EXHIBIT 4.6


                            MEMORANDUM OF SETTLEMENT

                            OVER THE REVISION OF PAY

                                       AND

                               CERTAIN ALLOWANCES

                            DATED 2nd DECEMBER, 2000

                                     BETWEEN

                                  MANAGEMENT OF

                          VIDESH SANCHAR NIGAM LIMITED

                                       AND

                          THEIR WORKMEN REPRESENTED BY

                     THE FEDERATION OF VIDESH SANCHAR NIGAM

                            EMPLOYEES' UNION, MUMBAI





Under Section 12(3) read with Section 18(3) of the Industrial Disputes Act, 1947
and Under Section 20(p) and 18(1) of the Act.


<PAGE>


                                     PART-A

SHORT RECITAL

         The last  revision of the sale of pay of VSNL  non-executives  was made
         effective from 1.1.1992 for a period of five years and after the expiry
         of five  years  the next pay  revision  fell  due  from  1.1.1997.  The
         Federation of VSN Employees'  Unions had submitted a Charter of Demands
         (COD) on 20.10.1997  requesting VSNL Management for the revision of pay
         and  allowance  and  other  related  benefits  to  the   non-executives
         effective  from  1.1.1997.  Federation  subsequently  vide  its  letter
         No.FED/F-4/99-2000/96 dated 21st September 1999 requested for deferment
         of negotiation on wage revision until  finalisation  of pay revision in
         respect of executives.

1.2      DPE vide its OM No. 2  (11)/96-DPE  (WC) dated  14.1.1999  conveyed the
         decision  of the  Govt.  in  connection  with  the  next  round of wage
         negotiations   which   fell  due  from   1.1.1997   with  the   workers
         (non-executives)  of Central PSEs to be commenced by the  Management of
         the Enterprises with the Trade Unions/Associations,  subject to certain
         conditions like revision  should be within the approved  parameters and
         to ensure  that also such  negotiated  wages would not come in conflict
         with the wage revision of executives.

1.3       Pursuant to Govt.  of India Office  Memorandum  NO.2(1l)/96-DPE(WC)-GL
          XXVII dated 26th July 2000 notifying that unionized employees governed
          by IDA pattern, would have option to opt for either:

          (1)     a  10  year   periodicity   on   wage   revision   with   100%
                  neutralization  of DA as set out in the  guidelines  issued on
                  14.1.99, OR

          (2)     a five year periodicity on the basis of graded  neutralization
                  as did exist previously i.e. from 1.1.92 to 31.12.96.

         Federation indicated its preference for 10 year periodicity.

1.4      The  issues  arising  out of the COD  have  been  negotiated  with  the
         Employees'  Federation initially on 19th & 20th October 2000 & from 8th
         to 10th  November  2000 & finally  from 23rd  November to 1st  December
         2000.  After  exhaustive  process  of  negotiation  the  Memorandum  of
         Settlement was arrived on 2nd Dec. 2000.

1.5      In the context of fast changing technologies,  competitive  environment
         and  tremendous  growth  potential  in the field of  Te1ecommunications
         around the globe, both Employees'  Federation and the Management commit
         themselves to work together for attaining the  objectives  and increase
         productivity and profitability.

1.6      It is also realized that  re-training,  re-deployment and re-adjustment
         of  manpower,   changes  in  the  work  culture  with   commitment   to
         productivity  would have to be  achieved  in the  context  of  changing
         requirements  of the  Company.  Towards  this  end,  employees  and the
         representatives   assure  full   co-operation  to  the  Management  for
         implementing charges as may be required periodically.

<PAGE>


                                     PART-B


TERMS OF SETTLEMENT

This settlement will be applicable to all the categories of  non-executives  who
were on the  rolls  of VSNL as on  l.l.1997  or  have  subsequently  joined  the
Company.

This  settlement  shall be effective from 1st January 1997 till  31.12.2006 (ten
years) and will continue to be operative till next settlement is signed.

WAGE STRUCTURE

2.1      Scale of pay

         The following shall be the pay scales applicable to the  non-executives
         of the company from 1st January 1997:


                   Pre-Revised Scales              Revised Pay Scales w.e.f.
                                                   1.1.1997
-------------------------------------- -------     --------------------  -------
 Level     Scale of Pay                 Span        Scale of Pay          Span
(grade)                                (years)                           (years)
 NE-1      2300-40-2620-50-3220         20          4825 - 125 - 6700      15
 NE-2      2375-50-2775-60-3495         20          5100 - 140 - 7200      15
 NE-3      2475-60-2955-70-3795         20          5450 - 175 - 8075      15
 NE-4      2600-70-3160-80-4120         20          6000 - 200 - 9000      15
 NE-5      2780-80-3420-90-4500         20          6700 - 225 - 10075     15
 NE-6      2985-90-3705-100-4905        20          7150 - 240 - 10750     15
 NE-7      3210-100-4010-110-5330       20          7700 - 250 - 11450     15
 NE-8      3450-110-4330-120-5770       20          8400 - 265 - 12375     15
 NE-9      3700-120-4660-130-6220       20          8590 - 300 - 13990     18


2.2.     Dearness Allowance

         100 percent Dearness Allowance (DA) neutralization shall be adopted for
         all the Non-Executives  w.e.f.  1.1.1997. On 1.1.1997 at 1708 AICPI the
         IDA in the revised scale of pay would be nil. The change in DA shall be
         paid as notified by DPE from time to time.

