (MILLION OF RUPEES)           UNAUDITED
                                                       ------------------------------------   ----------
<S>                                                      <C>          <C>            <C>            <C>
         Income before taxes and share from affiliates    15,353       10,465        8,021          185

         Average enacted tax rate in India                 35.70%       36.75%      35.875%      35.875%
                                                       ----------   ----------   ----------   ----------
         Expected tax expense                              5,481        3,846        2,877           66

         Effect of tax assessed for earlier years            495          391           61            2

         Effect of change in tax rates                    (1,181)         299         (265)          (6)

         Permanent differences                               602          218          271            6

         Others                                              290            -            5            -
                                                       ----------   ----------   ----------   ----------
                                                           5,687        4,754        2,949           68
                                                       ==========   ==========   ==========   ==========
</TABLE>

     Permanent differences represent tax impact on certain items of expenses
     which will not be allowed in any form as deductible expenses under the
     Indian Income Tax Act, 1961.


                                      F-18
<PAGE>


MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

     As per section 80IA of the Indian Income Tax Act, 1961 a Company, which
     starts to operate telecommunication services at any time on or after April
     1, 1995, but before March 31, 2000, is entitled to a tax holiday for a
     period of 10 years beginning with the year in which such services are
     started. 100% of the profits derived from such services are exempt from tax
     in the first 5 years, and 30% of such profits are exempt from tax for the
     next 5 years. The Company, on the basis of advice from its legal counsel,
     has claimed such benefit for the financial years ended March 31, 2002, 2003
     and 2004. The Company's claim has been rejected at the first appellate
     level and the case has been referred to the Committee of Disputes, which is
     a body formed by the Government to settle disputes between Government
     controlled undertakings and the Government. The committee has referred the
     case to the Tax appellate authorities for reconsideration. The benefit
     claimed by the Company in the above years may ultimately not be allowed by
     the tax authorities and hence, the Company has transferred the amount of
     benefit claimed for the financial years ended March 31, 2002, 2003 and 2004
     to a contingency reserve in the financial statements prepared in accordance
     with the Indian GAAP. As a result, the provision for current tax in these
     consolidated financial statements has been accounted on the basis of normal
     tax rates.

     The components of the deferred tax balances as of March 31, 2003 and 2004
     are as follows:

<TABLE>
<CAPTION>
                                                                      AS OF MARCH 31,
                                                           ------------------------------------
                                                               2003         2004         2004
                                                           ----------   ----------   ----------
                                                                                     (MILLION OF
                                                                                         US $)
                                                             (MILLION OF RUPEES)      UNAUDITED
                                                           -----------------------   ----------
<S>                                                           <C>          <C>             <C>
        Deferred tax assets:

        Allowances for bad and doubtful debts                  2,065        2,897           67

        Post retirement benefits                               1,464        2,682           62

        Others                                                 1,610        2,428           56
                                                           ----------   ----------   ----------
            Total deferred tax asset                           5,139        8,007          185
                                                           ==========   ==========   ==========
        Deferred tax liability:

        Excess of tax allowance over depreciation             14,898       15,256          352

        Interest capitalized                                   1,367        1,248           29
                                                           ----------   ----------   ----------
            Total deferred tax liability                      16,265       16,504          381
                                                           ==========   ==========   ==========
</TABLE>

18.  RETIREMENT BENEFITS

(a)  Employees seconded from DOT

     The Company's employees who are seconded from DOT are entitled to pension,
     gratuity benefits and leave encashment from the Government. The Company
     makes contributions to fund the liability in respect of these employees, to
     the DOT, in accordance with the rates prescribed by the Government. The
     Company charges these contributions against revenue each year.

     The amount for pension, gratuity and leave encashment recognized for such
     employees in the consolidated income statement are as follows:

<TABLE>
<CAPTION>
                                                             FOR THE YEARS ENDED MARCH 31,
                                                  -------------------------------------------------
                                                     2002         2003         2004         2004
                                                  ----------   ----------   ----------   ----------
                                                                                         (MILLION OF
                                                                                             US $)
                                                            (MILLION OF RUPEES)           UNAUDITED
                                                  ------------------------------------   ----------
<S>                                                     <C>          <C>          <C>            <C>
           Pension (includes gratuity)                  194          157          113            3

           Leave encashment                              67           60           55            1
                                                  ----------   ----------   ----------   ----------
                                                        261          217          168            4
                                                  ==========   ==========   ==========   ==========
</TABLE>


                                      F-19
<PAGE>


MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

(b)  Employees of the Company

     i.   Pension, Gratuity and Medical benefits

          The pension and gratuity to the non-executives employees of the
          Company are defined benefit plans, the cost and liability, for which
          are based on actuarial valuation performed on September 23, 2004.

