<PAGE>

             AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
                               September 29, 2003

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 20-F

[ ]    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
       EXCHANGE ACT OF 1934

                                       OR

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934
                    For the fiscal year ended March 31, 2003

                                       OR

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
                For the transition period from ______ to ________

COMMISSION FILE NUMBER 001-15118

                          VIDESH SANCHAR NIGAM LIMITED
             (Exact name of Registrant as specified in its charter)

                                 NOT APPLICABLE
                 (Translation of Registrant's name into English)

                              THE REPUBLIC OF INDIA
                 (Jurisdiction of incorporation or organization)

                              VIDESH SANCHAR BHAVAN
                               MAHATMA GANDHI ROAD
                                 MUMBAI 400 001
                                      INDIA
                                +91-22 5657 8765
                    (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
Equity Shares, par value Rs.10 per share**       New York Stock Exchange

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

                                      NONE

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

                                      NONE

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the last fiscal year covered by this
Annual Report.

285,000,000 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.

Yes [X]  No [ ]

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

Item 17 [ ]  Item 18 [X]

* American Depositary Shares evidenced by American Depositary Receipts. Each
American Depositary Share represents two Equity Shares.

** Not for trading, but only in connection with the listing of American
Depositary Shares pursuant to the requirements of the New York Stock Exchange.

<PAGE>

                               TABLE OF CONTENTS
<TABLE>
<S>                                                                                                     <C>
Certain Defined Terms...............................................................................      2
Currency of Presentation............................................................................      2
Exchange Rates......................................................................................      2
Cautionary Statement with Respect to Forward-Looking Statements.....................................      3
PART I                                                                                                    3
   Item 1.   Identity of Directors, Senior Management and Advisers...................................     3
   Item 2.   Offer Statistics and Expected Timetable.................................................     3
   Item 3.   Key Information.........................................................................     3
   Item 4.   Information on the Company..............................................................    21
   Item 5.   Operating and Financial Review and Prospects............................................    51
   Item 6.   Directors, Senior Management and Employees..............................................    74
   Item 7.   Major Shareholders and Related Party Transactions.......................................    84
   Item 8.   Financial Information...................................................................    85
   Item 9.   The Offer and Listing...................................................................    85
   Item 10.  Additional Information.................................................................     89
   Item 11.  Quantitative and Qualitative Disclosures about Market Risks............................    108
   Item 12.  Description of Securities Other Than Equity Securities.................................    109
PART II                                                                                                 109
   Item 13.  Defaults, Dividend Arrearages and Delinquencies........................................    109
   Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds...........    109
   Item 15.  Disclosure Controls and Procedures.....................................................    109
   Item 16.  Reserved...............................................................................    109
PART III
   Item 17.  Financial Statements...................................................................    109
   Item 18.  Financial Statements...................................................................    109
   Item 19.  Exhibits...............................................................................    110
</TABLE>

<PAGE>

CERTAIN DEFINED TERMS

         Unless the context otherwise requires, references herein to "we," "us,"
"our," the "Company" and "VSNL" are to Videsh Sanchar Nigam Limited, a limited
liability company organized under the laws of the Republic of India. References
to "Equity Shares" or "Shares" are to the equity shares, par value Rupees 10 per
share of the Company. References to the American Depositary Shares or "ADSs" are
to American Depositary Shares, each representing two Shares. The ADSs are
evidenced by American Depositary Receipts ("ADRs"). References to the
"Department of Telecommunications" or "DoT" are to the Department of
Telecommunications/Telecom Commission/Department of Telecom Operations and to
the Department of Telecom Services of the Government of India, collectively. The
Government of India is sometimes referred to herein as the "Government."
Effective October 1, 2000, the operations of the Department of Telecom Services
and Department of Telecom Operations were transferred to Bharat Sanchar Nigam
Limited, sometimes referred to herein as "BSNL". References to "MTNL" are to
Mahanagar Telephone Nigam Limited. References to the "Shareholders' Agreement"
or the "SHA" are to the Shareholders' Agreement dated February 13, 2002, among
the Government of India, Panatone Finvest Limited, Tata Sons Limited, Tata Power
Company Limited, Tata Iron and Steel Company Limited, and Tata Industries
Limited. References to the "Share Purchase Agreement" or the "SPA" are to the
Share Purchase Agreement dated February 6, 2002 among the Government of India,
Panatone Finvest Limited, Tata Sons Limited, Tata Power Company Limited, Tata
Iron and Steel Company Limited, Tata Industries Limited, and the Company.
References to the "TRAI" are to the Telecom Regulatory Authority of India of the
Government of India. References to "NLD" are to national long distance
services/domestic long distance services. References to "ILD" are to
international long distance services/international telephony services.
References to "PSU" are to public sector undertakings of the Government of
India. References to "IUC" are to the Interconnect Usage Charge regime made
effective by the TRAI from May 1, 2003. References to the term "OECD" are to the
Organization for Economic Cooperation and Development.

CURRENCY OF PRESENTATION

         In this annual report, references to "$" or "Dollars" or "US Dollars"
are to the legal currency of the United States and references to "Rs" or
"Rupees" or "Indian Rupees" are to the legal currency of India. The Company's
financial statements included in this annual report are presented in Indian
Rupees and are prepared in accordance with United States generally accepted
accounting principles ("US GAAP"). For the convenience of the reader, this
annual report contains translations of certain Indian Rupee amounts into US
Dollars, which should not be construed as a representation that such Indian
Rupee or US Dollar amounts referred to herein could have been, or could be,
converted to US Dollars or Indian Rupees, as the case may be, at any particular
rate, the rates stated, or at all. References to "Indian GAAP" are to Indian
generally accepted accounting principles. References to a particular "fiscal"
year are to the Company's fiscal year ended March 31 of such year. References to
years not specified as being fiscal years are to calendar years.

EXCHANGE RATES

         The noon buying rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New
York (the "Noon Buying Rate") was Rs.47.53 per $1.00 on March 31, 2003 for the
conversion of Rupees into US Dollars.

         Unless otherwise specified herein, financial information has been
converted into US Dollars at such Noon Buying Rate. Any discrepancies in any
table between totals and sums of the amounts listed are due to rounding. For
more information regarding rates of exchange between Indian Rupees and US
Dollars, see "Item 3. Key Information--Selected Financial Data--Exchange Rates."

                                       2
<PAGE>

CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS

         IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. THESE FORWARD LOOKING STATEMENTS ARE IDENTIFIED BY THEIR USE OF
TERMS AND PHRASES SUCH AS "ANTICIPATE", "BELIEVE", "COULD", "ESTIMATE",
"EXPECT", "INTEND", "MAY", "PLAN", "OBJECTIVES", "OUTLOOK", "PROBABLY",
"PROJECT", "WILL", "SEEK", "TARGET" AND SIMILAR TERMS AND PHRASES. THE
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
REFLECTED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTION
ENTITLED "ITEM 3. KEY INFORMATION-RISK FACTORS," "ITEM 5. OPERATING AND
FINANCIAL REVIEW AND PROSPECTS" AND ELSEWHERE IN THIS ANNUAL REPORT. READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH
REFLECT MANAGEMENT'S ANALYSIS ONLY AS OF THE DATE OF THIS ANNUAL REPORT. IN
ADDITION, READERS SHOULD CAREFULLY REVIEW THE OTHER INFORMATION IN THIS ANNUAL
REPORT AND IN THE COMPANY'S PERIODIC REPORTS AND OTHER DOCUMENTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ("SEC") FROM TIME TO TIME.

                                     PART I

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 DATA

         The following table sets forth our selected financial data. The
financial data have been derived from our financial statements prepared in
accordance with US GAAP. Our selected income statement data for the fiscal years
ended March 31, 2001, 2002 and 2003 and the selected balance sheet data as of
March 31, 2002 and 2003 are derived from our audited financial statements
included in this annual report, together with the report of Deloitte Haskins &
Sells, independent auditors. Our selected income statement data for the fiscal
years ended March 31, 1999 and 2000 and our selected balance sheet data as of
March 31, 2000 and 2001 are derived from our audited US GAAP financial
statements not included in this annual report. Our selected financial data and
our financial statements are presented in Indian rupees. Financial data as of
and for the year ended March 31, 2003 have been translated into US dollars for
your convenience.

         The balance sheet for the Company as of March 31, 1999 was prepared
under International Accounting Standards. It is not practicable, without
unreasonable effort or expense, to convert the data for that year from
International Accounting Standards to US GAAP.

                                       3
<PAGE>

<TABLE>
<CAPTION>
                                                                  Years ended March 31,
                                        ------------------------------------------------------------------------
                                          1999         2000        2001        2002         2003         2003
                                        --------     --------    ---------   --------     --------      --------
                                                           (millions of Rs.) (1)                    (millions of
                                                                                                     US$) (1)
<S>                                     <C>          <C>         <C>         <C>          <C>       <C>
Income Statement Data(6)
Total operating revenue                   67,938       70,377       73,076     65,050       45,341           954
Total cost of revenue                     49,296       50,333       50,172     44,970       30,081           633
                                        --------     --------    ---------   --------     --------
Gross margin                              18,642       20,044       22,904     20,080       15,260           321
Total other operating costs                2,894        4,156        4,752      6,701        6,076           128
                                        --------     --------    ---------   --------     --------
Operating profit                          15,748       15,888       18,152     13,379        9,184           193
Total other income (expense), net           (746)       3,443        7,021      5,751        2,650            56
                                        --------     --------    ---------   --------     --------
Income before income tax                  15,002       19,331       25,173     19,130       11,834           249
Income tax expense                        (6,298)      (6,156)      (9,646)    (5,959)      (4,390)          (92)
Dividend tax                                 (38)         (84)        (105)    (3,634)
                                        --------     --------    ---------   --------
Net income                                 8,666       13,091       15,422      9,537        7,444           157
                                        ========     ========    =========   ========     ========
Earnings per equity share - basic
and diluted(2)&(5)                      Rs.30.41     Rs.45.93    Rs. 54.11   Rs.33.46     Rs.26.12      US$ 0.55
Weighted average number of Equity
Shares outstanding(3)                        285          285          285        285          285           285
Earnings per ADS-  basic and diluted
(where each ADS represents two
equity shares)                          Rs.60.82     Rs.91.86    Rs.108.22   Rs.66.92     Rs.52.24      US$ 1.10
Dividends per share                     Rs. 1.33     Rs. 2.67    Rs.  2.67   Rs.  125     Rs.12.50      US$ 0.26

Other Financial Data(6)
Net cash provided by operating
activities                                 6,679        7,947       23,075      9,485        9,861           207
Net cash provided/(used) by
investing activities(4)                   (6,601)      (3,898)     (41,416)     26,068     (11,697)         (246)
Dividends                                   (380)        (760)        (760)   (35,625)      (3,563)          (75)
Net cash provided/(used) by
financing activities                      (1,916)        (740)        (760)   (29,874)      (5,774)         (121)
</TABLE>

<TABLE>
<CAPTION>
                                                                          As at March 31,
                                                     -----------------------------------------------------------
                                                       2000         2001       2002         2003          2003
                                                     --------    ---------   --------     --------      --------
<S>                                                  <C>         <C>         <C>          <C>           <C>
Balance Sheet Data(6)

Total assets                                           83,211    100,425       74,846       73,297         1,542

Short term borrowings                                       -          -        5,751        3,540            74
Trade payables                                         13,535     11,309        5,728        2,422            51
Accrued expenses and other liabilities                  6,365     10,731       10,325       10,590           223
Total liabilities                                      19,900     22,040       21,804       16,552           348

Total shareholders' equity                             63,311     78,385       53,042       56,745         1,194
Total liabilities and shareholders' equity             83,211    100,425       74,846       73,297         1,542
</TABLE>

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

Note

(1)      Except per share data.

(2)      Calculated on a weighted average basis giving retroactive effect to
         stock dividends issued during November 2000.

(3)      In millions.

                                       4
<PAGE>

(4)      Comprise purchases of property, plant and equipment, investments,
         including net investments in various satellite consortia and short-term
         investments in deposits.

(5)      On September 26, 2000, the shareholders of the Company approved a stock
         dividend of Equity Shares in the ratio of two Equity Shares for every
         one Equity Share held, which was distributed on November 24, 2000 to
         shareholders on record as on November 16, 2000. The Company has
         capitalized the legally required face value of the Equity Shares
         issued.

(6)      The above data should be read along with the Notes included with the
         financial statements.

         DIVIDENDS

         Although the amount varies, it is customary for public companies in
India to pay cash dividends. Under Indian law, a corporation pays dividends upon
a recommendation by the Board of Directors and approval by a majority of the
shareholders attending the annual general meeting of shareholders, who have the
right to decrease but not increase the amount of the dividend recommended by the
Board of Directors. In addition, the Board of Directors is empowered to approve
interim dividends. Under the Indian Companies Act, dividends may be paid out of
profits of a company in the year in which the dividend is declared or out of the
undistributed profits of previous fiscal years. Owners of ADRs are entitled to
receive dividends payable in respect of the Equity Shares represented by their
ADSs. The Equity Shares represented by ADSs rank pari passu with existing Equity
Shares of the Company in respect of dividends. Cash dividends in respect of the
Equity Shares represented by the ADSs will be paid to the Company's depositary
for the ADSs, The Bank of New York (the "Depositary") in Rupees and except as
otherwise described in the Deposit Agreement will be converted by the Depositary
into US Dollars and distributed, net of Depositary fees and expenses, to the
holders of such ADRs.

         With respect to Equity Shares issued by the Company during a particular
fiscal year, dividends declared and paid for such fiscal year generally would be
prorated from the date of issuance to the end of such fiscal year. Holders of
ADRs would only receive dividends prorated from the date of issuance of the
underlying Equity Shares to the end of the fiscal year for which such dividends
are declared and paid.

         The following table sets forth the annual dividends paid per Equity
Share for each of the fiscal years indicated.

<TABLE>
<CAPTION>
                                                                    DIVIDEND PER SHARE
  FOR THE FISCAL                  ACTUAL DIVIDEND                   BASED ON INCREASE
YEAR ENDED MARCH 31,             PAID PER SHARE(1)                 IN SHARE CAPITAL(3)
--------------------      ----------------------------        ---------------------------
                           INDIAN RUPEES        US$(2)        INDIAN RUPEES        US$(2)
                           -------------        ------        -------------        ------
<S>                        <C>                  <C>           <C>                  <C>
2003(5)                        8.50              0.18              8.50             0.18
2002(5)                       12.50              0.26             12.50             0.26
2002(4)                       75.00              1.55             75.00             1.55
2001(5)                       50.00              1.04             50.00             1.04
2000(5)                        2.00              0.04              0.67             0.01
2000(4)                        6.00              0.14              2.00             0.04
1999(5)                        8.00              0.18              2.67             0.06
</TABLE>

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

(1)      Based on the recommendation of the Board of Directors at a Shareholders
         meeting held on September 2,2003, the Company's shareholders approved a
         final dividend of Rs.8.50 per share for fiscal year 2003.

(2)      The conversion of the dividends paid per Share from Indian Rupees to US
         Dollars is based on the Noon Buying Rate at each respective dividend
         payment date. For fiscal year 2003, the figure in the chart is based on
         the Noon Buying Rate for March 31, 2003. However, the actual dividends
         paid per share will be based on the Noon Buying Rate as on the date of
         payment of the dividends.