2.3.     Fitment Method

         Fitment  in the  revised  scales  shall be made  applicable  as per DPE
         Guidelines as per following method.

          a)   Basic Pay in the Pre Revised pay scales as on 31.12.1996
                                      Plus


                                       2
<PAGE>

          b)   Corresponding   Dearness   Allowances  at  AICPI  at  1708 (Base
               1960--100) as on 1.1.1997
                                      Plus
          c)   FDA component as on 1.1.97.
                                      Plus
          d)   Fitment amount upto 20% of (a) above.

         The new basic  will be  determined  by  placing  the  aggregate  amount
         arrived by adding  (a) to (d) in the  revised  scale of pay.  Where the
         aggregate  amount (a to d) thus  arrived does not fit into the stage in
         the  revised  scale of pay,  the new  basic pay will be  determined  by
         fixing the  aggregate  amount at the next  higher  stage in the revised
         scale of pay.

2.4.     Bunching Increments

         One  increment  in the  revised  scale will be granted  for every three
         increments  drawn in the pre revised  scale held as on  31.12.1996,  as
         bunching  increment.  The  amount so  arrived  will be added to the pay
         arrived as in para 2.3 above.

2.5.     Special Increments

         One special  increment in the revised scale shall be granted to the Non
         Executives  who were on the rolls of the Company as on  31.12.1996.  In
         addition  to  this,  employees  who  were  in the  grade  of NE-9 as on
         31.12.1996  shall be granted two  additional  increments in the revised
         scales. These increments shall be payable from 1.1.1997.

2.6      Stagnation increments

         Non-executives  who  reach  the  maximum  of the  revised  scale of pay
         (stagnation)  would be  granted  up to a  maximum  of three  stagnation
         increments.

2.7      Fixed Dearness Allowance

         The payment of Fixed Dearness  Allowance (FDA) shall be discontinued in
         the revised pay scale with effect from l.l.l997.


                                       3
<PAGE>

2.8      City Compensatory Allowance

         City  Compensatory  Allowance  shall  be paid  with  effect  from  19th
         November 1999 as per the classification notified by the government from
         time to time & quantum as per DPE notification.

2.9      House Rent Allowance

         House Rent Allowance  shall be paid with effect from 19th November 1999
         as per the classification  notified by the government from time to time
         & quantum as per DPE notification.

2.10     PERKS & ALLOWANCES

         It has been agreed to  negotiate  perks &  allowances  separately,  for
         which  the  process  will  be  initiated  as  early  as  possible.  For
         implementation  of this pay  revision,  perks &  allowances  and  other
         entitlements  linked  to the  basic  pay will  remain  unchanged  until
         revised.


                                       4
<PAGE>

                                     PART-C

It has been further agreed by and between the parties as follows:-

1.       Improvement of overall efficiency.

         i)     Federation  and its members  must strive for  improving  overall
                services and productivity.

         ii)    Federation   will  cooperate  with  the  Management  in  matters
                relating to restructuring of various  wings/sections  within the
                organisation.

         iii)   Federation  will  cooperate  with  the  Management  in  ensuring
                industrial  peace  by  discussing  disputes,  if  any  with  the
                Management for arriving at mutually acceptable settlement

         iv)    Federation   agrees  that  its  member  employees  would  accept
                diversified  jobs in  order to  ensure  higher  productivity  in
                Internet Services, Marketing, Customer Relations etc.

         v)     Federation  agrees that its member  employees would cooperate in
                the matter of bringing out  improvement  in all areas of working
                like office automation, etc.

         vi)    Due to rapid change in technology, the employees are expected to
                keep themselves  updated in their respective area of working and
                Management  will be providing  necessary  training,  assistance,
                etc. for the same.

         vii)   Federation  must realise the bottom line in providing  efficient
                services  both for  domestic and  international  norms to remain
                competitive.

         viii)  Keeping in view the  competitiveness  of telecom sector in which
                VSNL  is  operating,   Federation   and  its  members  agree  to
                strengthen the hands of the Management by rendering all possible
                cooperation to remain competitive.