          Further the Company introduced a `MTNL retired employees medical
          facility scheme' for employees with effect from January 1, 2002. The
          scheme initially introduced for 12 weeks was subsequently extended
          till such time a new medical scheme was introduced. The medical
          benefit to its retired employees is a defined benefit plan, the cost
          and liability for which is based on actuarial valuation performed on
          September 23, 2004.

     ii.  The Company had given an option to its executive employees (B
          category) for absorption with the Company with effect from October 1,
          2000, at a revised pay scale that is higher than the existing pay
          scale. The offer for absorption provided that in addition to getting
          post retirement benefits like gratuity and leave encashment,
          subsequent to absorption, the employees would have to opt for either
          pension based on the government rules or provident fund based on the
          Company policy. Pending the finalization of the terms of absorption
          and actuarial determination of incremental liability, the Company,
          during the year ended March 31, 2003, had accrued an additional charge
          amounting to Rs. 1,329 million on account of revised pay scales and
          related retirement costs for executive employees who exercised the
          option of absorption with the Company up to that date.

          During the year ended March 31, 2004, majority of employees have opted
          for absorption with the Company. The Company has determined the
          incremental liability on account of revised pay scales and related
          retirement cost on the basis of actuarial valuation. The amount of Rs.
          2,784 million reduced from actuarially determined liability, as
          recoverable from DOT towards retirement benefits for the period upto
          the October 1, 2000, has been calculated at the rates prescribed by
          DOT for its employees on secondment. The amount recoverable from DOT
          has been included in amount due from related parties as disclosed in
          Note 19.

          The excess pensionary benefits accounted in the current year on
          account of absorption of B category employees, as pension and gratuity
          cost has been disclosed separately in Note 18 (b) (iii) below.

     iii. The following table sets forth the actuarial changes in the benefit
          obligation, changes in plan assets and the funded status of the
          pension, gratuity plan and medical benefits are as follows: The
          measurement date used is March 31, of the relevant fiscal year.

<TABLE>
<CAPTION>
                                                                           AS OF MARCH 31,
                                                                ------------------------------------
                                                                    2003         2004         2004
                                                                ----------   ----------   ----------
                                                                                          (MILLION OF
                                                                                              US $)
                                                                  (MILLION OF RUPEES)      UNAUDITED
                                                                -----------------------   ----------
<S>                                                                <C>         <C>             <C>
             PENSION

             CHANGES IN BENEFIT OBLIGATION:

             Benefit obligation at the beginning of the year        5,697        7,630          176

             Service cost                                             715          786           18

             Interest cost                                            552          951           22

             Actuarial (gain) or loss                                  70          560           13

             Actuarial obligation assumed on account of absorption    719        2,719           63

             Benefits paid                                           (123)        (233)          (5)
                                                                ----------   ----------   ----------
             BENEFIT OBLIGATION AT THE END OF THE YEAR              7,630       12,413          287
                                                                ==========   ==========   ==========
             CHANGES IN PLAN ASSET                                      -            -


             FUNDED STATUS                                         (7,630)     (12,413)        (237)
                                                                ----------   ----------   ----------
             ACCRUED PROVISION FOR PENSION                         (7,630)     (12,413)        (237)
</TABLE>


                                      F-20
<PAGE>


MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                           AS OF MARCH 31,
                                                                ------------------------------------
                                                                    2003         2004         2004
                                                                ----------   ----------   ----------
                                                                                          (MILLION OF
                                                                                              US $)
                                                                  (MILLION OF RUPEES)      UNAUDITED
                                                                -----------------------   ----------
<S>                                                                <C>         <C>              <C>
              GRATUITY

              CHANGES IN BENEFIT OBLIGATION:

              Benefit obligation at the beginning of the year       2,411        2,876           66

              Service cost                                            280          289            7

              Interest cost                                           231          319            7

              Actuarial (gain) or loss                                120           92            2

              Actuarial obligation assumed on account of absorption     -          739           17

              Benefits paid                                          (166)        (140)          (3)
                                                                ----------   ----------   ----------
              BENEFIT OBLIGATION AT THE END OF THE YEAR             2,876        4,175           96
                                                                ==========   ==========   ==========
              CHANGES IN PLAN ASSET

              Fair value of the plan assets at the beginning            -        1,855           43
                of the year

              Actual return on plan assets                             16          106            2

              Employer contributions                                1,839            -            -

              Refund from trust                                         -       (1,316)         (30)
                                                                ----------   ----------   ----------
              PLAN ASSETS AT THE END OF THE YEAR                    1,855          645           15
                                                                ==========   ==========   ==========


              FUNDED STATUS                                        (1,021)     (3,652)          (81)
                                                                ----------   ----------   ----------
              ACCRUED PROVISION FOR GRATUITY                       (1,021)     (3,652)          (81)
                                                                ==========   ==========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                           AS OF MARCH 31,
                                                                ------------------------------------
                                                                    2003         2004         2004
                                                                ----------   ----------   ----------
                                                                                          (MILLION OF
                                                                                              US $)
                                                                  (MILLION OF RUPEES)      UNAUDITED
                                                                -----------------------   ----------
<S>                                                                <C>         <C>              <C>
              MEDICAL

              CHANGES IN BENEFIT OBLIGATION:

              Benefit obligation at the beginning of the year           -       5,606           129

              Actuarial obligation assumed on account of absorption    92           -             -

              Prior service cost                                    4,797         664            15

              Service cost                                            281         289             7

              Interest cost                                           451         575            13

              Actuarial (gain) or loss                                  -         472            11