(3)      On September 26, 2000, the shareholders of the Company approved the
         distribution of bonus shares to shareholders. Consequently, each
         shareholder received two shares for every share held by such
         shareholder. Accordingly, the dividend per share information presented
         here has been computed retroactively to reflect the distribution of
         bonus shares and the consequent increase in the share capital of the
         Company.

                                       5
<PAGE>

(4)      Interim Dividend.

(5)      Final Dividend.

         Although the Company has no current intention to discontinue dividend
payments, there can be no assurance that any future dividends will be declared
or paid or that the amount thereof will not be decreased.

EXCHANGE RATES

         Fluctuations in the exchange rate between the Indian Rupee and the US
Dollar will affect the US Dollar equivalent of the Indian Rupee price of the
Company's Equity Shares on the Indian stock exchanges and, as a result, will
likely affect the market price of the Company's ADSs, listed on the New York
Stock Exchange, and vice versa. Such fluctuations will also affect the US Dollar
conversion by the Depositary of any cash dividends paid in Indian Rupees on the
Company's Equity Shares represented by the ADSs.

         The following table sets forth, for the fiscal years indicated,
information concerning the number of Indian Rupees for which one US Dollar could
be exchanged based on the average of the Noon Buying Rate in the City of New
York on the last business day of each month during the period for cable
transfers in Indian Rupees as certified for customs purchases by the Federal
Reserve Bank of New York. The column titled "Average" in the table below is the
average of the daily Noon Buying Rate on the last business day of each month
during the year.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,     PERIOD END     AVERAGE      HIGH          LOW
---------------------------     ----------     -------      ----          ---
<S>                             <C>            <C>          <C>          <C>
           2003                    47.53        48.36       49.07        47.53
           2002                    48.83        47.81       48.83        46.88
           2001                    46.85        45.88       46.90        43.70
           2000                    43.65        43.46       43.65        42.84
           1999                    42.50        42.27       42.83        39.75
</TABLE>

         The following table sets forth the high and low exchange rates for the
previous six months and are based on the average of the noon buying rate in the
City of New York on the last business day of each month during the period for
cable transfers in Indian Rupees as certified for customs purposes by the
Federal Reserve Bank of New York.

<TABLE>
<CAPTION>
MONTH                                     HIGH (RS.)    LOW (RS.)
-----                                     ----------    ---------
<S>                                       <C>           <C>
March 2003                                  47.85         47.53
April 2003                                  47.46         47.34
May 2003                                    47.35         46.85
June 2003                                   47.15         46.40
July 2003                                   46.49         46.06
August 2003                                 46.18         45.80
September 2003 (through September 23)       45.98         45.72
</TABLE>

         CAPITALIZATION AND INDEBTEDNESS

         During the fiscal year 2002-03, an amount of Rs.3,540 million (US $74
million) was borrowed by the Company from banks to meet short-term working
capital needs, and was subsequently repaid in April 2003. During the fiscal year
2001-02, an amount of Rs.5,751 million was borrowed to meet short-term working
capital needs, and was subsequently repaid in May 2002.

                                       6
<PAGE>

         REASONS FOR THE OFFER AND USE OF PROCEEDS

         Not applicable.

         RISK FACTORS

         In addition to the other information contained in this annual report,
prospective investors should carefully consider the risks described below.
Additional risks not currently known to the Company or that the Company now
deems immaterial may also impair the Company's business operations. This annual
report also contains forward-looking information that involves risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks the Company faces as described below and elsewhere in this
annual report.

         THE IMPLEMENTATION OF THE NEW TELECOMMUNICATIONS POLICY AND OTHER
REGULATORY CHANGES WITH RESPECT TO THE TELECOMMUNICATIONS INDUSTRY, INCLUDING
THE EARLY TERMINATION OF THE COMPANY'S MONOPOLY IN INTERNATIONAL TELEPHONY
SERVICES, MAY CONTINUE TO ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.

         The New Telecommunications Policy 1999 (the "Policy") came into effect
on April 1, 1999.

         The Policy sets forth a new policy framework for telecommunications
regulations in India. One of the stated goals of the Policy is to foster greater
competition in the telecommunications industry and it addresses a broad range of
matters, including cellular mobile services, fixed line service, domestic long
distance, global mobile personal communications, the Department of
Telecommunications restructuring, spectrum management, the role of the Telecom
Regulatory Authority of India (the "TRAI") and Internet telephony. The Policy
stated, among other things, that the opening up of international telephony
service to competition would be reviewed by the year 2004. The Department of
Telecommunications retained the right to modify the terms and conditions of the
Company's licenses 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. In September 2000, the Government announced the early
termination of the Company's monopoly in international telephony services.
Instead of ending on March 31, 2004, the Company's monopoly ended on March 31,
2002. To offset the likely loss to the Company due to the early termination of
its monopoly, the Government announced the following compensation package, which
was approved by the Company's shareholders in an Extraordinary General Meeting
on May 2, 2001:

         (1)      Grant of a license to offer domestic long distance services
                  with the following terms:

                  (a)      the Government would pay to the Company a sum equal
                           to the amount paid by the Company as entry fee and
                           license fee for a period of 5 years commencing from
                           April, 2001, net of taxes, and

                  (b)      a performance bank guarantee of Rs.4 billion for the
                           prescribed roll out would be waived;

         (2)      the Company would be granted a Category `A' All India Internet
                  Service Provider ("ISP") license which would enable it to
                  provide Internet access at locations across the country; and

         (3)      The Government would also consider additional compensation if
                  found to be necessary based on a detailed review when
                  undertaken.

         Prior to the Extraordinary General Meeting, the Company had represented
to the Government that the compensation package should be arrived at through an
objective process. The Company had appointed external consultants for this
purpose and had submitted their reports to the Government for due consideration.

                                       7
<PAGE>

         On January 18, 2002, the Government directed BSNL and MTNL to route
their ILD calls at market rates through the Company as a "Most Favored Customer"
for a period of 2 years after the transfer of management control to Panatone
Finvest Limited. On January 28, 2002, the Government announced that this routing
arrangement was to be in satisfaction of any and all claims that the Company may
have had regarding the advancement of ILD de-monopolization by two years.

         In February 2002, the Company was granted a license to provide domestic
long distance telephone services and the Government refunded the Company the
amount paid towards the entry fee during the fiscal year 2001-02 amounting to
Rs.1000 million (US$ 20.48 million), net of taxes. In June 2002, the Government
asked the Company to provide the performance bank guarantee, since in the
Government's view the exemption that was contained in the compensation package
that was approved in the May 2, 2001 Extraordinary General Meeting applied only
as long as the Company remained a Public Sector Undertaking ("PSU").
Accordingly, the Company provided the required bank guarantees for Rs.4000
million (US$ 84.16 million) under protest. In May 2002, the Company was granted
a license to operate Internet telephony Services, along with a Category "A" All
India ISP license to provide Internet access at locations across the country.

         The Company has represented to the Government that the compensation
package is inadequate and, as provided for in the compensation package, has
requested the Government to consider additional compensation for the early
termination of the Company's monopoly in international telephony services. The
Company is in ongoing discussions with the Government regarding the appropriate
level of compensation. However, there can be no assurance that the Company will
receive such compensation, or if the Company does receive compensation, as to
the amount, nature or timing of such compensation.

         The Government has asked international long distance operators in
India, including the Company, to execute a standard license agreement, which
stipulates terms and conditions of the license to operate international long
distance services. The Company had requested the Government to agree to certain
modifications to the standard license agreement incorporating certain services
which the Company is already providing. However, the Government has notified the
Company that it will not permit modifications to the standard license agreement.
The Company is evaluating whether to re-submit its proposal to the Government.
The Company's current license to provide international long distance services is
valid until March 31, 2004.

         Since April 1, 2002 when international telephony was opened up to
competition, operating licenses have been issued by the Government to at least
four operators, including BSNL, Reliance Infocomm, Data Access and Bharti
Tele-ventures Limited. BSNL has not yet started ILD operations. The steep rate
cuts provided by the other operators have already affected the Company's traffic
minutes, revenues and market share adversely. See "Item 5. Operating and
Financial Review and Prospects". The telecom industry is also likely to
experience rapid changes including acquisitions and mergers, which could result
in the consolidation within the industry giving rise to large competitors with
significant resources. There can be no assurance that we will be able to compete
successfully against our competition and retain our market share.

         The Government legalized the provision of Internet telephony in India
with effect from April 1, 2002, for which detailed guidelines were released by
the Government on March 21, 2002. Only licensed ISPs are permitted to provide
Internet telephony as per these guidelines. The opening up of this sector might
adversely affect the telephony revenues of the Company.

         ANY ADVERSE CHANGES TO THE COMPANY'S "MOST FAVORED CUSTOMER" ROUTING
ARRANGEMENT WITH BSNL AND MTNL, ANY ADVERSE RENEGOTIATION OF THE COMPANY'S
INTERCONNECT ARRANGEMENTS WITH BSNL OR MTNL OR THE COMMENCEMENT OF
INTERNATIONAL LONG DISTANCE SERVICE OPERATIONS BY BSNL OR MTNL, COULD PLACE THE
COMPANY AT A COMPETITIVE DISADVANTAGE AND COULD ADVERSELY AFFECT THE AMOUNT OF
CALL TRAFFIC WE CARRY AND OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

         As part of the compensation package relating to the termination of
VSNL's international long distance services monopoly, the Government directed
BSNL and MTNL to route their international calls at

                                       8
<PAGE>

market rates through the Company as a "Most Favored Customer" for a period of
two years after the transfer of management control to Panatone Finvest Limited,
which occurred on February 13, 2002. This directive of the Government does not
create a contractual relationship between the Company and BSNL or MTNL, and
therefore the Company would not have a contractual claim directly against them
should they cease to route calls through the Company or attempt to renegotiate
for rates that are less favorable to the Company. If BSNL and/or MTNL cease to
route their international traffic through the Company or seek to renegotiate for
rates that are less favorable to the Company, the amount of call traffic carried
by the Company and its revenues could be adversely affected.

         The Company derived a significant percentage of its revenues in fiscal
2003 and prior years from BSNL and MTNL pursuant to revenue sharing arrangements
between the Company and these access providers. Gross revenues from BSNL and
MTNL in fiscal 2003 fell to Rs. 8.7 billion compared to Rs. 16 billion and Rs.
18 billion during fiscal 2002 and 2001, respectively. In November 2002, after
protracted negotiations, the Company concluded interconnect agreements with MTNL
and BSNL that became effective on April 1, 2002. These agreements were effective
until April 30, 2003. New agreements based on the Government's new tariff
structure and the Interconnect Usage Charge ("IUC") regime have since been
concluded with BSNL and MTNL, and became effective on May 1, 2003. Any adverse
renegotiation of these agreements, including as a result of potential revisions
by the TRAI to the IUC, could have an adverse impact on the Company's results of
operation and financial condition. See "Item 4. Information on the
Company--Traffic and Revenue Sharing Arrangements."

         Furthermore, BSNL has been granted an operating license for
international telephony services by the Government and it is possible that MTNL
may also be granted an ILD operating license. BSNL and/or MTNL are likely to
start offering international telephony services in the near future. If BSNL
and/or MTNL start offering international telephony services at competitive
rates, as the largest basic line operators in India, their access to end
customers could give them a competitive advantage over the Company, which could
adversely affect the Company's international telephony revenues. Moreover,
BSNL's emergence as a strong cellular operator will enable it, in the absence of
regulation, to cross-subsidize its other telephony activities, including any ILD
telephony services. This could enable BSNL to significantly erode the Company's
market share in ILD services.

         THE GOVERNMENT'S NEW TARIFF REGIME AND COMPETITION COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

         The TRAI has authority, among other things, to set the limits on
tariffs charged by telecommunications service providers in India, including the
Company. Effective May 1999, the TRAI implemented the Telecommunications Tariff
Order 1999, which was intended to take account of a shift to a more competitive
environment through cost-based, transparent tariffs. The Tariff Order envisaged
reductions of up to 50 percent in peak international call tariffs, phased over
time. In response to these changes, the Department of Telecommunications has
been periodically reducing peak international long distance tariffs from Rs. 60
per minute in 1999-2000 to Rs. 48 per minute in 2000-01 and 2001-02 to Rs. 40.80
per minute in 2002-03. In addition, the Tariff Order sets maximum tariffs for
other services provided by the Company, including Internet services and leased
lines. On January 24, 2003, the TRAI issued a further amendment to the Tariff
Order. The amendment states that for the time being TRAI has decided not to fix
the charges for specific telecommunications services and that such charges may
be decided upon by service providers. This could result in significant further
lowering of tariffs, which could affect the Company's revenues adversely.

         In May 2003, the TRAI implemented the new IUC regulation, which
prescribes the manner in which the revenue collected from the end customer or
from another carrier is shared among the originating carrier, the terminating
carrier and with other national and international long distance service
providers. Under the new IUC, the retentions of the Company are likely to be
adversely affected. The extent to which such retentions may be affected depends
on factors such as the distance the call is carried and the nature of the
terminating operator (i.e. fixed or mobile), which are difficult to predict in
advance. The TRAI has since commenced an exercise for review of the IUC which is
not yet complete. Changes in the IUC could have a material adverse effect on the
Company's results of operations and financial condition.

                                       9
<PAGE>

         DELAYS IN THE IMPLEMENTATION OF THE NEW CARRIER ACCESS CODE REGIME
COULD ADVERSELY AFFECT US.

         The Government's new Carrier Access Code ("CAC") regime offers end
customers the right to choose their national long distance or international long
distance carrier, based on rates and quality, rather than such choice being made
by the access provider. Implementation of the CAC regime has been delayed due to
technical and other issues. BSNL and MTNL currently control access to most of
the Company's end customers and, because of the Company's "Most Favored
Customer" arrangement with BSNL and MTNL, use the Company as their preferred ILD
carrier. However, the Company's "Most Favored Customer" status expires in
February 2004, and the Company believes that the CAC is necessary to be able to
approach end customers directly and market its services to them. There can be no
assurances, however, that the CAC will be implemented in the near future or that
even if the CAC is implemented, end customers will choose the Company as their
preferred ILD carrier.

         DELAYS IN REACHING AGREEMENT WITH MAJOR INTERNATIONAL CARRIERS
REGARDING RATES COULD CAUSE A SIGNIFICANT INCREASE IN OUR WORKING CAPITAL NEEDS
WHICH IN TURN COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.

         A substantial portion of the Company's revenue consists of amounts
received from foreign telecommunications administrations and carriers for
connection to the Indian telecommunications network. As with most developing
countries, the volume of incoming calls to India exceeds the volume of outgoing
calls from India by a significant margin, resulting in larger net settlement
payments being made to the Company from most foreign administrations and
carriers. The amounts due to the Company are subject to periodic renegotiation.