2.       Management also appeals the Federation of Employees Unions and Regional
         Unions  themselves  to lead the  employees  to work  together  with the
         Management in attaining the following goals  emphasized in our targeted
         plan for the coming years:

         i)     Efficient  handling of the various  telecommunications  services
                provided by VSNL.

         ii)    Services to the customers to their better satisfaction.

         iii)   Improvement in productivity and reduction in operational costs.

         iv)    Improving quality in all operations.

         v)     Necessary improvement in working conditions.


                                       5
<PAGE>

         vi)    Continuously adopt better working practices.

         vii)   Punctuality/reduction of unauthorized absenteeism.

         viii)  Effective utilization of all available resources.

         ix)    Improvement in housekeeping.

3.       Employees'  Federation and unions  acknowledge  that  redeployment  and
         retraining consistent with skills,  dignity and earning of employees is
         necessary  in  the  context  of  modernization  and  changing  advanced
         technology in our organisation.

4.       Employees' Federation and unions agree that discipline at all levels is
         essential for smooth and efficient  functioning of the organization and
         will ensure compliance by all its members.

5.       Employees'  Federation  assure to work  shoulder to  shoulder  with the
         Management towards attaining the customer  satisfaction  because of the
         changed scenario in the telecommunications field.

6.       Management  expect the  characteristics  of the workmen with respect to
         degree  of  skill,  punctuality,  adaptability,  willingness  to accept
         innovation, attitudinal changes etc. for higher work responsibility.

7.       GENERAL

         1)    No individual or collective  representation  of whatsoever nature
               arising  out of  this  settlement  shall  be  entertained  by the
               Management.

         2)    There  will  be no  change  in the  dates  of  drawal  of  annual
               increment.

         3)    Increment/promotion falling after 1.l.1997 will be granted in the
               revised pay scales.

         4)    Anomalies,  if  any,  arising  out of  this  revision  should  be
               referred to HQ for resolution within the administrative rules and
               guidelines.

8.       The above agreement will be  applicable subject to the  approval of the
         VSNL Board.




                                       6
<PAGE>

SIGNED AT VSNL, VSB, MUMBAI ON 2nd DAY OF DECEMBER 2000.

                            PARTIES TO THE SETTLEMENT

                                        On behalf of Workmen (Non Executives)
On behalf of VSNL Management              represented by Federation of VSN
                                                 Employees' Unions

                                  1        S. M. Pimpale, President
                                  2        Syed Altaf Hussain, V. President
Amitabh Kumar, Director (0)       3        S. D. Shukla, Secretary General
                                  4        G. B. Gosavi, Jt. Secy General
                                  5        M. B. More, Treasurer
                                  6        J. C. Parashar, Liaison Officer
M.G. Wasnikar, CGM (0)            7        M. M. Solanki, ASG Group D
                                  8        K. Balan, Advisor
                                  9        P. Y. Patil, President, Mumbai
                                  10       T. S. Shivkumar, Gen. Secy, Mumbai
Arun Gupta, CGM (F)               11       A. B. Gamre, ASG, Mumbai
                                  12       P. V. Mohite, Councillor
                                  13       J. S. Dhaliwal, President, New Delhi
                                  14       Pyrelal Bhatt, Gen. Secy, New Delhi
G.R. Shaikh, SGM (HR)             15       S. K. Sharma, ASG, New Delhi
                                  16       R. Vasu, President Chennai
                                  17       Joshep Manoharan, G. Secy. Chennai
                                  18       V. Srinivasan, Councillor, Chennai
V. Natarajan, SGM (FIR)           19       A. K. Mitra, President, Calcutta
                                  20       R. Gangopadhyay, Gen.Secy, Calcutta
                                  20       P. R. Gaikwad, President, Pune
                                  22       S. G. Sinnarkar, Gen. Secy. Pune
K.S.B.Nair, DGM(HR)               23       R. S. Inamke, President, Arvi
                                  24       N. T. Sarwade, Gen. Secy. Arvi
                                  25       A. D. Bhosle, ASG, Arvi
                                  26       C. P. Kala, Gen. Secy, Dehradun
                                  27       Dinesh Sharma, ASG, Dehradun


                                       7
<PAGE>

                                  OFFICE ORDER


      Sub: Revision of Pay and certain A1lowances of Non-executives of VSNL
                      w.e.f. 1.1.1997 - Implementation of.


1.   The  last revision  of the  scale  of pay of VSNL  non-executives  was made
effective  from  1.1.1992  for a period of five years and after the expiry  five
years  the next pay  revision  fell due from  1.1.1997.  The  Federation  of VSN
Employees' Unions had submitted a Charter of Demands  requesting VSNL Management
for  the  revision  of  pay &  allowances  and  other  related  benefits  to the
non-executives effective from 1.1.1997.  Subsequently, the issues arising out of
the COD was  negotiated  with the  Employees'  Federation  by the  Management on
several occasions.  After prolonged negotiation,  Settlement has been arrived at
between the Management  and the Employees'  Federation of VSNL on 2.12.2000 over
the issue of revision of pay scales  effective  from 1.1.1997 as well as certain
other related allowances.