              Benefits paid                                           (15)         (3)            -
                                                                ----------   ----------   ----------
              BENEFIT OBLIGATION AT THE END OF THE YEAR             5,606       7,603           175
                                                                ==========   ==========   ==========
              CHANGES IN PLAN ASSET                                     -           -             -


              FUNDED STATUS                                        (5,606)     (7,603)         (175)

              Unrecognised prior service cost                       4,453       4,722           109
                                                                ----------   ----------   ----------
              ACCRUED PROVISION FOR MEDICAL BENEFITS               (1,153)     (2,881)          (66)
                                                                ==========   ==========   ==========
</TABLE>


                                      F-21
<PAGE>


MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

     The amounts for pension, gratuity and medical benefits recognized in the
     consolidated income statements are as follows:

<TABLE>
<CAPTION>
                                                            FOR THE YEARS ENDED MARCH 31,
                                          -----------------------------------------------------------
                                              2002           2003           2004            2004
                                          ------------   ------------   ------------   --------------
                                                                                          (MILLION OF
                                                                                              US $)
                                                   (MILLION OF RUPEES)                     UNAUDITED
                                          ------------------------------------------   --------------
<S>                                          <C>              <C>             <C>              <C>
          Net periodic pension cost
          Current service cost                 798              715           786              18
          Actuarial obligation assumed           -              719           552              13
            on account of absorption
          Interest cost                        439              552           951              22
          Actuarial (gain) or loss             (21)              70           560              13
                                          ---------    -------------    -----------   ---------------
                                             1,216            2,056         2,849              66
                                          ==========   =============    ===========   ===============


<CAPTION>
                                                            FOR THE YEARS ENDED MARCH 31,
                                          -----------------------------------------------------------
                                              2002           2003           2004           2004
                                          ------------   ------------   ------------  ---------------
                                                                                         (MILLION OF
                                                                                             US $)
                                                   (MILLION OF RUPEES)                    UNAUDITED
                                          -----------------------------------------   ---------------
<S>                                            <C>              <C>           <C>              <C>

          Net periodic gratuity cost
          Current service cost                 323              280           289               7
          Actuarial obligation assumed on      -                  -           122               3
            account of absorption
          Interest cost                        146              215           213               5
          Actuarial (gain) or loss             521              120            92               2
                                          ---------    ------------     ---------     ---------------
                                               990              615           716              17
                                          =========    ============     =========     ===============


<CAPTION>
                                                            FOR THE YEARS ENDED MARCH 31,
                                          -----------------------------------------------------------
                                              2002           2003           2004            2004
                                          ------------   ------------   ------------  ---------------
                                                                                          (MILLION OF
                                                                                              US $)
                                                   (MILLION OF RUPEES)                     UNAUDITED
                                          ------------------------------------------  ---------------
<S>                                              <C>          <C>           <C>                <C>
          Net periodic medical benefit
          Current Service cost                   -              281           289               7
          Interest cost                          -              451           575              13
          Actuarial  obligation  assumed         -               92             -               -
            on account of absorption
          Actuarial (gain) or loss               -                -           472              11
          Amortization  of prior service         -              644           394               9
          cost
                                          ----------   ------------     ---------     ---------------
                                                 -            1,468         1,730              40
                                          ==========   ============     =========     ===============
</TABLE>

     The principal actuarial assumptions used for accounting for the retirement
     benefits were:

<TABLE>
<CAPTION>
                                                          2002         2003                2004
                                                   -----------------------------------------------
<S>                                                       <C>     <C>                  <C>
          Discount rate                                   9.50%        8.75%                8.35%
          Future salary increases                            5%           5%                   5%
          Future pension increases                           5%           5%                   5%
          Rate of return on plan assets                   9.50%        8.75%                8.35%
          Rate of hospitality incidence (% of                 -         150%                 150%
          mortality rate)
          Average hospitalization period per year             -      10 days              10 days
          Average expenses per hospitalization                -   Rs. 50,000           Rs. 50,000
                                                   ===============================================
</TABLE>


                                      F-22
<PAGE>


MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

     The Company assesses these assumptions with its projected long-term plans
     of growth and prevalent industry standards.

     The following table provides the assumed health care cost trend rates for
     postretirement benefit plans:

<TABLE>
<CAPTION>
                                                                                  AS OF MARCH 31,
                                                                          2002         2003        2004
                                                                   -----------------------------------------

<S>                                                                       <C>          <C>         <C>
               Health care cost trend rate assumed throughout             -            10%         10%
                                                                   =========================================
</TABLE>

          Assumed health care cost trend rates have a significant effect on
          the amounts reported for the health care plans. A one-percentage
          point increase or decrease in the assumed health care cost trend
          rates would have the following effects:

<TABLE>
<CAPTION>
                                                                          2002         2003        2004
                                                                   -----------------------------------------
                                                                             (MILLION OF RUPEES)
<S>                                                                       <C>          <C>         <C>
          Effect on total of service and interest cost                    -             3,061       (2,296)

          Effect on accumulated postretirement benefit obligation         -            24,332      (18,249)
                                                                   =========================================
</TABLE>

     iv.  Provident fund

          Provident fund, a defined contribution plan, is being administered
          through trustees and the Company's contributions are expensed each
          year. The amount recognized in the consolidated income statements for
          the year ended March 31, 2004 is Rs.191 million (2003: Rs.171 million;
          2002: Rs. 199 million).