         In recent years, international organizations such as the International
Telecommunications Union and the Organization for Economic Cooperation and
Development have expressed the need for revision of the international accounting
rate system. Certain foreign telecommunications administrations and carriers
have sought to reduce the accounting rates through bilateral negotiations with
the Company. In August 1997, the United States Federal Communications Commission
(the "FCC") issued an order (the "Order") establishing FCC Benchmarks that US
carriers must comply with in establishing settlement rates for international
calls with non-US telecommunications administrations and carriers. The Order
requires, effective as of January 1, 1998, the accounting rate between US
carriers and the Company to be reduced substantially over a four year transition
period. See "Item 4. Information on the Company--Traffic Revenue and Revenue
Sharing Arrangement--Payments to and from Foreign Administrations or Carriers."
The authority of the FCC to issue the Order and the Order itself have been
upheld by a United States federal court of appeals. In upholding the Order, the
United States federal court of appeals held that the Order was a valid exercise
of the FCC's regulatory authority under the United States Communications Act and
rejected the argument that the FCC's unilateral establishment of benchmark
settlement rates constituted an unlawful assertion of extraterritorial
jurisdiction over foreign carriers and foreign telecommunication services.
However, the United States federal court of appeals also stated that the Order
does not apply to foreign carriers, and only permits the FCC to contact
responsible foreign government authorities to seek their support in lowering
settlement rates. The FCC, acting pursuant to the Order, has forced US carriers
to agree to the benchmark rates, which are lower than the rates previously in
effect between the Company and some of its correspondent US carriers. Currently
the settlement rates are negotiated from time to time and the prevailing
settlement rates with respect to the US carriers are well below the benchmark
rates.

         Any further lowering of benchmark rates by the FCC and/or delays in
reaching final agreement with US carriers or other major carriers regarding
rates could cause a significant decrease in the Company's working capital needs
and ability to recognize revenues which in turn could have a material adverse
effect on the Company's financial condition and results of operations. There can
be no assurance that such delays will not occur in the future. Any such
reduction in the accounting settlement rates in effect between the Company and
US or other foreign administrations or carriers may reduce the amount of net
settlement payments received by the Company. The Company believes that such rate
reductions from international carriers will result in pressure on the revenues
retained by the Company in respect of incoming traffic. Similarly, any lowering
of rates payable by Indian access providers in respect of outgoing calls will
have a similar impact on the revenues retained by the Company.

                                       10
<PAGE>

         THE COMPANY CURRENTLY OPERATES ITS INTERNATIONAL LONG DISTANCE BUSINESS
UNDER A LICENSE AGREEMENT THAT WILL EXPIRE ON MARCH 31, 2004 AND HAS NOT
EXECUTED THE NEW STANDARD LICENSE AGREEMENT REQUIRED BY THE GOVERNMENT AND THUS
MAY BE SUBJECT TO PUNITIVE ACTION BY THE DEPARTMENT OF TELECOMMUNICATIONS.

         Following the early termination of the Company's international
telephony services monopoly in March 2002, the Government asked the Company to
execute a standard license agreement stipulating the terms and conditions of the
Company's license to operate international long distance services. The Company
had requested the Government to agree to modifications to the standard license
agreement. The modifications proposed by the Company incorporated certain
additional services which the Company is already providing to customers and
proposed changes to the procedure for calculating license fees. However, the
Government has notified the Company that it will not permit modifications to
the standard license agreement. The Company is evaluating whether to re-submit
its proposal to the Government. In the meantime, the Company continues to offer
international long distance services under its existing license agreement that
will expire on March 31, 2004 rather than the standard license agreement. There
can be no assurance that the Government or the Department of Telecommunications
will not seek to take punitive action against the Company for offering
international long distance services without having executed the standard
license agreement.

         MANY TELECOMMUNICATIONS CARRIERS THAT THE COMPANY DOES BUSINESS WITH
HAVE SUFFERED DECREASING MARGINS AND FINANCIAL DISTRESS, WHICH MAY NEGATIVELY
IMPACT THE COMPANY'S BUSINESS.

         As an international telecommunications service provider, the Company
does significant business with foreign carriers all over the world. Several
telecommunications carriers, especially those located in the United States and
Europe, have recently suffered reduced profit margins as well as significant
financial pressures. Some companies, including some of those with whom the
Company does business, have filed for protection from creditors under applicable
bankruptcy and insolvency laws, including the US Bankruptcy Code. The Company
has a significant amount of exposure to carriers in the United States, with
around 24 percent of its revenues generated through US based carriers.

         On July 21, 2002, WorldCom (now renamed MCI) announced that it and
substantially all of its US subsidiaries had filed voluntary petitions for
relief under Chapter 11 of the US Bankruptcy Code. MCI and its subsidiaries are
currently in reorganization but continue to operate their businesses and manage
their properties as debtors in possession pursuant to the Bankruptcy Code. MCI
is one of the Company's major carrier partners and for the year ended March 31,
2003, gross revenues from MCI represented 12.5 % of the Company's total
operating revenues. As at March 31, 2003, balances due from MCI amounted to Rs.
712.40 million (US$ 14.99 million). Of this amount, the Company has recovered
Rs. 500.80 million (US$ 10.50 million) during the period commencing from April
1, 2003 through August 22, 2003. Startec is another US carrier that has filed
for bankruptcy protection. The Company has recovered payments due to it from
Startec in an amount of US$ 1.5 million by invoking a bank guarantee, although
this has been challenged by Startec in the bankruptcy proceedings.

         While the Company remains optimistic that MCI and other carriers that
are in financial distress will continue to operate and be able to pay amounts
due to the Company, there can be no assurance that all the Company's receivables
can be collected or that the Company will not be adversely affected by the
financial difficulties of MCI or such other carriers.

         WE ARE SUBJECT TO EXTENSIVE REGULATION AND SUPERVISION BY THE
GOVERNMENT, WHICH COULD ADVERSELY AFFECT THE OPERATION OF OUR BUSINESS OR
PREVENT US FROM ENTERING INTO TRANSACTIONS THAT ARE IN THE BEST INTERESTS OF OUR
SHAREHOLDERS.

         The Company and its business are subject to extensive regulation and
supervision by the Government of India and its departments, including the DoT
and the TRAI. As noted above, the TRAI sets limits for the tariffs for
telecommunication services. The Company's licenses provide that disputes
relating to the terms of the Company's licenses are required to be submitted for
compulsory and binding arbitration before the Government's Director General of
Telecommunications. Under the terms of the new standard

                                       11
<PAGE>

license agreement proposed by the Government and under the provisions of TRAI
Act 1997, any dispute between the Company and the Government is required to be
adjudicated by the Telecom Disputes Settlement and Appellate Tribunal (the
"TDSAT"). The TDSAT was set up by an amendment in January 2000 to the TRAI Act
1997 and vested with the jurisdiction to adjudicate telecom disputes and to
entertain appeals from any order of the TRAI.

         The TRAI has primary responsibility for, among other things,
facilitating competition and promoting efficiency, protecting the interests of
consumers, regulating revenue sharing among service providers and ensuring
compliance with license conditions and to set the rates at which domestic and
international telecommunication services are provided in India. The TRAI also
has the power to (1) call upon service providers to furnish information relating
to their operations, (2) appoint persons to make official inquiries, (3) inspect
the books of service providers and (4) issue directives to service providers to
ensure their proper functioning. Failure to follow the TRAI directives may lead
to the imposition of fines and/or other punitive actions.

         THE GOVERNMENT CONTROLS OUR LICENSES TO PROVIDE INTERNATIONAL TELEPHONY
SERVICES AND ANY MATERIAL MODIFICATIONS OF THE TERMS AND CONDITIONS OF THE
LICENSES COULD DISRUPT OUR BUSINESS AND HAVE A MATERIAL ADVERSE EFFECT ON OUR
PROSPECTS.

         The Company operates substantially all of the ILD services it provides,
including basic international telephony services to and from India, pursuant to
a license from the DOT that is valid until March 31, 2004. The Government has
proposed a new standard license agreement applicable to all ILD providers that
it has asked the Company to execute. In addition, the Company has also been
granted an NLD license and a Category "A" All India ISP license, including
Internet telephony, subject to the restrictions contained in the license. The
DoT retains the right to modify the terms and conditions of the Company's
licenses 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
telecommunication sector. A change in certain significant terms of any of the
licenses, such as their duration, the range of services permitted or the scope
of exclusivity, if any, or non-issue of a fresh license beyond March 31, 2004,
could have a material adverse effect on the Company's business and prospects.
See "Item 4. Information on the Company - Government Regulations."

         WE DO NOT CONTROL THE DOMESTIC TELEPHONE NETWORK ON WHICH ALL CALLS
CARRIED BY US EITHER ORIGINATE OR TERMINATE NOR DO WE CONTROL THE RATES CHARGED
TO END USERS OF SUCH SERVICES. CONSEQUENTLY, WE CANNOT ENSURE THE QUALITY OF, OR
RATES FOR, THE DOMESTIC TELEPHONE NETWORK USED BY OUR CUSTOMERS.

         The Company's principal business is in providing international
telephone services to and from India. All calls carried by the Company either
originate or terminate on India's domestic telephone network, which the Company
does not own or control. Demand for the Company's international services will
depend, to a very significant degree, on the development and maintenance of
India's domestic telephone network. Demand for the Company's services also will
depend on the rates charged to end users of such services, which rates are not
controlled by the Company. Moreover, other competitors such as BSNL and MTNL
which, unlike the Company, have direct customer access, could erode the
Company's share of telephony traffic. See "Item 4. Information on the Company -
Industry Overview" and "- Government Regulation."

         THE COMPANY IS CONTROLLED BY THE TATA GROUP AND THE GOVERNMENT.

         Panatone Finvest Limited, a wholly owned subsidiary of companies
affiliated with the Tata Group, owned approximately 46.60 percent, and the
Government of India owned approximately 26.12 percent, of our total outstanding
equity. Panatone Finvest Limited acquired a 25 percent stake from the Government
in February 2002 as a result of the Government's decision to privatize the
Company. Panatone Finvest Limited subsequently acquired an additional 20 percent
of the Company's Shares through an open offer to other shareholders and during
the past twelve months certain other Tata Group entities have made open market
purchases of 1.60 percent of the Company's shares.

                                       12
<PAGE>

         Panatone Finvest Limited and the Government are also parties to a
Shareholders' Agreement dated February 13, 2002 (the "Shareholders' Agreement")
pursuant to which they have agreed on certain matters with respect to the
governance and operation of the Company, including the composition and election
of the board of directors. As of September 1, 2003, the board of directors
consisted of 12 members, six of whom were nominated by Panatone Finvest Limited
and two of whom were nominated by the Government. There were four directors
appointed as independent directors on the board as per the provisions of the
Shareholders' Agreement. As a result of their equity holdings and the
Shareholders' Agreement, Panatone Finvest Limited and the Government control the
Company, and have the power to elect all the directors and control all matters
submitted to shareholders. The interests of Panatone Finvest Limited and the
Government could differ from the interests of other shareholders of the Company.

         THE COMPANY MAY FACE POTENTIAL CONFLICTS OF INTEREST RELATING TO ITS
PRINCIPAL SHAREHOLDER, THE TATA GROUP.

         The Tata Group companies which own Panatone Finvest Limited exert
significant control over the Company. The Tata Group has diverse business
activities and interests, and some of its affiliates could engage in activities,
or seek opportunities, that are or could be in competition with the activities
or interests of the Company. The Tata Group has interests in other companies in
the telecommunications sector. While the Tata Group companies and Panatone
Finvest Limited have agreed in a Shareholders' Agreement to act in the best
interests of the Company in the event that they become engaged in activities in
competition with the Company, any conflicts of interest between these Tata Group
companies and/or Panatone Finvest Limited and the Company could adversely affect
the Company's business.

         A disagreement between the Tata Group and the Government concerning
activities of the Company could result in a deadlock, which could adversely
affect the Company's business.

         Panatone Finvest Limited and the Government are parties to the
Shareholders' Agreement, pursuant to which, among other things, they have agreed
on the composition of the Company's board of directors, which comprise a certain
number of persons nominated by each of them as well as a certain number of
independent directors. Panatone Finvest Limited and the Government have also
agreed that the Company shall not undertake certain corporate actions unless at
least one director nominated by each of them (in the case of a Board meeting) or
at least one authorized representative nominated by each of them (in the case of
a shareholder meeting) consents to such action. These actions include any change
in the Memorandum of Association and Articles of Association, the granting of
any security or incurring of indebtedness in excess of the net worth of the
Company, winding-up the Company, the making of loans in excess of Rs.500 million
other than in the ordinary course of business, the sale or lease of any fixed
assets acquired prior to privatization - and the entering into of an
amalgamation, merger, or consolidation. Panatone Finvest Limited and the
Government have also agreed not to transfer their Shares in the Company without
giving the other certain rights of first refusal and tag along rights.

         In the event that Panatone Finvest Limited and the Government fail to
agree on any such matter, their disagreement could result in the Company not
taking action or not taking advantage of a potential opportunity, which could in
turn adversely affect the Company's business or the value of the Company's ADSs
or Equity Shares.

         See "Item 10. Additional Information -- Rights of the Government of
India under the Shareholders' Agreement to be exercised through its nominee
directors on the Board -- Approval of Matters."

         THE TRANSITION OF THE COMPANY CONSEQUENT TO PRIVATIZATION COULD RESULT
IN DIFFICULTIES.

         The Company's transition from a Government-owned entity to a company
that is primarily owned by private sector entities entails changes in management
and may also mean changes in operating procedures, strategy and culture. In
addition, the Company could be adversely affected by labor issues and compliance
issues arising from the privatization process and obligations assumed by
Panatone Finvest Limited. Under the terms of the Shareholders' Agreement between
Panatone Finvest Limited and the

                                       13
<PAGE>

Government, the parties have agreed, among other things, that Panatone Finvest
Limited will not cause the Company to retrench employees for two years or to
make certain other changes in employee benefit matters. The Company cannot
assure that it will not encounter difficulties in the transition to becoming a
private sector company.

         THE COMPANY HAS INITIATED A REVIEW OF THE USEFUL LIVES AND THE
CONSEQUENT CARRYING VALUES OF CERTAIN LONG-LIVED ASSETS WHICH COULD RESULT IN A
REDUCTION IN THE CARRYING VALUE OF SUCH ASSETS.

         The Company has initiated a review of the estimated useful lives and
the consequent carrying values of certain long-lived assets. As and when such
review is completed, it could result in a downward revision in the useful lives
and the consequent carrying values of the assets. The Company is presently
unable to quantify the effect, if any, that such review when completed would
have on its financial condition and results of operations. This could impact the
trading price of the Shares and the ADSs.

         THE DEMERGER OF SURPLUS LAND HELD BY THE COMPANY MAY NOT BE COMPLETED
ON SATISFACTORY TERMS.

         Under the terms of the Shareholders' Agreement signed at the time of
privatization of the Company, Panatone Finvest Limited agreed that the Company
would demerge certain lands that the Company owns in Pune, Kolkata, New Delhi
and Chennai into a separate company. No time period was specified in the
agreement for such demerger. The Company, Panatone Finvest Limited and the
Government are currently discussing various options in connection with the
demerger or sale of the land with a view to completing a transaction that is
beneficial from a tax and stamp duty perspective. Until such time as the
demerger takes place, the lands are under the possession and upkeep of the
Company.