2.   Particulars  of the revised pay structure of non-executives w.e.f. 1.1.1997
and the guidelines for implementation, etc. are enclosed herewith at Annex l. In
the enclosed  annexure  sequence of events for fixation in the revised  scale is
clearly  set  out and  all  concerned  are  advised  to  comply  with  the  same
diligently.  In the  guidelines,  precautions  have been taken to ensure that no
ambiguity prevails while fixing the pay in the revised scales. A format has been
prepared  by HQ  office  which is  enclosed  at Annex II.  It is  expected  that
uniformity is maintained in utilising same.

3.   It is not open for the  Regions/Centres  to draw  their  own inferences and
conclusions  in  interpreting  the fixation and other related  benefits.  A back
reference  has to be made to the HQ-office with  specific  terms of reference so
that the matter could be examined and suitable instructions be given as early as
possible.

4.   The Interim  Ad-hoc advances paid on two  occasions  to the  eligible  non-
executives in terms of Office Orders No.  HQ-A/01-10/97-PE.1  dated  24.4.1998 &
23.l0.2000 and also the monthly Interim Relief paid w.e.f. 1.10.1998 in terms of
Office Orders No. HQ-A/01 - 10-98.PE.1  dated  15.10.1998 & 6.10.1999,  shall be
adjusted in full against the payment of arrears  arising out of the pay revision
to be made as per this order.  In cases where there is no scope for  adjustment,
it should be adjusted suitably.

5.   No  individual  or collective  representation  arising out of  the fixation
shall be entertained by the HQ office and the  Regions/Centres  are requested to
dispose of the same in light of the instructions issued herewith.  Anomalies, if
any, arising out of the fixation on revision, shall be considered for resolution
as a one time measure after the process of auditing is completed.

6.   It should be noted that implementation of the revised pay scales is subject
to Board's  approval  and pending  Board's  approval,  it is necessary to obtain
individual  undertaking in the prescribed  format (format  enclosed.  Annex-III)
from each  non-executive  to the effect that in the event of any modification to
the pay scales by the VSNL Board,  the excess  amount  drawn,  if any,  shall be
refunded by him/her.


                                       8
<PAGE>

7.  Heads of Regions/Centres are advised to take necessary steps to complete the
implementation  of pay revision in the shortest  time  possible in order to draw
salary  payable for the month of December 2000 and onwards in the revised scales
to the  non-executives.  Arrears  arising out of this pay  revision  under these
orders may be disbursed by the Centres/Units expeditiously.

8.   Subsequent  to implementation of revised pay scales by the Regions/Centres,
HQ will  constitute an audit  committee for carrying out inspection for ensuring
that the pay scales implementation like fixation, etc. has been done strictly in
accordance with the guidelines issued with this order.

9.   All issues arising out of the provisions contained in this order/guidelines
which may require  interpretation/clarification are to be referred to HR Wing of
HQ for-decision.

                        for VIDESH SANCHAR NIGAM -LIMITED

                                  (G.R. Shaikh)
                           SENIOR GENERAL MANAGER (HR)

Encl:  Annex.I, II, III, IV & V

Copy for information & necessary action:

1.  CGM(ER)/Calcutta      2.  CGM(NR)/New Delhi     3. CGM(WR)/Mumbai

4.  SGM(SR)/Chennai       5.  SGM(EK)/Ernakulam     6. SGM(H'D/Hyderabad

7.  SGM(AU)/Arvi          8.  SGM( BG)/Bangalore    9. GM(DU)/Dehradun

10. GM(J'D)/Jullandhar   11. DGM(PC)/Pune          12. DGM(KP)/Kanpur

13. DGM(GN)/Gandhinagar  14. DGM(C&B)/HQ/LVSB      15. SM (ID )/Indore


16.      CMD's Office/Dir.(NW)/Dir.(D)/Dir.(Fin.)/Dir.(O)/C.V.O./CS/CGM
         (Planning)/CGM(Internet)/CGM(O/HR)/CGM (Mktg.)/CGM (F&A)-G/CGM
         (F&A)-B/CGM(PR)/CGM (F&A)-S.

17.      CGM(VIG)/SGM(HR)-S/SGM(Estate)/SGM(Coml.)/SGM(TP)-A/SGM   (HR)-   N/SGM
         (HR)-D/SGM  (TA)/SGM(NW)-SKS SGM (NW)-CSS/GM (TO) - B/ GM (TO) - R / GM
         (NW)/ GM (RD)/ GM (TP)/GM (Systems)-AKS/ GM (Systems) BC/ GM (Comm.) HQ
         Office.