19.  RELATED PARTY TRANSACTIONS

     The Company is a Government Company under the Indian Companies Act, and is
     listed on the major stock exchanges in India and the New York Stock
     Exchange. At the balance sheet date the Government owned 56.25% of the
     issued share capital of the Company, with the balance owned by private
     investors. Consequently, the Government, acting through the DOT, will
     continue to control the Company and will have the power to elect all of its
     Directors and to determine the outcome of most actions requiring approval
     of the Board of Directors or Shareholders, including proposed expansions of
     the Company's business (including into areas in which the Company may
     compete with BSNL), transactions with the DOT or the assertion of claims
     against the DOT. In addition, under the Company's Articles of Association,
     the President of India, on behalf of the Government, may issue directives
     with respect to the conduct of the business and affairs of the Company, and
     certain matters with respect to the Company's business including the
     appointment and remuneration of the Company's Chairman cum Managing
     Director and the declaration of dividends. The Company may not take action
     in respect of any matter reserved for the President of India without his
     approval. BSNL is a fellow subsidiary of MTNL as the Government, acting
     through the DOT, holds 100% of the issued share capital of BSNL. DOT is a
     department of the Government of India. VSNL is an equity investee of the
     Government of India.

     MTNL holds 26.7% in United Telecom Limited (UTL). Also refer note 10 for
     transactions with UTL.

     Note 4 describe the relationship between DOT/BSNL/VSNL and the Company as
     well as transactions with these parties.

     The Company provides services to Government departments and other public
     sector organizations on normal commercial terms and receives services from
     them on similar terms. Amounts due to and from the DOT/BSNL are disclosed
     separately under current payables and receivables respectively.

     Performance guarantees given by the Company on behalf of UTL at March 31,
     2004 amounted to Rs. Nil (2003: Rs. 214 million).


                                      F-23
<PAGE>


MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

     The balances receivable from and payable to related parties other than
     employees are summarized as follows:

        As of March 31, 2004:

<TABLE>
<CAPTION>
                                           ---------------------------------------------  -------------
                                             DOT        BSNL        VSNL        TOTAL        TOTAL
                                           ---------------------------------------------  -------------
                                                      (MILLION OF RUPEES)                 (MILLION OF
                                                                                              US $ )
                                                                                            UNAUDITED
                                           ---------------------------------------------  -------------
          Due from related parties
<S>                                         <C>        <C>         <C>         <C>              <C>
          Other receivable                  16,420      9,559        -         25,979           598
          Accounts Receivable                    -          -      746            746            17

          Dues to related parties
          Other payable                      5,542     12,274        -         17,816           411
          Accounts Payable                       -          -      745            745            17
                                           ---------  ---------   ----------   ---------  -------------

        As of March 31, 2003:
<CAPTION>
                                           ---------------------------------------------  -------------
                                             DOT        BSNL        VSNL        TOTAL        TOTAL
                                           ---------  ----------------------------------  -------------
                                                      (MILLION OF RUPEES)                 (MILLION OF
                                                                                              US $ )
                                                                                            UNAUDITED
                                           ---------------------------------------------  -------------
          Due from related parties
<S>                                         <C>        <C>           <C>        <C>             <C>
          Other receivables                 10,496     17,471        -          27,967          644
          Accounts Receivable                    -          -        1,677       1,677           39

          Dues to related parties
          Other payables                     4,213      12,670           -       16,883          389
          Accounts Payable                       -          -        2,002       2,002            46
                                           ---------  ---------   ----------   ---------  -------------
</TABLE>

20.  EQUITY SHARES

     The Company has only one class of capital stock referred to herein as
     equity shares. Par value of each equity share outstanding as of March 31,
     2004 is Rs.10 (2003: Rs.10).

     Voting

     Each holder of equity shares is entitled to one vote per share.

     Dividends

     Final dividends proposed by the Board of directors are payable when
     formally declared by the shareholders, who have the right to decrease but
     not increase the amount of the dividend recommended by the Board of
     Directors. The Board of Directors declares interim dividends without the
     need for shareholders' approval. Dividend payable to equity shareholders
     are based on the net income available for distribution as reported in the
     Company's unconsolidated financial statements prepared in accordance with
     Indian GAAP. As such, dividends are declared and paid in Indian rupees. The
     net income in accordance with US GAAP may, in certain years, either not be
     fully available or will be additionally available for distribution to
     equity shareholders.

     Under Indian GAAP the accumulated retained earnings available for
     distribution to equity shareholders, subject to certain restrictions, was
     Rs.76,525 million in 2004 (2003: Rs.69,556 million, 2002: Rs.65,006
     million).


                                      F-24
<PAGE>


MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

     Under the Indian Companies Act, dividends may be paid out of the profits of
     a company in the year in which the dividend is declared or out of the
     undistributed profits of previous fiscal years. Before declaring a dividend
     greater than 10.0% of the par value of its equity shares, a company is
     required to transfer to its reserves a minimum percentage of its profits
     for that year, ranging from 2.5% to 10.0% or higher , depending on the
     dividend percentage to be declared in such year.