         The Company cannot predict if and when the demerger will take place or
the expenditure that the Company might have to incur for the security, upkeep
and maintenance of the surplus land. The Company may have to bear significant
costs, including taxes and duties, relating to the demerger, and the Company
cannot predict what effect, if any, the demerger and the legal and valuation
process relating to the demerger will have on the Company's financial condition.
See "Item 4. Property, Plants and Equipment."

         THE COMPANY MAY BE REQUIRED TO PAY ROYALTIES, LEVIES AND OTHER FEES
WHICH AROSE IN PRIOR PERIODS.

         As a PSU, the Company has not had to pay the Government certain
royalties, levies and other fees which arose in prior periods. The Company has
made payments for certain other royalties and fees already. However, there can
be no assurance that the Company will not be required to make additional
payments in the future, particularly since the Company is no longer
majority-controlled by the Government and is no longer a PSU.

         THE INDIAN TAX AUTHORITIES CLAIM THAT WE OWE CERTAIN TAX PAYMENTS. WE
HAVE NOT MADE PROVISION IN OUR FINANCIAL STATEMENTS FOR SUCH CLAIMS AND IN THE
EVENT THAT THE TAX AUTHORITIES PREVAIL ON THEIR CLAIMS THERE COULD BE A
SIGNIFICANT NEGATIVE IMPACT ON OUR FINANCIALS AND OPERATIONS.

         The Indian tax authorities have taken the position that the Company is
not entitled to tax deductions that it took in the fiscal years ended March 31,
1994, 1995, 1996, 1997 and 1998 for license fees paid by it to the DOT. The
Indian tax authorities claim that the Company owes approximately Rs.2,551
million, Rs.2,236 million, Rs.2,693 million, Rs.2,977 million and Rs.2,086
million in respect of the taxes due (including interest but excluding penalties
and measured as of March 31, 2003) in connection with the license fees for the
fiscal years ended March 31, 1994, 1995, 1996, 1997 and 1998, respectively. The
Income Tax Commissioner of Appeals (Mumbai) has ruled that the Company is
entitled to take the license fee deduction for the fiscal years ended March 31,
1996, 1997 and 1998. The Income Tax Department has not appealed against this
decision, and the time limit for appeal has expired. The Income Tax Appellate
Tribunal has ruled that the Company may take the license fee deduction for the
fiscal year ended March 31, 1995. The Income Tax Department has appealed to the
High Court against this decision. If the Company

                                       14
<PAGE>

loses this appeal, there is a risk that the Income Tax Department may seek to
claim the 1996, 1997 and 1998 amounts as well. The Income Tax Department's order
disallowing the deduction for the fiscal year ended March 31, 1994 is still on
appeal before the Income Tax Commissioner of Appeals, Mumbai. If the Company is
finally unsuccessful in all of the foregoing disputes and is required to pay the
amounts claimed for each of the years in dispute, its aggregate liability for
fiscal years 1994 to 1998 will be approximately Rs.12,543 million (US$ 263.90
million), including interest but excluding penalties, measured as of March 31,
2003.

         The Indian tax authorities have also taken the position that the
Company is not entitled to a tax benefit claimed by it in the fiscal years ended
March 31, 1996, 1997, 1998, 1999 and 2000 with respect to certain of its profits
which the Company claims as having been generated by an enterprise engaged in
telecommunications and therefore entitled to a tax holiday under certain
regulations. The tax authorities have not accepted this claim of the Company and
have disallowed it in their assessments. They claim that the Company owes
approximately Rs.179 million, Rs.491 million, Rs.856 million, Rs.2,183 million
and Rs.2,831 million in connection with taxes due (including interest but
excluding penalties and measured as of March 31, 2003) on such profits for the
years ended March 31, 1996, 1997, 1998, 1999 and 2000, respectively. The Company
disputed these assessment orders and appealed to the Income Tax Commissioner of
Appeals (Mumbai). For the fiscal years ended March 31, 1996, 1997, 1998, the
Commissioner decided against the Company's claims. The Company has gone on
further appeal for these three years to the Income Tax Appellate Tribunal. The
dispute regarding the fiscal years ended March 31, 1999 and 2000 is still
pending before the Income Tax Commissioner of Appeals (Mumbai). If the Company
is finally unsuccessful in all of these disputes, its aggregate liability will
be approximately Rs.6,540 million (US$ 137.60 million) including interest but
excluding penalties, measured as of March 31, 2003.

         Furthermore, the Indian tax authorities have taken the position that
the Company has not offered for taxation certain reimbursements it had received
from the Government during the fiscal year ended March 31, 1994. The tax
authorities claim that the Company owes approximately Rs.2,853 million in
respect of taxes due (including interest but excluding penalties) in connection
with such reimbursements. The Company has already paid the entire amount with
respect to this claim, but has appealed to the Income Tax Commissioner of
Appeals (Mumbai).

         For the fiscal year ended March 31, 2000, the tax authorities have
disallowed the company's write off in its books of accounts of its investment in
the equity shares of ICO Global Communications Inc. (which filed for bankruptcy
protection in the US in 2000), amounting to Rs.5,128 million. The tax demanded
in this regard amounts to Rs.1,974 million, which has already been paid by the
Company. However, the Company has appealed to the Income Tax Commissioner of
Appeals (Mumbai) regarding this claim, and the matter is now pending.

         WE MIGHT MAKE SUBSTANTIAL CAPITAL INVESTMENTS IN NEW TELECOMMUNICATIONS
PROJECTS, INCLUDING IN CONNECTION WITH TECHNOLOGY UPGRADES AND GEOGRAPHIC
EXPANSION, WHICH MAY BE SUBJECT TO EXECUTION RISK AND, IF NOT OFFSET BY
ADDITIONAL REVENUE, MIGHT ADVERSELY AFFECT OUR OPERATING RESULTS.

         The Company might make substantial additional investments in new
telecommunications projects, including in connection with technology upgrades
and geographic expansion, which require significant capital expenditures. See
"Item 5. Operating and Financial Review and Prospects--Capital Expenditures."
Such projects entail engineering, construction, obsolescence and other normal
commercial risks, and there can be no assurance that the projects currently
contemplated by the Company will not encounter cost overruns or project delays
or will be completed or will operate as planned. Furthermore, there can be no
assurance that future financing for additional facilities, whether within India
or elsewhere, would be available on attractive terms or at all. In addition, the
Company's procedures for preparing budgets and appraising and monitoring capital
expenditure projects are less precise than those used by comparable private
sector companies The Company has introduced the concept of preparation of Annual
Operating Plans which outline the operating budgets as well as capital
expenditure budgets for the year. Most of the specific projects contemplated by
the Company remain subject to further review and approval by the Board of
Directors of the Company. Some of such projects may not be possible without
further liberalization of or

                                       15
<PAGE>

other changes to the regulatory regime. There can be no assurance that such
regulatory changes will be made or that such projects will be implemented as
currently planned. Telecommunications technology evolves rapidly and there can
be no assurance that any investments in new technology will have a positive
impact on our financial results. We have recently established subsidiaries in
the US and Sri Lanka with a view to providing telecommunications services
involving these countries. However, there can be no assurance that these
ventures, or any future expansion in other geographic regions, will not have an
adverse impact on our financial results. Furthermore, there can be no assurance
that currently contemplated capital expenditures will be incurred as described
herein or that if the projects are completed the capital investments made in
such projects will be offset by additional revenue.

         THE COMPANY MAY ENGAGE IN ACQUISITIONS, STRATEGIC INVESTMENTS,
PARTNERSHIPS, ALLIANCES OR OTHER VENTURES THAT MAY NOT BE SUCCESSFUL.

         The Company may engage in acquisitions, strategic investments,
partnerships, alliances or other ventures in order to expand its business.
However, there can be no assurances that such transactions will contribute
additional revenues to the Company. Furthermore, such transactions might cause
us to incur additional debt or assume contingent liabilities.

         ANY SERIOUS DAMAGE TO THE UNDERSEA TELECOMMUNICATIONS CABLE SYSTEMS
UTILIZED BY THE COMPANY MIGHT ADVERSELY AFFECT THE COMPANY'S TRAFFIC AND THEREBY
THE COMPANY'S REVENUES.

         A major part of the Company's international traffic is routed through
undersea cable systems landing in India as well as cable systems between
different countries. These cables are prone to damage which are normally not
serious in nature and during such interruptions the traffic is routed through
the other remaining cable systems and satellites. However, serious damage to
major cables landing in India could seriously disrupt traffic, leading to losses
in revenue.

         THE USE OF ILLEGAL CALL BACK SERVICES HAS THE EFFECT OF LOWERING OUR
REVENUE.

         The relative levels of incoming call volume from different countries is
affected by the practice of "refile" and by "call-back" services. Refile
involves the re-routing of calls to India through a third country by carriers in
the country of origination of such calls. Refile seeks to take advantage of a
lower accounting rate applicable to calls between India and the third country
compared to the rate between India and the country of origination. Due to such
lower applicable accounting rate, refile has the effect of lowering the revenue
of the Company with respect to an incoming call. Call-back services involve
access to an international dial tone in a foreign country, usually in the United
States, from which a caller in India can originate calls. These calls are billed
in foreign exchange in the foreign country and are therefore treated as incoming
calls. 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 and has
contributed to the increase in recent years in the Company's ratio of incoming
to outgoing calls. It is believed that refile and call-back have contributed in
particular to the significant increase in recent years in incoming traffic from
the United States.

         WEAKNESSES IN OUR FINANCIAL AND MANAGEMENT ACCOUNTING AND REPORTING
SYSTEMS AND PROCEDURES COULD LEAD TO DIFFICULTIES IN OUR GENERATING TIMELY AND
ACCURATE INFORMATION WHICH IS NECESSARY TO MANAGE AND CONTROL OUR BUSINESS
EFFICIENTLY.

         The Company was established in 1986 by a transfer of all of the assets
and employees of the Overseas Communications Service, a department of the
Ministry of Communications of the Government of India, to the Company, and the
Company remained a PSU until government divestment in early 2002. Consequently,
the financial and management accounting and reporting systems of the Company are
not as developed as those of certain comparable companies outside India. The
Company believes that weaknesses in its financial, management accounting and
reporting systems continue. It may experience difficulties in generating timely
and accurate information to manage and control its business efficiently. There
can be no assurance that the Company will be able to fully remedy the
deficiencies in its current systems and

                                       16
<PAGE>

procedures. See "Item 5. Operating and Financial Review and Prospects--Financial
and Management Accounting and Reporting Systems."

         THE COMPANY'S BUSINESS MAY BE ADVERSELY AFFECTED BY ANY FURTHER
SLOWDOWN IN ECONOMIC GROWTH IN INDIA OR THE UNITED STATES.

         According to the Reserve Bank of India, the Gross Domestic Product
growth of India declined from 5.6 percent for the year 2001-02 to 4.4 percent
for the year 2002-03. According to the Reserve Bank of India's annual report for
2000-01, India experienced an estimated real Gross Domestic Product growth of
5.2 percent during the year ended March 31, 2001, compared with 6.4 percent
growth during the year ended March 31, 2000. The growth of telecommunications
traffic is related to general economic growth and a further slowdown in the
Indian economy could result in slower growth rates in telecommunications traffic
in India.

         A major part of the Company's revenues are derived from calls
originating in the United States. During the year ended March 2003,
approximately 36.92 percent of the Company's traffic was between India and the
United States. The United States is in the midst of an economic slowdown, and if
the slowdown continues, it may result in the reduction or postponement of
spending in the IT sector. The IT sector is a major contributor to the telephony
and leased channel revenues to the Company and therefore the Company's revenues
might be adversely affected.

         A SUBSTANTIAL PORTION OF THE COMPANY'S ASSETS AND OPERATIONS ARE
LOCATED IN INDIA AND THE OUTSTANDING SHARES ARE LISTED ON THE INDIAN STOCK
EXCHANGES. ACCORDINGLY, THE COMPANY'S PERFORMANCE, THE MARKET PRICE AND
LIQUIDITY OF THE SHARES AND OF THE ADSS MAY BE AFFECTED BY CHANGES IN EXCHANGE
RATES AND CONTROLS, INTEREST RATES, GOVERNMENT POLICY AND TAXATION AND OTHER
POLITICAL, ECONOMIC OR SOCIAL DEVELOPMENTS IN OR AFFECTING INDIA.

         Since achieving independence in 1947, India has had a mixed economy
with a large public sector and extensive regulation of the private sector.
Indian central and state governments have in the past imposed controls on prices
of a broad range of goods and services, restricted the ability of private sector
enterprises to expand capacity, increase production, reduce employment or enter
new businesses and imposed controls on the allocation of raw materials and
foreign exchange. Since 1991, the Government has significantly relaxed
restrictions on the private sector and introduced policies to liberalize the
economy. Nevertheless, the role of the Indian central and state governments in
the Indian economy as producers, consumers and regulators remains significant in
ways that affect all Indian companies, including the Company.

         India held elections for a new Government in October 1999 and the
Government changed for the fifth time since 1996. No party won a majority of the
seats in the Lok Sabha (the lower house of Parliament) in the elections. The
present Government is made up of a multiparty coalition led by the Bharatiya
Janata Party ("BJP") with Mr. A. B. Vajpayee as Prime Minister. There can be no
assurance that the BJP-led government, which is presently supported by political
parties from outside the Government, will continue to receive such support. The
next general elections are due to be held in 2004. Political instability could
delay the reforms of the Indian economy and could have a material adverse affect
on the market for securities of Indian companies, including our shares and ADSs.

         The budget and the fiscal policies for the fiscal year ending March 31,
2004 presented by the Government proposed the continuation of policies designed
to promote economic deregulation and liberalization. Although we believe that
economic liberalization will continue in the future, there is no assurance that
this will be so.

         In May 1998 India tested five nuclear devices at Pokhran in the State
of Rajasthan. In response to the nuclear tests, certain countries, including the
United States, announced economic sanctions against India. The United States
economic sanctions, among other things, prohibited US banks from extending any
loan or providing any credit to the Government, other than for the purchase of
food or humanitarian aid, and further prohibited the export from the United
States to India (directly or indirectly) of specified goods

                                       17
<PAGE>

and technology which are subject to the export licensing requirements of the US
Commerce Department. These sanctions have since been substantially lifted. No
assurance can be given, however, that these sanctions would not be reactivated
or that additional economic sanctions of this nature will not be imposed by the
United States or any other country, or that such sanctions if reimposed, would
not have a material adverse effect on the Company's business or the price of the
Shares and the ADSs. Although the Company is not listed as a company to which
the sanctions would apply, export prohibitions and controls may have an adverse
effect on the ability of the Company to import (directly or indirectly) certain
types of computer equipment and software from the United States.

         TERRORIST ATTACKS AND OTHER ACTS OF VIOLENCE OR WAR INVOLVING INDIA,
THE UNITED STATES AND OTHER COUNTRIES COULD ADVERSELY AFFECT THE FINANCIAL
MARKETS AND THE COMPANY'S BUSINESS.

         Terrorist attacks, such as the ones that occurred in New York and
Washington, D.C. on September 11, 2001, New Delhi on December 13, 2001 and
Mumbai on August 25, 2003 and other acts of violence or war may negatively
affect the Indian markets where the Company's equity shares trade and also
adversely affect the world-wide financial markets. These acts may also result in
a loss of business confidence, make travel and other services more difficult and
ultimately adversely affect the Company's business. There can be no assurance
that there will not be any further terrorist attacks against India, the United
States or any other country.