18.      TP Wing/TO  Wing/  Traffic  Wing/ R&D Wing/  Estate/  Coml./  SWP/ EDP/
         Satcom/ Markg. Section of HQ Office.


                                       9
<PAGE>

19.      Per-II/ Advance/ Admn./ Legal/Recruitment/ Training/ Logistic/ Welfare/
         CR Section of VSNL, HQ Office, Mumbai.

20.      Cash & Bill/ Budget/ Finance/ Public Relations Sections/ CPF Trust.

21.      SC/ST Cell.

22.      The Secretary General, Federation of VSNL Employees' Unions, Mumbai.

23.      The Secretary  General,  Federation of Telecom Officers'  Associations,
         Mumbai

24.      The  Secretary  General,  Federation  of VSNL  Officers'  Associations,
         Mumbai.

25.      Hindi Section for the needful.

26.      Copy to Notice Board/Guard File.


                                       10
<PAGE>
                                                                        ANNEX-1
                                                                        -------


GUIDELINES FOR REVISION OF PAY AND CERTAIN ALLOWANCES OF NON-EXECUTIVES OF VSNL
WITH EFFECT FROM 1st JANUARY 1997:



1.       REVISED SCALES OF PAY


1.1      The following shall be the pay scales applicable to the  non-executives
         of the company from 1st January 1997:

         Pre-Revised Pay Scales               Revised Pay Scales w.e.f. 1.1.1997
 Level   Scale of Pay              Span    Level   Scale of Pay          Span
(grade)                          (years)  (grade)                       (years)
 NE-1    2300-40-2620-50-3220      20       NE-1   4825 - 125 - 6700      15
 NE-2    2375-50-2775-60-3495      20       NE-2   5100 - 140 - 7200      15
 NE-3    2475-60-2955-70-3795      20       NE-3   5450 - 175 - 8075      15
 NE-4    2600-70-3160-80-4120      20       NE-4   6000 - 200 - 9000      15
 NE-5    2780-80-3420-90-4500      20       NE-5   6700 - 225 - 10075     15
 NE-6    2985-90-3705-100-4905     20       NE-6   7150 - 240 - 10750     15
 NE-7    3210-100-4010-110-5330    20       NE-7   7700 - 250 - 11450     15
 NE-8    3450-110-4330-120-5770    20       NE-8   8400 - 265 - 12375     15
 NE-9    3700-120-4660-130-6220    20       NE-9   8590 - 300 - 13990     18


2.       DURATION

2.1      The revised Pay Scales will be effective for a period of 10 (Ten) years
         from 1st January l997.

3.       DEARNESS ALLOWANCE

The  Industrial  Dearness  Allowance  (IDA) at All India  Consumer  Price  Index
(AICPI) 1708 admissible to Non-Executives in the revised Scales of Pay as on 1st
January  1997 will be "Nil" as the  applicable  amount of IDA as on 1st  January
1997 in the 1992 Salary  Structure has been merged in the revised Basic Pay. The
first  installment of DA in the 1997 Salary  Structure would become due from 1st
April  1997.  The DA  payable  from 1st  April  1997  would be as per the new DA
Scheme. The details of the Scheme are as follows:

(i)      All India Consumer  Price Index (AICPI)  Number for Industrial  Workers
         (general)  based on 1960 = 100 would  continue  to be used for grant of
         compensation to non-executives of VSNL against price rise.

(ii)     DA would be paid  for the  increase  in  AICPI  above  quarterly  index
         average of 1708 to which the revised Scales of Pay (1997) are related.


                                       11
<PAGE>

(iii)    DA  installments  would continue to be revised 4 times a Calendar year,
         i.e., w.e.f. 1st January, 1st April, 1st July and 1st October.

(iv)     The  quarterly  average of AICPI  would  continue to be computed in the
         following manner:

         QUARTERLY AVERAGE                                   PAYABLE FROM
         -----------------                                  ----------------

         September, October and November of
         previous year                                        1st January

         December of the previous year and
         January and February of the current year             1st April

         March, April and May of the current year             1st July

         June, July and August of the current year            1st October


(v)      The  percentage  increase  in the  quarterly  average  of AICPI for the
         period ending February,  May, August and November over AICPI 1708 would
         be as notified by DPE.

(vi)     The rate of compensation to Non-executives  over the Basic Pay at AICPI
         1708  will be in whole  numbers.  Fractions,  if any,  will be  carried
         forward to the next quarter/s.

(vii)    Calculating  the  quantum of DA payable on this  basis,  fraction of 50
         paise  and  above  will be  rounded  off to the next  higher  rupee and
         fraction below 50 paise will be ignored.

(viii)   The  percentage DA  neutralisation  to all  Non-executives  in the 1997
         Salary Structure will be 100%.