     Liquidation

     In the event of liquidation of the Company, the holders of equity shares
     shall be entitled to receive all of the remaining assets of the Company,
     after distribution of all preferential amounts, if any. Such amounts will
     be in proportion to the number of shares of equity shares held by the
     stockholders.

     Stock options

     The Company has not granted any stock options to any of its employees or to
     others.

21.  EARNINGS PER EQUITY SHARE

     The following is the reconciliation of the weighted average number of
     equity shares used in the computation of basic and diluted EPS for the
     years ended March 31, 2002, 2003 and 2004:

<TABLE>
<CAPTION>
                                                                       FOR THE YEARS ENDED MARCH 31,
                                                              -------------------------------------------------
                                                                  2002              2003              2004
                                                              --------------    --------------    -------------

        Weighted average number of equity shares
<S>                                                                <C>               <C>              <C>
           outstanding used in computing basic EPS (million)       630               630              630
        Dilutive effect of stock options and other
        contingently issuable shares                                 -                 -                -
                                                              --------------    --------------    -------------
        Weighted average number of equity shares and
          equity equivalent shares outstanding used in             630               630              630
           computing diluted EPS
                                                              --------------    --------------    -------------
</TABLE>

22.  FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK

     Credit risk

     Financial instruments which potentially subject the Company to
     concentrations of credit risk consist principally of periodic temporary
     investments of excess cash, trade receivables, and investments in ITI
     Limited preference shares and MKVDC bonds. The Company places its temporary
     excess cash in short term deposits. By their nature, all such financial
     instruments involve risk including the credit risk of non-performance by
     counter parties. In management's opinion, as of March 31, 2003 and 2004,
     there was no significant risk of loss in the event of non-performance of
     the counter parties to these financial instruments, other than the amounts
     already provided for in the financial statements. To reduce credit risk,
     the Company performs ongoing credit evaluation of customers. As of March
     31, 2003 and 2004, BSNL and DOT accounted for more than 10% of total
     receivables, which has been reflected in note 19.

     The risk in relation to investment in ITI Limited is offset by clause
     relating to the Company's entitlement to set off the amounts receivable in
     respect of principal outstanding from the dues payable to ITI Limited. The
     clause is built into the share purchase agreement

     The credit risk for the investment in bonds issued by MKVDC is minimized
     due to the payment mechanism envisaged in the prospectus. Any shortfall is
     to be met by the Maharashtra State Government that has undertaken to
     earmark an amount equal to interest and principal repayments out of its
     annual budget for the respective corporation. In the event of such amount
     not being transferred the trustees would be entitled to invoke the
     guarantee given by the state government.

     Fair value

     The fair value of the Company's current assets and current liabilities
     approximate their carrying values because of their short-term maturity.
     Such financial instruments are classified as current and are expected to be
     liquidated within the next twelve months.


                                      F-25
<PAGE>


MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

     The approximate fair value of investments in held to maturity securities,
     as determined by using current interest as of March 31, 2004 is Rs. 3,901
     million as compared to the carrying amount of Rs. 3,500 million.

     The approximate fair value of loans to employees, as determined by using
     current interest as of March 31, 2004 is Rs. 2,647 million as compared to
     the carrying amount of Rs. 2,765 million.

     Due to the uncertainties attached to the timing of ultimate realization of
     restricted assets, it is not practicable to determine their fair values.

23.  CAPITAL COMMITMENTS

     As of March 31, 2004, the Company had committed to spend Rs. 6,483 million
     under agreements to purchase property and equipment. This amount is net of
     capital advances paid in respect of these purchases.

24.  GUARANTEES

     The Company generally provides guarantees to the government authorities and
     to various parties which are in the nature of performance guarantees. The
     aggregate amount of these guarantees other than performance guarantees
     given by the Company on behalf of UTL as disclosed separately in note 19,
     as of March 31, 2004 is Rs. 228 million (2003: Rs. 1,404 million).

25.  CONTINGENT LIABILITIES

     (a)  The Company has contingent liabilities, arising in the normal course
          of business, which, management believes will not give rise to any
          significant liabilities.

     (b)  Sales tax

          In a recent case involving the Uttar Pradesh Trade Tax Department and
          the DOT, the Supreme Court of India ruled that a telephone connection
          along with a telephone set provided by a company rendering basic
          services tantamount to a "transfer of right to use the telephone
          system" and the rentals collected by DOT towards this right to use
          should suffer sales tax. Subsequent to the passing of this order, the
          Cellular Operators as well as the basic operators agitated the same
          issue before the Supreme Court by way of a Petition under Article 32
          of the Constitution. The Hon'ble Supreme Court, inspite of its own
          judgment, admitted the Petitions and by way of orders dated September
          25, 2003 referred the matter to a larger bench for determination of
          dispute on merits and further directed that in future there shall be
          no coercion for recovery of any dues. In so far as the assessments
          already completed as on September 25, 2003 the Hon'ble Supreme Court
          directed that the operators should file statutory appeals against the
          assessment orders.