         Also as a result of such events, India, the United States or certain
other countries may enter into armed conflict with other countries. For example,
in October 2001, the United States and certain other countries commenced
military operations against various targets located in Afghanistan and in March
2003, the United States and its allies commenced military operations against the
ruling military regime in Iraq. After the December 13, 2001 attack in New Delhi
and a terrorist attack on May 14, 2002 in Jammu, India, diplomatic relations
between India and Pakistan became strained. This could be repeated in the
aftermath of the August 25, 2003 bomb blasts in Mumbai. As a result of these
events, the risk of intensified military hostilities between India and Pakistan
cannot be ruled out. Military movements continue along both the Line of Control
in Kashmir and the border between India and Pakistan, with artillery firing
along the Line of Control. The hostilities between India and Pakistan are
particularly threatening because both India and Pakistan are nuclear powers. The
consequences of any potential armed conflicts are unpredictable. In addition,
India has from time to time experienced unrest relating to religious and
political differences within India's population, such as the riots in Gujarat in
early 2002.

         Any increase in regional or international hostilities, terrorist
attacks or other acts of violence or war could have a significant adverse impact
on international or Indian financial markets or economic conditions or on Indian
Government policy, thereby disrupting communications and making travel more
difficult. Such political tensions could create a greater perception that
investment in Indian companies involve a higher degree of risk and could have an
adverse impact on the Company's business, or the market price for the Company's
Shares and the ADSs.

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

         The Indian securities markets are smaller in terms of trading volume
and more volatile than the securities markets in the United States and certain
European and other countries. The Indian stock exchanges have in the past
experienced substantial fluctuations in the prices of listed securities. There
is a lower level of regulation and monitoring of the Indian securities markets
and the activities of investors, brokers and other participants than in
securities markets in the United States and certain European and other
countries.

         The Indian stock exchanges have experienced problems, including
temporary exchange closures, disputes between listed companies and exchanges,
broker defaults, settlement delays, custody problems and strikes by brokers.
Such problems or similar problems, if they were to recur or continue, could
affect the market price and liquidity of the securities of Indian companies,
including the Shares and ADSs, in both domestic and international markets. In
addition, the governing bodies of the Indian stock exchanges have

                                       18
<PAGE>

from time to time imposed restrictions on trading in certain securities,
limitations on price movements and margin requirements. Similar problems could
occur in the future and, if they did, they could affect the market price and
liquidity of the Shares and the ADSs.

         THERE MAY BE LESS COMPANY INFORMATION AVAILABLE IN INDIAN SECURITIES
MARKETS THAN SECURITIES MARKETS IN DEVELOPED COUNTRIES.

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

         The Securities and Exchange Board of India ("SEBI") received statutory
powers in 1992 to improve disclosure and other regulatory standards for the
Indian securities markets. SEBI has prescribed certain regulations and
guidelines in relation to disclosure requirements, insider trading and other
matters relevant to the Indian securities market. There may, however, be less
publicly available information about Indian companies than is regularly made
available by public companies in the United States and certain European and
other countries.

         YOU AND THE COMPANY 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.

         Fluctuations in the exchange rate between the Rupee and the Dollar will
affect, among other things, the Dollar equivalents of the price of the Shares in
Rupees as quoted on the Indian stock exchanges and, as a result, may affect the
market price of the ADSs. Such fluctuations will also affect the Dollar
equivalent of any cash dividends in Rupees received on the Shares represented by
the ADSs and the Dollar equivalent of the proceeds in Rupees of a sale of Shares
in India.

         Fluctuations in the exchange rate between the Rupee, the SDR (or
"Special Drawing Rights", which are based on a basket of key international
currencies and are frequently used in foreign currency payment settlements) and
other currencies also affect the Rupee amount of foreign currency settlement
payments received by the Company from, and paid by the Company to, foreign
telecommunications administrations and therefore the revenue and operating costs
of the Company. The Company may as a result be exposed to the risk of
fluctuations in the exchange rate between the Rupee and foreign currencies,
which has effectively increased the cost in Rupee terms of foreign exchange
payments required to be made by the Company, including payments to foreign
telecommunications administrations and payments for imported equipment and
technology. The Company has started hedging against exchange rate risk; however,
there can be no guarantee that the Company will be able to avoid the adverse
affects of exchange rate fluctuations.

         YOU MAY NOT BE ABLE TO ENFORCE A JUDGMENT OF A FOREIGN COURT AGAINST
THE COMPANY.

         The Company is a limited liability company organized under the laws of
India. All of the directors and officers of the Company and certain other
persons named herein are residents of India, and all or a significant portion of
the assets of all of the directors and officers and a substantial portion of the
assets of the Company are located in India. As a result, it may be difficult for
investors to effect service of process upon the Company or such directors or
officers outside India or to enforce against them judgments obtained from courts
outside India, including judgments predicated on the civil liability provisions
of the United States federal securities laws. The statutory basis for
recognition and enforcement of foreign judgments in India is provided in Section
13 of the Code of Civil Procedure 1908 (the "Code") of India, which provides
that a foreign judgment shall be conclusive as to any matter thereby directly
adjudicated upon except (1) where the judgment has not been pronounced by a
court of competent jurisdiction, (2) where the judgment has not been given on
the merits of the case, (3) where the judgment appears on the face of the
proceedings to be founded on an incorrect view of international law or a refusal
to recognize the law of India in cases where such law is applicable, (4) where
the proceedings in which the judgment was obtained were opposed to natural
justice, (5) where the judgment has been obtained by fraud and (6) where the
judgment sustains a claim founded on a breach of any law in force in India.
Section 44A of the Code provides that where a

                                       19
<PAGE>

foreign judgement has been rendered by a court in any country or territory
outside India which the Government of India has by notification declared to be a
reciprocating territory, it may be enforced in India by proceedings in execution
as if the judgment had been rendered by the relevant court in India. The United
Kingdom, but not the United States, has been declared by the Government of India
to be a reciprocating territory for the purposes of Section 44A. Accordingly, a
judgement of a court in the United States may be enforced only by a suit upon
the judgment and not by proceedings in execution. The suit must be brought in
India within three years from the date of the judgment in the same manner as any
other suit filed to enforce a civil liability claim in India. 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 awarded
as excessive or inconsistent with Indian practice. A party seeking to enforce a
foreign judgment in India is required to obtain approval under the Foreign
Exchange Management Act, 1999 from the Reserve Bank of India to execute such a
judgment or to repatriate any amount recovered. The date of passing of the
judgment would be the date for fixing the rate of exchange at which the foreign
currency amount should be converted to Rupees.

         TRADES OF OUR EQUITY SHARES MAY ADVERSELY AFFECT THE PRICES OF OUR
EQUITY SHARES AND ADSs.

         Actual or perceived sale of substantial amounts of our equity shares
could adversely affect the prevailing market price of our equity shares or the
ADSs. The Company may issue new shares or major shareholders may decide to
divest their share in the Company. We can make no prediction as to the timing of
any such issue or sales or the effect (if any) that future sales of our equity
shares will have on the market price prevailing from time to time.

         YOU WILL NOT BE ABLE TO VOTE ON YOUR ADSs.

         Investors in ADSs will have no voting rights unlike holders of the
Equity Shares who will have voting rights. It is contemplated that the
Depositary will exercise its right to vote on the Equity Shares represented by
the ADSs as directed by the Company's Board of Directors. If you wish, you may
withdraw the Equity Shares underlying the ADSs and seek to vote the Equity
Shares you obtain from the withdrawal. However, for foreign investors, this
withdrawal process may be subject to delays.

         THERE IS A LIMITED MARKET FOR THE ADSs.

         Even though the ADSs are listed on the New York Stock Exchange, there
is no assurance that any trading market for the ADSs will be sustained.
Subsequent to the open/ tender offer by Panatone Finvest Limited, the number of
shares represented by ADSs declined from approximately 60 million at March 31,
2002 to approximately 30 million at March 2003, or from 21 percent of
outstanding equity to 11 percent, respectively. This may affect the liquidity of
the market for the Company's ADSs and the price at which they trade.

         YOUR ABILITY TO SELL IN INDIA ANY EQUITY SHARES WITHDRAWN FROM THE
DEPOSITARY FACILITY MAY BE SUBJECT TO DELAYS IF SPECIFIC GOVERNMENT APPROVAL IS
REQUIRED.

         Holders who seek to sell in India any Equity Shares received upon
surrender of any ADS, and to convert the Rupee proceeds of such sale into
foreign currency and remit such foreign currency outside of India, will require
the approval of the Reserve Bank of India for each such transaction. Although
such approvals are generally forthcoming, there can be no assurance that any
such approval can be obtained in a timely manner or at all.

         INDIAN LAW IMPOSES FOREIGN INVESTMENT RESTRICTIONS THAT LIMIT A
HOLDER'S ABILITY TO CONVERT EQUITY SHARES INTO ADSS, WHICH MAY CAUSE THE
COMPANY'S EQUITY SHARES TO TRADE AT A DISCOUNT OR PREMIUM RELATIVE TO THE MARKET
PRICE OF ITS ADSs.

         Until recently, under Indian law it was not permitted for a depositary
to accept deposits of outstanding equity shares and issue ADSs evidencing such
shares. Thus, an investor in ADSs who surrendered an ADS and withdrew equity
shares would not be permitted to redeposit those equity shares to

                                       20
<PAGE>

obtain ADSs, nor would an investor who purchased equity shares on the Indian
market have been permitted to deposit them in the ADS program. The Government of
India has recently permitted two-way fungibility of ADRs. However, this is still
subject to sectoral caps and certain conditions, including compliance with the
provisions of the Issue of Foreign Currency Convertible Bonds and Ordinary
Shares (Through Depositary Receipt Mechanism) Scheme 1993 and the periodic
guidelines issued by the Government and also registration requirements in the
United States. Such restrictions on foreign ownership of the underlying equity
shares may cause the Company's Equity Shares to trade at a discount or premium
to its ADSs. See "Item 10. Additional Information--Exchange Controls and Other
Limitations Affecting Security Holders."

ITEM 4.  INFORMATION ON THE COMPANY

         BUSINESS OVERVIEW

         The Company is the leading provider of public international
telecommunication services in India, directly and indirectly linking the Indian
domestic telecommunications network to approximately 237 territories worldwide.
The Company provides international telephone, telex and telegraph services. As
of March 31, 2003, the Company operated fourteen international switching and
transmission facilities at ten locations ("gateways") in Mumbai, Kolkata, Delhi,
Chennai, Ernakulam, Gandhinagar, Jalandhar, Kanpur, Bangalore and Hyderabad,
which route international traffic to and from the domestic telecommunications
network using a combination of satellite and undersea cable links.

         The Company derives the bulk of its revenue from payments by foreign
telecommunications administrations/ private carriers for the delivery of
international calls to India and payments by BSNL, MTNL and other access
providers in India for the delivery of international calls abroad. The Company
shares with BSNL, MTNL and other access providers in India the revenue received
by the Company from foreign telecommunications administrations and carriers on
incoming international calls terminating in India. The Company also shares
revenue received by BSNL, MTNL and other access providers in India from Indian
domestic subscribers on outgoing international calls initiated on such network.
The sharing of such revenue is pursuant to the terms of interconnect agreements
with the relevant access providers. See "--Traffic Revenue and Revenue Sharing
Arrangement".

         The total number of effective telephone circuits operated by the
Company increased from 15,431 at March 31, 1998 to 25,758 circuits at March 31,
2003. In addition, the Company has made significant enhancements to the
efficiency of its transmission and switching capabilities, particularly through
investment in digital equipment.

         The Company believes that there remains significant unsatisfied demand
for telecommunication services in India. As per a report of DoT, as of July 2003
the penetration of telephone lines in India was approximately 5.71 lines per 100
inhabitants. This penetration is significantly below that in the Organization
for Economic Cooperation and Development ("OECD") member countries and many
other developing countries. The Company expects that continued expansion of the
domestic network, movement towards cost-based tariffs and private sector
participation in local fixed line and mobile telecommunications will
significantly increase the level of telephone line penetration and quality of
service in India in the future, resulting in growth in demand for its
international telecommunication services.

         The Company also provides a number of specialized value-added services
such as international leased lines, Inmarsat satellite mobile
telecommunications, Internet dial-up access in 22 cities, Internet leased lines
access throughout India, transmission of standard business information
("electronic data interchange"), connections to business information and
applications ("managed data network services"), video conferencing, the
transmission of television signals (both video and audio), transmission of data
over public data network for customers ("packet switched data transmission"),
E-mail services and television uplinking.

         Demand for the Company's specialized and value-added services,
particularly international leased lines and Internet access, has grown
significantly in the past few years. The total leased lines (64 KBPS

                                       21
<PAGE>

equivalent) capacity has grown from 913 as of March 31, 1998, to 31,598 as of
March 31, 2003. The Company's subscriber base for Internet access has increased
from 90,042 (including BSNL subscribers) as of March 31, 1998 to 701,259
(excluding BSNL subscribers) as of March 31, 2003. According to a TRAI report,
the Company still continues to be the leader within the country in terms of
subscribers and has approximately 19 percent of the entire market. The Company
believes that this growth is consistent with increasing demand for data services
worldwide and in India. The Company expects continued growth in its specialized
and value-added services so as to build and maintain a base of direct retail
customers.

         Seasonality does not materially affect the Company's business.

         HISTORY AND DEVELOPMENT OF THE COMPANY

         The Company, Videsh Sanchar Nigam Limited, was incorporated as a
limited liability company under the laws of the Republic of India pursuant to
the provisions of the Companies Act on March 19, 1986 and was, at that time,
wholly-owned by the Government. On April 1, 1986, the Company assumed control
and management of all of the assets and employees of the Overseas Communications
Service, a department of the Ministry of Communications of the Government. In
1992 and 1999, as part of its general policy of gradually reducing its holdings
in public sector enterprises, the Government divested a portion of the equity of
the Company to certain funds, banks and financial institutions controlled by the
Government and the general public. In 1997 and 1999, the Government also sold
some of its equity holdings in the Company through the issuance of global
depositary receipts.

         On February 1, 2001, the Government of India announced its intention to
sell shares equivalent to 25 percent of the outstanding equity of the Company to
a strategic partner through the competitive bidding route. Following a bidding
process, the Government of India made an announcement on February 5, 2002 that
Panatone Finvest Limited was selected. as the strategic partner for the sale of
71,250,000 fully paid-up Equity Shares representing 25 percent of the voting
capital of the Company at a price of Rs.202 per share. The aggregate purchase
price was Rs.14,392.50 million in cash. A share purchase agreement (the "Share
Purchase Agreement ") giving effect to the above arrangement was entered into
between the Government of India and Panatone Finvest Limited on February 6,
2002. The shareholders in Panatone Finvest Limited - Tata Sons, Tata Power, Tata
Steel and Tata Industries - are also signatories to the Share Purchase Agreement
though they did not directly purchase any of the Government of India's holding
in the Company. The Company is also a party to the Share Purchase Agreement. In
connection with the purchase of the shares from the Government of India,
Panatone Finvest Limited was required by the Securities and Exchange Board of
India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and
subsequent amendments thereto to launch a tender/open offer for an additional 20
percent of the Equity Shares from other shareholders of the Company.
Subsequently, Panatone Finvest Limited purchased an additional 20 percent on
June 8, 2002, increasing its stake to 45 percent.