3.2      The  revised  rates of DA payable to  Non-executives  during the period
         from 1st April 1997 to 31st December 2000, would be as follows:

        DA payable for Quarter        Quarterly average      Rate of DA payable
            commencing from           AICPI applicable        (% of Basic Pay)

                 35433                      1726                      1
                 35436                      1737                     1.7
                 35439                      1762                     3.2
                 35795                      1794                      5
                 35798                      1870                     9.5
                 35801                      1893                    10.8
                 35804                      2010                    17.7
                 36160                      2122                    24.2
                 36163                      2077                    21.6
                 36166                      2051                    20.1
                 36169                      2087                    22.2
              01.01.2000                    2143                    25.5
              01.04.2000                    2123                    24.3
              01.07.2000                    2156                    26.2
              01.10.2000                    2186                     28


                                       12
<PAGE>

3.3      Rate of DA payable  during each  Quarter  commencing  from 1st January,
         2001 would be notified by the HQ Office from time to time.

3.4      Dearness  Allowance  already paid from  January 1997 to November  2001,
         based on the 1992 salary  structure would be fully adjusted against the
         arrears payable under this order.

4.       FIXATION OF PAY IN THE REVISED SCALES OF PAY

4.1      The pay of Non-executives  who were on the rolls of the Company on 31st
         December  l996 and  continue  to be in the service of the Company as on
         the date of issue  of this  Order  will be  brought  on to the  revised
         Scales in the following manner:

(a)      Basic Pay in the existing Scale of Pay (1992) as on 31st December 1996

                                      Plus

(b)      Corresponding  Dearness Allowance at AICPI of 1708 (base 1960 = 100) as
         on 1.1.1997.

                                      Plus

(c)      Fitment  amount up to 20% of (a) above plus i.e. 20% at Basic Pay drawn
         as on 31st December 1996)

                                      Plus

(d)      FDA component as on 31.12.1996

         The total or (a)+(b)+(c)+(d) would be the aggregate amount.


4.2      The new basic pay will be determined  by placing the  aggregate  amount
         arrived by adding  (a) to (d) in the  revised  scale of pay.  Where the
         aggregate amount (a) to (d) thus arrived does not fit into the stage in
         the  revised  scale of pay,  the new  basic pay will be  determined  by
         fixing the  aggregate  amount at the next  higher  stage in the revised
         scale of pay.


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<PAGE>

4.3      BUNCHING INCREMENT

4.3.1    One  increment  in the  revised  scale will be granted  for every three
         increments  drawn in the pre-revised  1992 scale of pay and this amount
         will be added to the pay arrived at as in para 4.2 above.

4        SPECIAL INCREMENT

4.4.1    One  special  increment  in the  revised  scale  shall  be  granted  to
         Non-executives who were on the rolls of the Company,  as on 31.12.1996.
         In addition to this, non-executives who were in the grade on NE-9 as on
         31.12.1996  shall be granted two  additional  increments in the revised
         scales. These increments shall be payable from 1.1.1997.

4.5      STAGNATION INCREMENT

4.5.1    Non-executives  who  reach  the  maximum  of the  revised  scale of pay
         (stagnation)  would be  granted  upto a  maximum  of three  stagnation
         increments.

4.6      FIXED DEARNESS ALLOWANCE (FDA)

4.6.1    The payment of Fixed Dearness  Allowance (FDA) shall be discontinued in
         the revised pay scale with effect from 1.1.1997.

4.7      APPOINTMENT ON OR AFTER 1.1.1997

4.7.1    Non-executives  appointed on or after 1st January  1997, at the minimum
         of the 1992 scales will be deemed to have been  directly  appointed  in
         the  revised  scales of pay  effective  from  1.1.1997  and no  fitment
         benefit will be  admissible  to them.  Pay of  Non-executives  who were
         appointed at the minimum of the pre-revised scales of pay will be fixed
         at the minimum of the  corresponding  revised scales of pay w.e.f.  the
         date of appointment.

4.7.2    Non-executives appointed on or after 1st January 1997 and who have been
         granted advance  increments,  if any, on appointment in the pre-revised
         scales,  their pay in the revised scale will  provisionally be fixed at
         the minimum of the corresponding revised scale of pay.

4.7.3    In cases  where pay  fixation  had been done in the  pre-revised  scale
         (1992) taking into account pay & allowances  last drawn in the previous
         Organization  (1992  scale),  pay  protection  would be  granted in the
         revised  scale  (1997) on the  basis of last pay drawn in the  previous
         Organisation,  provided the scales of pay in the previous  Organisation
         have also been revised and a revised Last pay  Certificate is produced.
         In the absence of such a revision in the previous Organisation, the pay
         shall be fixed at the minimum of the concerned revised scale of pay.