          Following the aforesaid order of Supreme Court, the sales tax
          department, all across the country, has raised demands on basic and
          cellular mobile operators.

          The Company has received a demand from the state government of
          Maharashtra, of which Mumbai is a part, for payment of Rs. 3.2 billion
          in sales tax for fiscal 1989-2000 on certain telecommunications
          revenues, mainly telephone rental charges, and received notice from
          the Delhi state government seeking further information in aid of an
          investigation into whether a similar demand should be made upon us.
          The amount of issue in Delhi is significantly less.

          Demands raised have been challenged before the respective high courts
          and the Company has been granted interim stays against enforcement of
          the demands, which however will be subject to the outcome of the
          Supreme Court judgement on the issue. Any proceeding initiated now
          shall be subject to the interim directions passed by the Hon'ble
          Supreme Court as stated above.

     (c)  Income taxes

          i.   The Central Income Tax Authority of India has disallowed the
               license fee paid by the Company to DOT for the years ended March
               31, 1995 till March 31, 2002 as a tax deductible expense and has
               raised a demand for payment of taxes on increased taxable income
               relating to such expenses.


                                      F-26
<PAGE>


MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

               The amounts demanded, including interest on account of such
               disallowance, for the years ended March 31, 1995 to March 31,
               2002 are Rs 13,266 Million. As of March 31, 2004 the Company has
               paid deposits totaling Rs 11,877 million under protest, as part
               of the appeals process. These deposits have been accounted for as
               restricted asset.

               Re-assessment proceedings have also been initiated against the
               Company in respect of the above matter for the year ended March
               31, 1994, which is currently being litigated by the Company.
               However, no additional demand has been made in respect of license
               fee paid to DOT for the year ended March 31, 1994.

               The Company has received orders from the Income Tax Authority,
               for the payment of 100% penalty on tax allegedly evaded on
               license fee disallowance for the year ended March 31, 1996.
               Penalty proceedings have also been initiated against the Company
               for the years ended March 31, 1997 to March 31, 2002.

               In December 2000, the appellate authority upheld the Company's
               appeal and cancelled the penalty for the year ended March 31,
               1996. However, the penalty proceedings for the year ended March
               31, 1997 to March 31, 2002 have not yet been concluded.

               The Company has contested all these claims and believes that it
               has a valid defense to the disallowance of license fees paid to
               DOT as a tax-deductible expense. The Company during the year
               obtained a favorable decision from the Income tax appellate
               tribunal with respect to the license fee disallowed for
               assessment year 1997-98 and has filed a refund claim with Income
               tax authorities on the basis of the said decision. The said
               decision has not yet been contested by the revenue authorities.
               The Company is of the view that the claims will eventually be
               decided in its favor.

               However, if the Company is ultimately unsuccessful in its defense
               it would be required to pay tax including interest amounting to
               Rs. 7,971 million from April 1, 1993 to March 31, 1994 and from
               April 1, 2001 to March 31, 2004 and penalty amounting to Rs.
               12,507 million from April 1, 1993 to March 31 1995 and from April
               1 1996 to March 31, 2004 in addition to the Rs. 13,266 million
               demanded. The Company has not accrued the tax charge on license
               fee in the financial statements. The Company will receive
               interest on the Rs. 11,877 million (2003; Rs. 8,540 million)
               deposit paid to the tax authorities if the case is decided in
               their favor.

          ii.  The Central Income Tax Authority of India has added to the income
               of the Company the contributions made by the employees (refer
               note 15) towards General Provident Fund for the year ended March
               31, 2001 and 2002 which had been retained by the Company.

               The amount of additional income tax demanded together with
               interest amounts to Rs. 530 million and Rs. 636 million for the
               years ended March 31, 2001and 2002 respectively. The Company has
               deposited Rs. 1,166 million (2003: Rs. 530 million) under protest
               to the tax authorities as a part of the appeals process. The same
               has been included as a part of restricted assets.

               The Company believes that it has a valid defense against the
               addition of such contribution to their taxable income.

               However, if the Company is unsuccessful in its defense it would
               be required to pay tax including interest amounting to Rs 3,725
               million on amounts retained from November 1, 1998 (the date of
               absorption of non executive employees) to March 31, 2004. This
               will not have any impact on tax expense of the Company except to
               the extent of interest and penalty, if any.