         A shareholders' agreement (the "Shareholders' Agreement") was entered
into between the Government of India and Panatone Finvest Limited and its
shareholders on February 13, 2002. Among other things, the Shareholders'
Agreement provides for the nomination of directors by the Government and by
Panatone Finvest Limited, places limitations upon the restructuring or
retrenchment of employees, specifies certain actions upon which both the
Government and Panatone Finvest Limited must agree before such actions can take
place, places restrictions upon the transfer of shares, grants tag along rights
and rights of first refusal to the Government and Panatone Finvest Limited, and
obligates Panatone Finvest Limited and its affiliates to act in the best
interests of the Company in the event that Panatone Finvest Limited or its
affiliates engages in any activity in competition with the Company.

         The Government also simultaneously divested approximately 1.85 percent
of the Shares of the Company to its employees, out of a total offer of
approximately 1.97 percent. As a result of the sale to Panatone Finvest Limited
and this divestment to employees, the Government now owns approximately 26.12
percent of the Company's Equity Shares.

         The Company, which had been the exclusive provider of public
international telecommunications services in India, had its monopoly terminated
on March 31, 2002, pursuant to a notice of early termination

                                       22
<PAGE>

by the Government. In September 2000, the Government had announced the early
termination of the Company's monopoly in international telephony services,
ending the Company's monopoly on March 31, 2002 instead of on March 31, 2004, as
originally intended. With effect from April 2002, the Government has licensed
new operators to provide international telephone services, who now compete
against the Company. To offset the likely loss to the Company due to the early
termination of its monopoly, the Government announced a compensation package
which included a license to offer domestic long distance services, a Category
`A' all India ISP license. The Government also announced that if necessary,
additional compensation could be available to the Company based on the
Government's review. See "Item 3. Key Information -- Risk Factors --The
implementation of the New Telecommunications Policy and other regulatory changes
with respect to the telecommunications industry, including the early termination
of the Company's monopoly in international telephony services, may continue to
adversely affect our results of operations and financial condition."

         During fiscal year 2003, the Company acquired a company called VSNL
Seamless Services Limited ("VSSL"), incorporated in India, for cash
consideration of Rs.1,000. VSSL became a wholly-owned subsidiary of the Company.
Subsequent to the acquisition, the Company subscribed for 50,000 equity shares
of Rs.10 each issued by VSSL. The intended principal activity of VSSL was the
provision of value added services. Subsequent to the fiscal year end, the Board
of Directors of the Company proposed liquidation of VSSL. VSSL did not commence
operations during fiscal year 2003.

         The Company's Internet website address is http://www.vsnl.com. The
information on the Company's website is not incorporated into this document. The
Company's registered office is located at Mahatma Gandhi Road, Mumbai 400 001
India (+91-22-5657 8765). The Company's process agent for the Company's ADR
facility is State Bank of India, New York office, 460 Park Avenue, New York, New
York 10022.

         Business Strategy

         The Company's objectives are to remain the foremost provider of
international telecommunication services in India, to diversify its products and
services by entering into related areas to offer specialized, value-added
related services, and to take advantage of new technologies so as to enhance its
position as a leading telecommunications service provider in India. To meet
these objectives, the Company plans to continue developing its international
telecommunication services in a manner that

                  -        meets the demand of users for such services;

                  -        optimizes the utilization of its facilities and, as a
                           result, the revenue derived from such facilities; and

                  -        positions the Company for significant participation
                           in an increasingly liberalized Indian
                           telecommunications industry.

         The Company also seeks to explore opportunities in the international
market, particularly in countries neighboring India. Such a strategy is intended
to permit the Company to utilize its existing assets and to maximize the
Company's share of traffic from those countries. It is also intended to take
advantage of the growing internationalization of Indian companies, the growth of
business process outsourcing in India and the movement to India of a significant
amount of technology functions from foreign companies.

         The Company's capital expenditure program is intended to reflect above
strategy. The program includes investments in customer access, increasing the
amount of bandwidth we can offer to our customers and investments to reduce the
unit cost of bandwidth. We have also planned investments in the areas of
customer service and IT to address the competitive scenario that the Company,
now operates in. Further, the Company proposes to upgrade its technology to
provide world class, low-cost service.

         The Company intends to implement this strategy as follows:

                                       23
<PAGE>

         Business Restructuring and Achieving Synergies with Other Tata Group
         Companies

         Following the acquisition of a strategic stake in the Company by the
Tata Group, the Company is restructuring parts of its business so as to maximize
competitiveness in the new market environment, and where possible to take
advantage of synergies with other Tata Group companies. The Company believes
that its strengths complement those of the Tata Group. Synergies with Tata Group
companies could include access to their existing subscriber bases and the
opportunity to share their infrastructure. In this regard, the Company plans to
invest Rs.8,350 million (US$ 175.68 million) in Tata Teleservices ("TTSL") over
a period of seven years commencing from fiscal 2003 to provide the Company with
access to end customers. The Company is also:

         -        substantially increasing its emphasis on sales and marketing
                  by creating dedicated teams of trained people to proactively
                  address the corporate and retail markets;

         -        significantly strengthening its customer services functions by
                  creating dedicated call centers and back office infrastructure
                  to support both corporate and retail customers;

         -        restructuring some of its technical and service capabilities
                  at both headquarters and in regional offices so as to provide
                  an improved focus, greater role clarity and overall better
                  performance; and

         -        upgrading its information technology (IT) systems to
                  adequately support its initiatives in other areas through
                  emphasis on systems for customer relationship management
                  (CRM), billing systems for all services, and integrated
                  network management systems.

         Increasing Access to Customers through Integrated Marketing

         The Company, in association with TTSL, Tata Internet Services and Tata
Net, has launched a common marketing platform called Tata Indicom Enterprise
Business Unit ("TIEBU"). This unit provides specialized sales and marketing
coverage to the top 400-500 Indian corporate accounts, offering integrated voice
and data solutions under the Tata Indicom brand through a single interface. The
Company believes that such an integrated marketing approach, together with other
synergies with Tata Group companies, will enable it to benefit from the Tata
brand name and gain access to high-value end customers.

         Improving the Capacity and Quality of its International
         Telecommunication Services and Facilities

         In addition to increasing the number of international circuits to meet
growing demand, the Company seeks to use its international telecommunication
services and capacity more efficiently by employing advanced technologies. The
Company continues to invest in state-of-the art infrastructure to support its
businesses. The Company is expanding its bandwidth capability, in particular to
support data services. The Company is also seeking to upgrade its switching
facilities through the installation of technologically superior switches which
enable more efficient transmission of voice and broadband data traffic. See
"Item 5. Operating and Financial Review and Prospects--Capital
Expenditures--Planned Capital Expenditures."

                                       24
<PAGE>

         Leveraging Existing Infrastructure to Provide Specialized and
Value-Added Services

         The Company has introduced several value-added services in recent years
and seeks to increase the share of its revenues derived from such services.
These services typically involve the transmission of data rather than only voice
traffic. To enhance its ability to offer such services, the Company is expanding
and upgrading its infrastructure to support the bandwidth for such services.

         Increasing its Range of Service Offerings

         Value added services, especially data services, are a fast growing
segment worldwide, and the Company believes they offer significant growth
potential. The Company intends to strengthen its position in this market by
offering a range of improved and new products and services, including virtual
private networks, co-location, managed services based on internet data centers
and application support services. To retain and enhance its share of the voice
market, the Company also intends to introduce new products and services such as
prepaid calling cards, toll-free services, etc., through a retail marketing
program.

         Enhancing Internet Opportunities, including Internet Telephony

         The Company was one of the early leaders in developing the Internet
market in India and will continue to strive to be a market leader in this area.
The Company aims to introduce higher-value Internet services for its customers
and benefit from the growing corporate and retail demand for Internet services
and the expected demand for value-added services such as web hosting, virtual
private networks, video conferencing and numerous broadband applications. The
Company has also started offering Internet telephony as a complement to its main
business. It is anticipated that the low tariffs in Internet telephony will
encourage usage and result in an increase in international call volumes. The
Company plans to deploy an integrated Internet telephony infrastructure offering
customized solutions, in particular for corporate customers. The Company expects
to be able to take advantage of Internet protocol technology and provide high
quality voice and value-added services at competitive tariffs.

         Developing its NLD Business

         The Company believes that the NLD business is a logical backward
integration with its ILD business. It will reduce the Company's dependence on
other NLD operators for domestic connectivity and allow it to retain a greater
share of revenue from international calls. The Company's association with the
Tata Group could offer some synergies, including access to their existing
captive subscriber bases, the opportunity to share their infrastructure
including backbone, space and power, the opportunity to optimize capital and
operating expenditures and the ability to engage in integrated marketing
efforts.

         Cost Reduction

         In September 2002, the Company embarked on a major cost reduction
exercise. The exercise is part of a broader profit enhancement program that aims
to increase efficiency and productivity, cut costs, optimize traffic, equipment
and infrastructure, and improve debt recovery and timely collections. The
Company is aiming to reduce its costs through a combination of measures. A major
focus area is saving bandwidth costs, which contribute a sizeable share of the
Company's operating expenses, by maximizing bandwidth capacity utilization
through re-grooming cables, surrendering excess bandwidth and identifying
lower-cost alternatives. The Company has also instituted a new revenue assurance
function to minimize revenue leakages. Various assets, notably earth station
equipment, are also being redeployed for maximum utilization.

         Positioning for New International Opportunities

         The Company recognizes that in the new competitive environment, there
will be continued pressure on both revenue and margins. Simultaneously, a
significant proportion of cost will remain fixed. Given these constraints, the
Company believes that geographic diversification could assist in achieving

                                       25

<PAGE>

improved revenues and profits. The Company seeks to enter into joint ventures
with domestic and foreign companies to develop telecommunications projects both
inside and outside India. For example, the Company has entered into bilateral
arrangements with foreign telecommunications carriers for the provision of
private data transmission services. The Company, along with two other Indian
telecom companies, has set up a joint venture with a Nepalese company to provide
basic telecom services in Nepal.

         In June 2003, VSNL formed VSNL America Inc., a wholly owned US
subsidiary initially set up to cater to the needs of Indian customers needing US
points of presence through Internet Protocol - Virtual Private Network (IP-VPN).
It is expected that this venture will allow end-to-end management of VSNL's
Internet bandwidth from India all the way to the US. In the future, VSNL may
choose to expand this service in the US, Europe and East Asia depending on
available market opportunities in these regions. VSNL America has applied for a
FCC 214 telecommunications license which would enable it to provide IP-VPN
services in the US.

         In June 2003, VSNL Lanka Ltd., a wholly owned subsidiary set up by VSNL
in Sri Lanka, received an External Gateway Operator (EGO) license. The EGO
license allows VSNL Lanka Ltd., to offer ILD voice and data services in Sri
Lanka. The Sri Lankan market, estimated at 400 million ILD minutes annually,
offers VSNL a promising opportunity.

         SERVICES OF THE COMPANY

         The Company's primary business is the provision of public international
switched telecommunication services (telephone, telex and telegraph). The
Company also provides a variety of specialized and value-added services, such as
international leased lines, Inmarsat satellite mobile telecommunications,
Internet dial-up access in 22 cities, Internet leased line access throughout
India, electronic data interchange, managed data network services, video
conferencing, the transmission of television signals, packet switched data
transmission and E-mail services. These types of services typically involve
greater bandwidth use for the transmission of data rather than voice traffic.
The Company has also started offering NLD and Internet Telephony services.

Basic Services

         The Company operates the necessary switching and transmission
infrastructure to connect the Indian domestic telecommunications network with
foreign networks and, in coordination with foreign telecommunications
administrations and carriers, to ensure the smooth flow of international traffic
between these networks. An outgoing international telephone call from India
originates on one of the local Indian telephone exchanges operated by MTNL, BSNL
or by private fixed line or cellular network operators, and is transferred to
one of the Company's gateways. The call is then switched by the Company's system
to the desired international destination via satellite, undersea cable or both
based on a pre-determined routing plan developed by the Company in coordination
with the foreign telecommunications administration or carrier. The foreign
administration or carrier receiving the call through the international circuit
is then responsible for final delivery of the call to the recipient. Similarly,
when an international call is received at one of the Company's gateways, the
call is switched from the gateway via the Indian domestic network to one of the
local exchanges, from which it is transmitted to the recipient. See "-Industry
Overview."

         International Telephone Services. The Company provides public basic
international switched telephone services, including voice, facsimile and data
transmission services. The international telephone revenue of the Company
constitutes the largest share of the Company's total traffic revenue
(approximately 81.16 percent during the year ended March 31, 2003, compared to
approximately 88.63 percent and 90.41 percent during the years ended March 31,
2002 and March 31, 2001, respectively) The decline in international telephone
revenue as a proportion of total traffic revenue is due to the sharp reductions
in tariffs in India and settlement rates with foreign administrations/carriers.
In the year ended March 31, 2003, incoming paid minutes of traffic carried by
the Company were marginally lower than in the year ended March 31, 2002 whereas
outgoing paid minutes were higher. Total paid minutes carried by the Company
were marginally lower in the year ended March 31, 2003 compared to the year
ended March 31, 2002.

                                       26

<PAGE>

         The Company offers International Direct Dialing and Home Country Direct
Services and also provides operator assisted international calls. For the year
ended March 31, 2003, approximately 99 percent of international calls from India
were made using International Direct Dialing.

         Other Basic Services. The Company provides international telex
services, including automatic direct dial telex service, to approximately 237
territories worldwide and handles on average more than 3,500 international telex
calls each day. This service is mainly used by the business community. Advanced
telex services offered by the Company include forwarding facsimiles to telex
mail boxes, telex to fax transmissions (T-Fax) and transmission from telex to
E-mail services.

         International telegram service is the oldest of the international
telecommunication services provided by the Company. Each day the Company handles
on average approximately 600 telegrams.

         The volume of telex and telegraph traffic has been declining
significantly in recent years, consistent with global trends, as users switch to
facsimile and other methods of data transmission. The Company expects this trend
to continue, but without any adverse impact on the Company since such methods of
data transmission generate limited revenue for the Company.

         National Long Distance. In September 2002, VSNL entered the NLD
services market, as a growth opportunity and a logical extension of its ILD and
value added services businesses. The Company received its NLD license as part of
the compensation package received from the Government upon the early termination
of the Company's monopoly in ILD services. Apart from increasing VSNL's overall
revenues, the Company expects the NLD business to help VSNL reduce costs and
increase margins by reducing its dependence on other NLD operators for domestic
connectivity. In fiscal 2002, the Company rolled out its NLD service in Mumbai,
Delhi, Kolkata and Chennai, as well as several other cities, and presently
carries the NLD traffic of several basic and cellular service operators. By
August 2003, the Company had received approval from the Department of
Telecommunications for 71 national points of presence. The Company eventually
plans to have 322 national points of presence across the country. The Company
expects that its optical fiber cable backbone will allow it to collect, carry
and deliver voice and data traffic and allow it to extend its existing backbone
Internet network countrywide. From March 2003, the 3,500 km
Delhi-Mumbai-Hyderabad- Bangalore section of VSNL's NLD backbone became
operational, backed up by leased bandwidth from GAIL/BSNL to ensure high service
quality. VSNL is currently expanding the backbone network on the Amritsar-Delhi
and Mysore-Mangalore-Ernakulam routes. The Company expects the volume of traffic
carried by its NLD business to grow in the future, enabling it to compete with
BSNL and other NLD operators.