                                       14
<PAGE>

4.7.4    Pay  fixation  in  respect  of  Non-executives,  if any,  who have been
         appointed  in the Company  between 1st January  1996 and 31st  December
         1996 - from the Central  Government,  State  Government,  Public Sector
         Undertakings  following  the  CDA  pattern  etc.  will  be  dealt  with
         separately,  keeping in view the revision of pay scales effected in the
         Government  w.e.f.  1st January l996. Such  Non-executives  will not be
         eligible for fixation  benefits as envisaged in paras 4.1 to 4.4 above.
         Pay in the revised scales in such cases will  provisionally be fixed at
         the minimum of the corresponding revised scale of pay.

4.7.5    In respect of Non-executives  (including cases of immediate absorption,
         re-employed   pensioners,    ex-servicemen,   etc.)   who   have   been
         appointed/re-employed  in the Company on or after 1st January 1997 from
         the Central  Government,  State Government,  Public Sector Undertakings
         following  the CDA  pattern  etc.,  their pay will be  re-fixed  in the
         revised scale, as per the extant rules applicable in such cases.

4.7.6    Cases of Non-executives,  if any, falling under the above categories at
         paras 4.7.2 to 4.7.5 above should be referred to the HR Wing of HQ with
         necessary details, for final fixation of pay.

5.       HOUSE RENT ALLOWANCE (HRA)

         Non-executives   who   have   not  been   provided   with   residential
         accommodation  by the Company will be paid House Rent Allowance  (HRA),
         based on the running Basic Pay in the revised scale of pay dependent on
         the  reclassified  list of  cities as  notified  by the  Government  of
         India/DPE at the following rates w.e.f. 19th November 1999:

                   Classification of Cities /
                   Towns                           Rates of HRA per month
                   --------------------------      ----------------------
                            "A-1"                  30% of Basic Pay
                      "A", "B-1" & "B-2"           15% of Basic Pay
                             "C"                   7.5% of Basic Pay
                         Unclassified              5% of Basic Pay

         The revised  classified list of cities as notified by the Government of
         India for the purpose of drawal of HRA is appended  hereto  (Annex-IV).
         For the  purpose  classification  of cities  for  payment  of HRA,  the
         classification  as  notified  by the Govt.  of India  from time to time
         shall be followed.

6.       HOUSE RENT / LICENCE FEE RECOVERY

         Separate  Orders  will be issued in this  regard in due course of time.
         Till then,  recovery of House Rent / Licence  Fee from those  employees
         who are  provided  with  Company  Quarters/leased  accommodation  would
         continue to be effected as at present.


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<PAGE>

7.       CITY COMPENSATORY ALLOWANCES (CCA)

         City Compensatory  Allowances (CCA) would be computed and paid based on
         the reclassified  list of cities as notified by the Government of India
         for the purposes of payment of CCA to Government employees, which is as
         under:

<TABLE>
<CAPTION>
 Basic Pay per month           A-I                A                  B-1                B-2
                          Population>50     Population>         Population>      Population >= 5
                             lakhs          20 lakhs and       10 lakhs and      lakhs and <= 10
                                            <= 50 lakhs         <= 20 lakhs           lakhs

<S>                           <C>                <C>                <C>                <C>
 Below Rs.4000                  90                65                 45                 25
 Rs.4000-5250                  125                95                 65                 35
 Rs.5251-6499                  200               150                 100                65
 Rs.6500& above                300               240                 180                120
</TABLE>

         The revised  classified list of cities as notified by the Government of
         India for the  purpose of drawal of CCA is appended  hereto  (Annex-V).
         For the purpose of  classification  of cities for  payment of CCA,  the
         classification  as  notified  by the Govt.  of India  from time to time
         shall be followed.

8.       FAMILY PLANNING INCREMENT

         Non-executives  who have been drawing the special increment in the form
         of Personal Pay (PP) for  undergoing  Family  Planning /  Sterilisation
         Operation  prior to 1st  January  1997  would be allowed to draw the PP
         equivalent  to the  lowest  rate  of  increment  in the  revised  scale
         corresponding to the pre-revised pay scale against which the individual
         had earned the PP. w.e.f. 1st January 1997. Employees who/ whose spouse
         have undergone the sterilisation operation on or after 1st January 1997
         would be  allowed  the PP based on the  increment  rate in the  revised
         scale of pay, as per the extant rules. The special  increment would not
         be reckoned as basic pay for computing Dearness Allowance and any other
         consequential benefits.

9.       PROVIDENT FUND/VSNL EMPLOYEES' SELF CONTRIBUTORY PENSION SCHEME

         Consequent  upon  revision of pay scales and DA,  employer's as well as
         employee's  contribution to the Provident Fund will be recalculated and
         recovered at the applicable rate viz. @ 10 percent on the revised basic
         pay and DA w.e.f.  1st January  1997 to 21st  September,  1997 and @ 12
         percent  effective  from  22nd  September,  1997  onwards.   Employee's
         contribution  towards the VSNL  Employees'  Self  Contributory  Pension
         Scheme shall be recalculated and recovered at the applicable rate.