     (d)  Others

          i.   On October 4, 1999, Precision Electronics Ltd. brought claims for
               an aggregate of approximately Rs. 1,349 million, plus interest at
               a rate of 24% per annum, against the Company in the Arbitral
               Tribunal of the Indian Council of Arbitration. These claims arise
               out of a dispute with respect to the calculation of the purchase
               price of certain optical fiber systems pursuant to purchase
               orders executed in 1994. During the year ended March 31, 2004,
               the case has been settled against the Company for an amount of
               Rs. 86 million. The Company believes that it has a valid defense
               at the higher level against the aforesaid order.

          ii.  In 1998, M&N Publication made claims for Rs. 5,415 million
               against the Company. These claims arise out of contracts for the
               printing of telephone directories for Delhi and Mumbai. Each of
               these claims includes claims for loss of reputation and loss of


                                      F-27
<PAGE>


MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

               business opportunities aggregating Rs. 2,000 million. The Company
               has made claims of Rs. 4,169 million against M&N Publications for
               failure to perform the contracts. These claims are pending before
               a sole arbitrator. The Company believes that it has valid
               defenses to these claims.

          iii. In the absence of an interconnection agreement, MTNL had provided
               NLD/ILD access charges for the period ended March 31, 2002 at the
               rates lower than those demanded by BSNL . Subsequent to the year
               ended March 31, 2004, in a meeting held between DOT, BSNL and the
               Company the rates for NLD calls for the year ended March 31, 2002
               were agreed and accordingly the Company has accounted additional
               liability of Rs. 233 million in this regard. The Company may be
               required to pay ILD access charges amounting to Rs. 195 million
               (2003: Rs. 428 million) for the period April 1, 2001 to January
               31, 2002 on the settlement of the dispute with BSNL in this
               regard.

          iv.  The Company has accounted for Rs. 6,924 million for
               interconnection usage charges for the year ended March 31, 2004
               payable to Bharat Sanchar Nigam Limited (BSNL) on the basis of
               Inter Connect Usages Regulations whereas Bharat Sanchar Nigam
               Limited (BSNL) has raised a bill of Rs. 12,165 million for the
               interconnection usage charges for the calls originating from MTNL
               network and terminating/ transiting at/from BSNL. The Company's
               contention is that the claim is not adequately supported by BSNL
               and hence not accepted by the Company. The Company is in the
               process of reconciling the said claim with BSNL and may be
               required to pay an additional amount based on the final
               settlement.

     (e)  Summary of above litigations

          The following table summarizes the potential exposure (excluding
          interest and penalty) of the Company of March 31, 2004 with respect to
          above stated pending litigations in the event the same is settled
          against the Company:

<TABLE>
<CAPTION>
                                                                                    AS OF MARCH 31,
                                                      ALSO REFER              2004                   2004
                                                         NOTE
                                                                       --------------------    ------------------
                                                                       (MILLION OF RUPEES)     (MILLION OF US $)
                                                                                                   UNAUDITED
                                                                       --------------------    ------------------
<S>                                                    <C>                  <C>                  <C>
          Sales tax demanded on the Company's          25 (B)               Amount not           Amount not
          revenue                                                           ascertainable        ascertainable

          Dispute relating to disallowance of          25 (C) (I)                  13,266                  306
          license fee

          Additional income tax on disallowance of     25 (C) (II)                    Nil                  Nil
          GPF retained by the Company

          Arbitration dispute with Precision           25 (D) (I)                      86                    2
          Electronics Limited

          Arbitration dispute with M & N               25 (D) (II)                  5,415                  125
          Publications

          Dispute relating to rates applicable to      25 (D) (III)                   195                    5
          NLD/ ILD access charges

          Claim lodged by BSNL relating to             25 (D) (IV)                  5,241                  121
          interconnect charges
                                                                         -----------------     -----------------
                                                                                   24,203                  559
                                                                         =================     =================
</TABLE>

26.  SEGMENTAL INFORMATION

     The Chairman and Managing Director (CMD) of the Company has been identified
     as the Chief Operating Decision Maker (CODM) as defined by SFAS No. 131.
     The CODM of the Company determines its business segments based on the
     nature of services, the differing risks and returns and the organizational
     structure. These segments are basic and cellular services.


                                      F-28
<PAGE>


MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

     Basic consists voice, data through local calls, domestic long distance and
     international long distance calls on fixed line services in the cities of
     Delhi and Mumbai in India. Additionally, it includes the revenues from Code
     Division Multiple Access, or CDMA, based cellular services and internet
     access services since no distinction is made between assets and revenue of
     these segments and basic for management review purpose.

     Cellular consists of providing cellular services in cities of Delhi and
     Mumbai using Global System for Mobile communications, or GSM, technology.
     These services were launched in February 2001.

     During the years ended March 31, 2003 and 2004, the Company has not
     considered cellular services to be a reportable segment since it does not
     meet the thresholds of significance. The Company's business is conducted
     exclusively in India, which for reporting purposes is considered a single
     geographical area.

     During the year ended March 31, 2003, no single customer has contributed
     for revenue in excess of 10% of total revenue. During the year ended March
     31, 2004, BSNL, a related party has contributed 10.21% of the total revenue
     of the Company.

27.  SUBSEQUENT EVENTS

     In June 2004, the Board of Directors of the Company recommended a dividend
     of Rs. 4.5 per equity share, amounting to Rs. 2,835 million. Such dividend
     has been approved in the annual general meeting held on September 29, 2004.
     The Company would be required to pay dividend tax at the rate of 13.07% of
     the dividend distributed.