Specialized and Value-Added Services

         The Company provides a variety of specialized and value-added services,
such as international leased lines, Inmarsat satellite mobile
telecommunications, Internet dial-up access, Internet leased line access,
electronic data interchange, managed data network services, video conferencing,
the transmission of television signals and other value-added services which
typically involve the transmission of data or video rather than voice traffic.
By offering such value-added services, the Company believes it can benefit from
the increasing migration of traffic to these modes and build a direct retail
customer base from which it may more effectively compete in a liberalized
environment. The Company expects aggregate demand for these services to continue
to rise with the continued growth and increasing sophistication of the Indian
economy and its increasing integration with the world economy.

         International Leased Lines. The Company arranges dedicated
point-to-point international leased lines for those customers who need reliable,
24-hour communications from a fixed point in India to a fixed point abroad.
International leased lines, the speeds of which range from 64 kpbs per second to
155 megabits per second ("mbps"), are provided through the Company's
international gateways, earth stations and cable stations. The Company's earth
stations and cable stations communicate with satellites and submarine cable
systems respectively for data traffic. The demand for high speed leased lines
(64 kbps and above) has increased significantly in recent years, with the number
of such lines (64 kbps equivalent) increasing from 913 circuits as of March 31,
1998 to 31,598 as of March 31, 2003. In connection with

                                       27

<PAGE>

providing high speed leased lines, the Company makes all arrangements, in
coordination with BSNL, MTNL, other basic service operators and foreign
telecommunications administrations or carriers, for connecting the customer
through one of the Company's international gateways to the foreign destination
via satellite or undersea cable.

         Inmarsat Mobile Services. The Company offers satellite mobile
telecommunication services via the Inmarsat system (which carries telephone,
telex, Duplex High Speed Data on a channel that carries 64 kbps of data, and
facsimile traffic).

         Gateway Internet Access Services. The Company commenced providing
Internet access services in August 1995. The Company is one of the leading
Internet service providers in India. With the liberalization of the Government's
Internet policies, private Internet service providers were also permitted in
November 1998 to provide such services. The Company has also opened
state-of-the-art data centers for co-location services in 6 cities.

         Managed Data Network Services. The Company introduced managed data
network services in January 1997, and now offers such services through the
global alliance networks of global partners -AT&T, Cable & Wireless, EQUANT,
Global One, Concert and Tele Media International. The Company's managed data
network services utilize global frame relay and X.25 access protocols and data
transmission speeds from 64 kbps, providing managed private data communications
services to corporate customers in India.

         Gateway Electronic Data Interchange Service. First offered by the
Company in November 1993, this service acts as a clearing house between the
computer systems of a subscriber and its trading partners for the electronic
transmission and processing of trade documents, such as purchase orders,
invoices and other inquiries. The service operates domestically between major
metropolitan areas in India and offers connections to major international
electronic data interchange networks. These services offer efficient data
packaging and transfer through the use of higher bandwidths.

         Video Conferencing, Transmission of Television Signals and Other
Services. The Company introduced a video conferencing service in 1993 (both
domestic and international). The Company also provides international relay of
television programs and news services via satellite on a contractual basis and
leases satellite transponder capacity owned by the Company to television
broadcast companies in India.

         Television Uplinking. The Company started providing television
uplinking facilities in October 1998. The Company's satellite broadcast
operations on the INSAT-2E (APR) satellite are provided through its Standard-A
earth station located in Chennai and also through its earth stations located in
Delhi and Ernakulam.

         Gateway Packet Switched Service. The Company began operation of a
packet switched data transmission service in 1988. Subscribers to the service
may exchange data with users of other public packet switched data. Subscribers
may access this service via dial-up lines or dedicated lines at transmission
speeds up to 9,600 bps or 64 kbps, respectively.

         Gateway Electronic Mail Service. The Company introduced GEMS.400, an
international E-mail and fax forwarding service, in 1991, which was subsequently
expanded to cover the domestic market. This E-mail service, permits subscribers
to send E-mail both to other subscribers within India and to approximately 242
public E-mail systems in about 74 countries. This service had approximately
3,646 subscribers as of March 31, 2003. No growth in E-mail service is
anticipated as its advantages have eroded due to increased Internet access.

         Inmarsat Value Added Services. The Company has, in line with its
commitment of providing value-for-money telecommunication services to users,
begun to offer Inmarsat Value Added Services such as E-mail, Internet browsing,
Telex to E-mail, Telex-to-Fax and Voice mail services to its Inmarsat customers.

                                       28

<PAGE>

         TRAFFIC REVENUE AND REVENUE SHARING ARRANGEMENTS

         The Company's principal source of revenue is traffic revenue from its
public international telecommunication services (telephone), which accounted for
90.41 percent, 88.63 percent and 81.16 percent of the Company's traffic revenues
for the fiscal years ended March 31, 2001, March 31, 2002 and March 31, 2003,
respectively. The Company's traffic revenue has the following sources: foreign
administrations and telecommunication carriers, BSNL, MTNL and other Indian
private fixed line or cellular network operators. The Company does not receive
any payments directly from the end users of its public international
telecommunication services. Approximately 74 percent, 64 percent and 63 percent
of the Company's revenues were derived from foreign administrations and
telecommunication carriers and approximately 26 percent, 36 percent and 37
percent were derived from Indian telecommunication carriers, respectively, for
the years ended March 31, 2001, 2002 and 2003.

Payments to and from Foreign Administrations or Carriers

         Arrangements for the provision of international telecommunication
services between two countries are normally established between two
telecommunications administrations or recognized private operating carriers on a
bilateral basis. The Company has operating arrangements with approximately 83
foreign telecommunications administrations or private carriers that govern the
rates of payment by the Company to the foreign administrations or carriers for
use of their facilities in connecting international calls billed in India, and
by the foreign administrations or carriers to the Company for use of its
facilities (and the local Indian networks) in connecting international calls
billed abroad.

         The practice among carriers is for charges due in respect of the use of
overseas networks to be recorded, collected and forwarded by the carrier from
the country in which the call is billed. Based on the accounting rate negotiated
with each foreign telecommunications administration or carrier, the Company
makes payments to the administration or carrier for outgoing traffic billed in
India and receives payments from such administration or carrier for incoming
traffic billed outside India. Settlements between the Company and the major
carriers, including US carriers, are made monthly. Settlements between the
Company and other carriers are normally made quarterly. Settlements are made on
a net basis at the applicable settlement rate.

         The Company has in the recent past sought to rationalize its accounting
rates by moving towards a system of rates linked to volume commitment. The
settlement rates applicable to the Company currently range from approximately
US$ 0.011 to US$0.854 per minute. Settlement rates are periodically
renegotiated, and negotiations have in the past, in some cases, taken several
months to conclude. However, the dynamic environment in international
telecommunications, as well as the advent of competition in India, have ensured
that rate negotiations are held at shorter intervals.

         As is typical in developing countries, the volume of incoming calls to
India has historically exceeded the volume of outgoing calls, and as a result
the Company has received net settlement payments from most foreign
administrations and carriers. The Company expects this situation to continue in
the foreseeable future.

         In recent years, international organizations such as the International
Telecommunications Union and the OECD countries have expressed the need for
revision of the international accounting rate system, and certain foreign
telecommunications administrations and carriers have sought to reduce applicable
accounting rates in bilateral negotiations with the Company. In August 1997, the
FCC issued an order (the "Order") establishing FCC benchmarks that US carriers
generally must comply with in establishing settlement rates for international
calls with non-US telecommunications administrations and carriers. The Order
became effective as of January 1, 1998. Pursuant to the Order, the FCC
categorizes countries by level of economic development and establishes
cost-based benchmark ranges and transition periods for each country category,
whereby higher benchmark ranges and longer transition periods would apply to
less developed countries. The FCC requires US carriers to negotiate settlement
rates falling within the applicable benchmark range with each country during the
transition period. As a result, the effective settlement rate between US
carriers and the Company for calendar year 1998 of US$0.64 per minute, which

                                       29

<PAGE>

already represented a 10.5 percent decrease of the settlement rate from the
prior calendar year, was required to be reduced to no more than US$0.23 per
minute by 2002.

         The authority of the FCC to issue the Order and the Order itself has
been upheld by a United States federal court of appeals. In upholding the Order,
the United States federal court of appeals held that the Order was a valid
exercise of the FCC's regulatory authority under the United States
Communications Act and rejected the argument that the FCC's unilateral
establishment of benchmark settlement rates constituted an unlawful assertion of
extraterritorial jurisdiction over foreign carriers and foreign
telecommunication services. However, the United States federal court of appeals
also stated that the Order does not apply to foreign carriers and only permits
the FCC to contact responsible foreign government authorities to seek their
support in lowering settlement rates. The FCC, acting pursuant to the Order, has
forced the US carriers to agree to the benchmark rates, which are lower than the
rates in previously effect between the Company and some of its correspondent US
carriers. See "Item 3. Key Information--Risk Factors--Delays in reaching
agreement with other major carriers regarding rates could cause a significant
increase in our working capital needs which in turn could have a material
adverse effect on our financial position and results of operations."

         The Company and the US carriers agreed to a settlement rate of US$0.34
per minute until March 31, 2002. However, the FCC only approved the filings of
US carriers for a settlement rate of US$ 0.34 per minute up to December 2001 and
suspended the agreement between the US carriers and the Company for the period
from January 2002 until March 2002. The Company, through the Ministry of
Communications (Government of India), appealed to the FCC regarding the
suspension of the agreement for the period from January 2002 until March 2002.
Subsequently, the US carriers have made payments to the Company from January
2002 up to March 2002 as per the FCC directives. Effective April 2002, the
settlement rate between the Company and the US carriers was agreed at US$ 0.23
per minute. New settlement rate agreements were entered with US carriers, and
became effective from September 2002. These agreements provide for separate
settlement rates for incoming and outgoing traffic as opposed to symmetrical
divisions of Total Accounting Rates up to August 2002. The settlement rates for
incoming traffic are now dependent upon interconnect usage charges payable to
basic service providers (BSOs) for terminating traffic in India. The settlement
rates are market driven and are subject to change every month or even earlier.

Revenue Sharing Arrangements

         Although the Company provides international gateway access out of and
into India, all calls must either originate or terminate on or pass through the
domestic networks of MTNL, BSNL or any other private fixed line or cellular
network operator. Prior to March 31, 2002, the Company had a revenue sharing
arrangement with only BSNL. Under this arrangement, BSNL (formerly the DoT)
received payments from the Company and other operators and redistributed those
payments to the Company or the other operators as appropriate. Subsequent to
March 31, 2002, the Company concluded interconnect agreements with every
domestic fixed line or mobile operator, including BSNL and MTNL. These
interconnect agreements expired on April 30, 2003, and new interconnect
agreements in accordance with the Interconnect Usage Charges ( "IUC") regulation
announced by the TRAI have been concluded with BSNL and MTNL effective May 1,
2003. The commercial terms of the agreements may change based on revisions by
the TRAI to the IUC from time to time. The new agreements with several private
fixed line and mobile operators have been finalized and those with other
operators are currently being negotiated.

         Revenue Sharing Arrangement (April 1, 1997 to March 31,2002,
subsequently extended to July 31, 2002). From April 1, 1997 to July 31, 2002,
the Company and BSNL (formerly, the DoT) were parties to a revenue sharing
arrangement, under which the Company paid to BSNL a charge per minute equal to
the "weighted average incoming settlement rate" minus Rs.10 on all incoming
international calls, and BSNL in turn paid to the Company a charge per minute
equal to the "weighted average outgoing settlement rate" plus Rs.10 on all
outgoing international calls, in each of the fiscal years covered by the
arrangement. The "weighted average incoming settlement rate" and the "weighted
average outgoing settlement rate" for a fiscal year was the average of the
various settlement rates in effect as of the beginning of the fiscal year
between the Company and foreign administrations and carriers (converted into
Rupees at the exchange

                                       30

<PAGE>

rates prevailing as of the beginning of the fiscal year), weighted to reflect
the volume of total incoming traffic and total outgoing traffic, respectively,
accounted for by each foreign administration or carrier during the immediately
preceding fiscal year. This arrangement was intended to result in average gross
earnings to the Company of Rs.10 per call minute in each fiscal year (assuming
that applicable settlement rates and exchange rates and the composition of
incoming and outgoing traffic from and to particular destinations remained
constant during the year). In the years ended March 31, 2001 and March 31, 2002
the Company's actual average gross profit per telephone minute were Rs.9.39 and
Rs.8.39, respectively.

         With effect from April 1, 1999, under this revenue sharing arrangement,
any increase or decrease in the combined international traffic revenue per call
minute of the Company and BSNL (net of payments by the Company to foreign
administrations and carriers and by the Company and BSNL to each other in
respect of delivery of incoming and outgoing calls) for each fiscal year,
compared to the fiscal year ended March 31, 1997, was shared between the Company
and BSNL according to the following percentages:

<TABLE>
<CAPTION>
YEAR ENDING
 MARCH 31,      COMPANY'S SHARE                BSNL'S SHARE
-----------     ---------------                ------------
<S>             <C>                            <C>
   2001               20%                           80%

   2002               25%                           75%
</TABLE>

         Under this revenue sharing arrangement, the Company was required to pay
to the DoT an annual license fee based on the number of its commissioned
circuits. The license fee amounted to Rs.250,000 (US$5,119.80) per commissioned
circuit, and the number of circuits was calculated as an average of the number
of commissioned circuits at the beginning and end of the applicable fiscal year.
For the years ended March 31, 2001 and March 31, 2002, the Company paid annual
license fees of approximately Rs.5,022 million and Rs.5,393 million,
respectively.

         The international telecommunications sector in India has been opened up
to competition from April 1, 2002. Besides the Company, there are other ILD
operators licensed by the Government. Prior to March 31, 2002 and the expiration
of the last revenue sharing arrangement, the Company had a revenue sharing
arrangement with BSNL and another operator. Under this arrangement, BSNL
received payments from the Company and other operators, and redistributed those
payments to the Company or the other domestic carriers as appropriate.
Subsequent to March 31, 2002, the Company is required to have revenue sharing
agreements (also called "interconnect agreements") with every domestic fixed
line or mobile operator, including BSNL and MTNL.

         The revenue sharing arrangement which was scheduled to terminate on
March 31, 2002, was extended until July 31, 2002 following negotiations among
the Company, BSNL and MTNL.