                                       16
<PAGE>

10.      PAYMENT OF ARREARS

10.1     Payment of  arrears  arising  out of  revision  of pay scales  from 1st
         January  1997  onwards to  non-executives  who were on the rolls of the
         Company  on 1st  January  1997 and who  have  joined  thereafter,  will
         comprise of amounts arising out of the following:

         1.   Revised Basic Pay.
         2.   Revised DA.
         3.   Increments.
         4.   HRA & CCA at revised rates w.e.f. 19th November 1999,
              wherever applicable.
         5.   Fixation of Pay on promotion.
         6.   Family Planning Increment.
         7.   Earned Leave encashment.
         8.   Terminal benefits of Provident Fund & Gratuity.
         9.   Ex-gratia / PLI

         Provisional  payment  may be made to  non-executives  who have moved on
         transfer  after 1st  January  1997,  along  with  others,  based on the
         available data. If any information like attendance,  date of promotion,
         date of increment etc., is required in respect of such  non-executives,
         these can be obtained  from office  wherefrom  the  non-executives  was
         transferred.

10.3     Non-executives  who have  ceased to be in the  services  of the Company
         after 1st January 1997 due to superannuation, termination of service on
         account of continued ill-health,  resignation with permission and death
         (payment to the nominee in case of death) will be eligible  for arrears
         in terms of this order on a pro-rata  basis,  wherever due.  Payment of
         arrears to such  non-executives / nominees is to be effected only after
         receipt  of  a  written  request  from  the   non-executive  /  nominee
         concerned.

10.4     With regard to  Non-executives,  transferred from one Station Office to
         another  after 1st January  1977,  payment of arrears is to be made (by
         the transferee office) only after obtaining  necessary details, if any,
         from the transferor's office.

10.5     Recoveries like Notice pay, if any, to be effected from ex-employees is
         to be recalculated and recovered.  Similarly,  wherever amounts are due
         and  payable  by  ex-employees,  the same  will be  recovered  from the
         arrears payable.

10.6     Benefits of revised Basic Pay and Allowances in terms of this order and
         consequent payment of arrears shall not be applicable to Non-executives
         who  ceased  to be in the  services  of the  Company  on the  following
         grounds on or after 1st January 1997:

         1.   Dismissal;

         2.   Absconding;

         3.   Resigned and left where  disciplinary  action against  him/her had
              already been initiated and was in progress;

         4.   Resigned and left without due notice and where bond  liability had
              not bee discharged at the time of leaving the Company;


                                       17
<PAGE>

         5.   In cases where the  alleged  misconduct  against  the  employee is
              prejudicial to the interest of VSNL and an enquiry is contemplated
              or is in progress.

11.      RECOVERIES OF INCOME TAX ETC.

         Recoveries  towards  Income  Tax,  Professional  Tax,  etc.,  are to be
         effected as per Rules. Finance Wing may take up the matter of extending
         relief  under  Section  89 of the Income  Tax Act,  with the  concerned
         Income Tax Authorities.

12.      INTERIM RELIEF/ONE TIME ADHOC ADVANCE

         The Interim  Ad-hoc  advances  paid on two  occasions  to the  eligible
         non-executives in terms of Office Orders No.  HQ-A/01-10/97-PE.I  dated
         24.4.1998 & 23.10.2000 and also the monthly  Interim Relief paid w.e.f.
         1.10.1998  in terms  of  Office  Orders  No.  HQ-A/01-10/98-PE.1  dated
         15.10.1998 &  6.10.1999,  shall be adjusted in full against the payment
         of  arrears  arising  out of the pay  revision  to be made as per  this
         order.  In cased where there is no scope for  adjustment,  it should be
         adjusted suitably by appropriate instalments from their salary.

13.      PAY RELATED MATTERS

13.1     Merely because of revision of Basic Pay / Scales of Pay, there will not
         be any upward  revision  in the  entitlement  to various  Allowances  /
         Benefits  (other than those  mentioned in the order),  related to Basic
         Pay.  Such  allowances / benefits will continue to be paid based on the
         pre-revised basic pay / scale of pay (1992 scales).

13.2     All other  allowances  (not  related  to basic pay and not  revised  as
         mentioned  above),   benefits,   perquisites  and  performance  related
         incentives will continue to be paid at the existing rates / quantum.

13.3     Revision of other  allowances  / benefits  /perquisites  /  performance
         related payments, etc. will be considered separately and decision taken
         will be intimated in due course of time.

14.      INTERPRETATIONS / CLARIFICATIONS

         All issues arising our of the provisions  contained in this order which
         may require interpretation / clarification are to be referred to the HR
         Wing / Finance Wing of Headquarters for decision.


                                       18