28.  SIGNIFICANT RISKS AND UNCERTAINTIES

     a)   The Company operates the network under a license from the DOT that is
          valid until March 31, 2013 for fixed-line services and until October,
          2017 for cellular services. The DOT retains the right, however, to
          revoke the license after giving one month's notice to the Company. The
          DOT also retains the right, after giving notice to the Company, to
          modify the terms and conditions of the license at any time if in its
          opinion it is necessary or expedient to do so in the interest of the
          general public or for the proper operation of the telecommunications
          sector. A revocation of the license or a change in significant terms
          of the license, such as its duration, the amount of license fee
          payable or the range of services permitted, would have a material
          adverse effect on the Company's business, financial condition and
          results of operations.

     b)   Most of the Company's employees were on secondment from DOT. The
          non-executive employees were given the option to be absorbed in the
          Company with effect from November 1, 1998. Under the option for
          pensionary benefits, these employees could opt to retain pensionary
          benefits in accordance with the Central Government pension rules or in
          accordance with MTNL retirement rules which were applicable to its
          directly recruited employees, and opt to draw pro rata monthly pension
          till their absorption in MTNL. Accordingly with effect from November
          1, 1998, the Company started accruing for pension and gratuity for
          these employees.

          Further, rules relating to settlement of pensionary terms in respect
          of Government employees transferred to public undertakings, required
          the company to create a pension fund and provided for the Government
          to discharge its pensionary liability by paying in lump sum as a one
          time payment, the pro rata pension and gratuity for the service up to
          the date of transfer (November 1, 1998) of government servants from
          the Government to the undertaking. Accordingly on January 8, 2002 the
          Company claimed an amount of Rs.11, 700 million from DOT as DOT's
          share of the liability.

          However the DOT by way of their letter no. 40-29/2002 -Pen (T) on
          August 29, 2002 and September 4, 2002 has communicated that the
          pensionary benefits to the Government employees absorbed in MTNL and
          who have opted for either the Government Scheme of pension or for
          prorated pension scheme shall be paid by the Government. However, the
          terms of the settlement are yet to be finalized. In absence of details
          with regard to the basis required for determination of the amount
          payable by the company, no adjustment has been made in the cost of
          retirement benefits accrued in these financial statements.

     c)   The Company had given an option to its executive employees (B
          category) for absorption with the Company with effect from October 1,
          2000, at a revised pay scale that is higher than the existing pay
          scale. The offer for absorption provided that in addition to getting
          post retirement benefits like gratuity and leave encashment,
          subsequent to absorption, the employees would have to opt for either
          pension based on the government rules or provident fund based on the
          Company policy. Pending the finalization of the terms of absorption
          and actuarial determination of incremental liability, the Company,
          during the year ended March 31, 2003, had accrued an additional charge


                                      F-29
<PAGE>


MAHANAGAR TELEPHONE NIGAM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INDIAN RUPEES IN MILLIONS, EXCEPT SHARE DATA AND AS STATED OTHERWISE)
--------------------------------------------------------------------------------

          amounting to Rs. 1,329 million on account of revised pay scales and
          related retirement costs for executive employees who exercised the
          option of absorption with the Company up to that date.

          During the year ended March 31, 2004, majority of employees have opted
          for absorption with the Company. The Company has determined the
          incremental liability on account of revised pay scales and related
          retirement cost on the basis of actuarial valuation. The amount
          reduced from actuarially determined liability, as recoverable from DOT
          towards retirement benefits for the period upto the October 1, 2000,
          has been calculated at the rates prescribed by DOT for its employees
          on secondment. The amounts have not been finalized between the
          parties. Any consequent adjustment resulting from the same would be
          accounted at the time of final settlement.


                                      F-30
<PAGE>


                                   SIGNATURES

          The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.

Mahanagar Telephone Nigam Limited


By       /s/  R.C. Sen
Name:    R.C. Sen
Title:   Deputy General Manager (Accounts)


Date:    September 29, 2004


<PAGE>


                                  EXHIBIT INDEX

NUMBER    DESCRIPTION OF EXHIBIT

1.1       Memorandum and Articles of Association of the Registrant, as amended
          on January 31, 2002./*/

2.1       Form of Deposit Agreement among the Registrant, The Bank of New York,
          as depositary, and the holders from time to time to American
          Depositary Shares issued thereunder, including as an exhibit, the form
          of American Depositary Receipt./**/

4.1       Lease Agreement dated January 16, 1996 between Life Insurance
          Corporation of India and the Registrant./**/

4.2       License Agreement for provision of Internet Services in Delhi dated
          November 6, 1998 between President of India acting through Assistant
          Director General, Ministry of Communications and the Registrant./**/

4.3       License Agreement for provision of Internet Services in Mumbai dated
          November 6, 1998 between President of India acting through Assistant
          Director General, Ministry of Communications and the Registrant./**/

4.4       License Agreement for provision of Internet Services dated October 6,
          2000 between President of India acting through Assistant Director
          General, Ministry of Communications and Millennium Telecom
          Limited./**/

12.1      Certification of Chief Executive Officer

12.2      Certification of Principal Financial Officer

13.1      Certification of Chief Executive Officer

13.2      Certification of Principal Financial Officer

----------

*    Previously filed on September 30, 2002, as exhibits to Annual Report
     on Form 20-F for fiscal 2002.

**   Previously filed on September 27, 2001, as exhibits to
     Registration Statement on Form F-4 (file number 333-13944).