         BSNL and MTNL Interconnect Agreements (August 1, 2002 to April 30,
2003). With effect from August 1, 2002, the interconnect agreements with BSNL
and MTNL provided for payment of amounts ranging from Rs.6 to Rs.14 per paid
minute to the Company depending upon which world region the traffic was
terminated. In case of incoming calls, the Company was required to pay BSNL
amounts ranging from Rs.4.40 to Rs.13 per paid minute depending upon the
distance of the Company's traffic termination from BSNL's nearest designated
trunk automated exchange level. In case of MTNL, the Company was required to pay
Rs.4.40 per minute for calls terminated in the cities of Mumbai and Delhi.
Volume based discounts were allowable in respect of incoming calls and the
agreements also provided for a committed volume of traffic. Though the
agreements were valid until March 31, 2003, it was agreed that the agreements
would be extended until April 30, 2003.

         In the years ended March 31, 2001, March 31, 2002 and March 31, 2003,
the Company's actual average gross profit per telephone minute were Rs.9.39,
Rs.8.39 and Rs.5.69, respectively. The fall in profits over this period has been
due to the revision of interconnect/revenue sharing agreements in the face of
competition coupled with a decline in international settlement rates.

                                       31

<PAGE>

         The Company has also negotiated the terms of the interconnect
agreements with BSNL, MTNL and various other access providers for fiscal year
2004. Under these agreements, BSNL and MTNL have agreed to pay the Company
amounts ranging from Rs.6 to Rs.14 per paid minute depending on the geographic
region where the outgoing call terminates. In the case of incoming calls, the
Company is required to pay BSNL and MTNL amounts ranging from Rs.5.70 to Rs.6.60
per paid minute depending upon the distance of the Company's traffic termination
from BSNL's or MTNL's nearest designated trunk automated exchange level. Volume
discounts are allowable in respect of incoming calls depending upon the volume
of traffic.

         License Fees

         Under the standard license agreement proposed by the Government, the
license fee to be paid equals 15 percent of the Adjusted Gross Revenue ("AGR").
The Government defines AGR as gross call revenues minus access charges actually
paid to other carriers for carrying of calls minus service and sales taxes
actually paid to the Government. The Company has provisioned an amount of
Rs.4,037 million (US $ 84.94 million) towards such license fees. The final
license agreement is yet to be concluded. See "Government Regulations --
Licenses".

         BREAKDOWN OF SALES AND REVENUES

         The following table breaks down the Company's revenue by type of
service for each of the years in the three year period ended March 31, 2003.

<TABLE>
<CAPTION>
                                                                   YEAR ENDED MARCH 31,
                                             ---------------------------------------------------------------
                                               2001               2002             2003               2003
                                             ---------         ---------         ---------           -------
                                                                       (IN MILLIONS)
<S>                                          <C>               <C>               <C>                 <C>
Revenues from incoming traffic
Telephone                                    Rs.46,674         Rs.41,503         Rs.27,143           US$ 571
Telex                                              112                70                36                 1
Revenues from outgoing traffic
Telephone                                       18,345            16,153             9,656               203
Telex                                              112                88                60                 1
Leased circuits                                  3,140             3,584             4,231                89
Internet access services                         2,980             2,305             2,251                47
Television relay                                   184               168               136                 3
Telegraph                                           29                23                22               0.5
Other revenue                                      340             1,156             1,806                38

Total revenue                                Rs.71,916         Rs.65,050         Rs.45,341           US$ 954
                                             =========         =========         =========
</TABLE>

         All revenues earned by the Company are from its operations in India.
Substantially all of the Company's property, plant and equipment are located in
India.

         Trends and events affecting the Company's operating revenue are
discussed under "Item 5. Operating and Financial Review and Prospects."

         INDUSTRY OVERVIEW

The Indian Domestic Telecommunications Network

         The Indian domestic telecommunications network has grown rapidly since
1999. As of end December 2002, the Indian telephone system comprised 51 million
lines in service consisting of 41 million of the public operators and 10 million
by the private sector. In the fiscal year ended March 31, 2002, approximately 9
million new connections (6 million by BSNL and MTNL and 3 million by private

                                       32

<PAGE>

operators) were installed. All subscribers can optionally have access to
international telecommunication services.

         The penetration of India's domestic telephone network of 5.71 lines in
service per 100 inhabitants as of July 31, 2003 remained significantly lower
than in OECD countries and many other developing countries. The following table
presents, for selected countries, lines in service as of the latest year for
which such information is currently available.

<TABLE>
<CAPTION>
                                           LINES IN SERVICE PER
                                              100 INHABITANTS
                                           --------------------
<S>                                        <C>
India(1)............................           5.71 (2003)
Pakistan............................           2.70 (2001)
Indonesia...........................           3.60 (2002)
China...............................          16.69 (2002)
Philippines.........................           4.17 (2002)
Thailand............................           9.87 (2001)
Turkey..............................          28.12 (2002)
Malaysia............................          19.79 (2001)
Mexico..............................          14.67 (2002)
Korea Republic......................          48.86 (2002)
United Kingdom......................          58.74 (2001)
United States.......................          65.89 (2002)
Japan...............................          58.58 (2001)
</TABLE>

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

Sources:  International Telecommunications Union.

(1)  As of July, 2003, lines in service for India -DoT Report.

         The existing lines in service in India are concentrated in large urban
areas. Of all lines in service, approximately 30 percent are in the four major
metropolitan areas of Mumbai, Kolkata, Delhi and Chennai; in these and other
major cities, the density of lines in service is considerably higher than in
India as a whole.

         Cellular mobile service has experienced substantial growth since it was
introduced in the end of 1995. By March 2003, there were approximately 13
million cellular subscribers, representing a compound annual growth rate of 108
percent since March 31, 1996 when the number of cellular subscribers was
approximately 77,000. According to a TRAI publication, the fiscal year ended
March 31, 2003 witnessed an increase of over 97 percent in cellular mobile
subscribers compared to the previous fiscal year.

         The efficiency of the domestic telecommunications network, as reflected
by the ratio of seizure attempts (calls) made on a telephone circuit that result
in successful complete calls to the total number of seizure attempts, has been
low in India principally because of restricted capacity on the network. However,
improvements have recently been made in the quality of the domestic
telecommunications network. Improving this ratio permits the Company's network
to operate more efficiently as it results in a decrease in the number of
circuits used by subscribers attempting to re-dial failed calls. In turn, this
reduces the need to invest in additional facilities and infrastructure. As of
March 31, 2003, the average answer to seizure ratio for incoming and outgoing
international calls in all of India was 33 percent and 39 percent, respectively,
compared to 28 percent and 44 percent as of March 31, 1995. However, the average
such ratio for calls to and from India remains much lower than that for calls
between countries with well-developed and high quality domestic
telecommunications networks, which would be at least 60 percent to 65 percent.

History

         Until the mid-1980's, the telecommunications sector in India was a
monopoly managed by the public sector, and virtually all telecommunication
services, both domestic and international, were controlled by the Government of
India through the Department of Posts and Telegraphs of the Ministry of
Communications. The Indian Telegraph Act, 1885 established the Government's
monopoly in the sector

                                       33

<PAGE>

and, together with the Indian Wireless Telegraphy Act of 1933, provided the
legal framework for the regulation of the telecommunications industry.
Development of the telecommunications sector historically was seen as a
relatively low priority and received limited budgetary support from the
Government. As a result, the telecommunications infrastructure in India grew at
a relatively slow rate.

         In the mid-1980s, faced with rapidly increasing demands for
telecommunication services and equipment, the Government of India commenced a
reorganization of the sector designed to facilitate the rapid introduction of
new technology, to stimulate the growth of the telecommunications industry and
to 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 Department of Telecommunications and
the Department of Posts and the establishment of public sector entities for the
manufacture of certain telecommunications equipment.

         As part of the reorganization, the Company was incorporated on March
19, 1986 as a wholly-owned Government company and on April 1, 1986 assumed
control and management of international telecommunication services from the
Overseas Communications Service, a department of the Ministry of Communications.
MTNL was established at the same time to operate local telephone and telex
services in Mumbai and Delhi, two of the largest metropolitan areas in India.

         BSNL, formerly part of the DoT, formed in 2000, retained responsibility
for providing all other telecommunication services throughout India. The
Department of Telecommunications also assumed regulatory authority over the
Company, BSNL, MTNL and other public sector enterprises established through the
reorganization and was given responsibility for acting on behalf of the
Government of India as the sole shareholder of such entities. 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.

         On February 1, 2001, the Government of India announced its intention to
sell from its holding equity shares of the Company equivalent to 25 percent of
the outstanding equity of the Company to a strategic partner through competitive
bidding. As per the announcement made on February 5, 2002 by the Government of
India, Panatone Finvest Limited was selected as the strategic partner for the
sale of 71,250,000 fully paid-up Equity Shares representing 25 percent of the
voting capital of the Company at a price of Rs.202 per share. The aggregate
purchase price was Rs.14,392.50 million in cash. A share purchase agreement (the
"Share Purchase Agreement ") giving effect to the above arrangement was entered
into between the Government of India and Panatone Finvest Limited on February 6,
2002. The shareholders in Panatone Finvest Limited - Tata Sons, Tata Power, Tata
Steel and Tata Industries - are also signatories to the Share Purchase Agreement
though they did not directly purchase any of the Government of India's holding
in the Company. The Company is also a party to the Share Purchase Agreement. In
connection with the purchase of the shares from the Government of India,
Panatone Finvest Limited was required under India's Takeover Code and subsequent
amendments thereto to launch a open/ tender offer for an additional 20 percent
of the Equity Shares from other shareholders of the Company. Subsequently,
Panatone Finvest Limited purchased an additional 20 percent on June 8, 2002,
increasing its stake to 45 percent. Other Tata Group entities have since made
open market purchases of the Company's equity shares, and the consolidated
shareholding of the Tata Group in the Company is currently 46.60 percent.

Liberalization Initiatives

         Background. In May 1994, the Government of India announced a National
Telecommunications Policy (the "1994 Telecom Policy") which included as its
objectives ensuring the availability of telephones on demand as soon as
possible, providing basic telecommunication services at affordable prices and
introducing value-added services to raise the range and quality of
telecommunication services available in India to international levels. The 1994
Telecom Policy recognized that Government financial resources would be
insufficient to meet these objectives.

         Basic Services. Accordingly, in September 1994, the Government of India
announced Guidelines for Private Sector Entry into Basic Telecom Services, which
provide for the grant of a license for the

                                       34
<PAGE>

provision of local fixed line services to one new licensee in each of the 21
telecommunications "circles" into which the country has been divided for such
purposes. Within each circle, the new licensee would compete with BSNL (or MTNL,
in the case of circles that include Delhi or Mumbai). Foreign ownership of each
new licensee is restricted under the guidelines to a maximum of 49 percent. The
Government initially invited tenders for new licenses in January 1995, in
response to which bids were submitted by numerous Indian companies in
combination with major global telecommunications companies. Initially, licenses
for six states of the Indian union were issued to successful bidders. In all 33
licenses have been issued to seven basic service operators including BSNL and
MTNL.

         As part of the bidding process, the bidders for the licenses were
required to make certain commitments on the build-out of their respective
networks by the end of each of the first three years after the issue of the
licenses for which they were bidding. The license conditions require the new
licensees to meet these commitments. In addition, under the terms of the bid, if
by the end of such third year telephone lines are not available on demand in its
respective circle, the new licensee will be required to expand the number of
lines in its network by at least 15 percent per year until such time as
telephone lines become available on demand. A separate license condition also
requires new licensees to allocate at least 10 percent of the lines installed in
each calendar quarter as village public telephones until there is at least one
such telephone in every village within its circle.

         Cellular Services. In December 1991, the DoT invited bids from Indian
companies with no more than 49 percent foreign ownership for non-exclusive
digital cellular mobile licenses in Mumbai, Delhi, Kolkata and Chennai. After
protracted litigation arising from the selection process, the Department of
Telecommunications finally settled upon two licensees for each of the four
metropolitan areas. In January 1995, the Department of Telecommunications
invited tenders from Indian companies with no more than 49 percent foreign
ownership for non-exclusive licenses to provide digital cellular mobile services
in 20 telecommunications circles, excluding those that include the four cities
with existing licensees. Two licenses were to be awarded per circle.
Subsequently, 34 licenses for 18 telecommunications circles were also issued to
14 companies during 1995 to 1998. MTNL and BSNL were issued licenses for
operation of cellular mobile telephone services as a third operator in various
parts of the country. In terms of the National Telecom Policy 1999, 17 fresh
licenses have been issued to private companies as a fourth cellular operator in
September/October, 2001, one each in the 4 metropolitan areas and the 13
telecommunications circles. Cellular licensees earlier had access to the
Company's international network only through BSNL but now the licensees can have
direct access to the Company's network.

         In February 1997, a multilateral agreement on basic telecommunication
services was agreed to among member governments of the World Trade Organization.
As part of this agreement, the Government of India has reaffirmed its commitment
to further liberalize the Indian telecommunications sector through the licensing
of new local fixed line and cellular service providers. The Government of India
has also agreed to allow competition in the area of domestic long-distance
telephone services and international telephone services.

         International Long Distance Services. The Company, until March 31,
2002, was the exclusive provider of public international telecommunication
services in India. In September 2000, the Government announced that the
Company's monopoly on international long distance services would terminate on
March 31, 2002 rather than on March 31, 2004. Effective April 2002, the
international long distance sector has been opened up for competition.
Subsequent to such opening up, new operators have been licensed to provide
international telephony and other services. To offset the likely loss to the
Company due to the early termination of its monopoly, the Government announced a
compensation package including a license to offer domestic long distance
services, a Category `A' all India ISP license which would enable it to provide
Internet access at locations across the country, and additional compensation if
found to be necessary based on the Government's review. See "Item 3. Key
Information -- Risk Factors -- The New Telecommunications Policy and other
regulatory changes with respect to the telecommunications industry, including
the early termination of the Company's monopoly in international telephony
services, may continue to adversely affect our results of operation and
financial condition."

                                       35

<PAGE>

         Other Services. The Government allowed private sector participation in
value-added services such as paging services in 1992. The Government has also
announced the opening up of global mobile personal communications by satellite
("GMPCS") and has issued one provisional license. The issuance of licenses to
other prospective GMPCS operators is currently under consideration.

Developments

         TRAI. In furtherance of the 1994 Telecom Policy, the Government of
India in 1994 announced its intention to establish an independent regulatory
authority to resolve disputes between service providers, to ensure technical
compatibility and effective interconnection between service providers, to
regulate tariffs and protect consumer interests, to facilitate competition and
to promote efficiency in the operation of telecommunication services so as to
facilitate the growth of such services in India. In January 1997, the President
of India issued an ordinance providing for the establishment of the TRAI, an
autonomous body with quasi-judicial powers to regulate telecommunication
services in India. The TRAI was established and became functional in March 1997.
See "--Government Regulations--Supervision."

         In September 1998, the TRAI initiated a series of nation-wide
consultations as part of a process to, among other things, formulate
telecommunications pricing policies and set tariffs for a wide variety of
telecommunication services. See "--Government Regulations--Rates." One of TRAI's
notifications envisages a reduction of approximately 50 percent in STD and ISD
charges over the three year period ending March 31, 2002. In conformance with
this notification, the DoT issued a tariff order for fiscal 2000 that reduces
international long distance rates by approximately 27 percent and further tariff
orders effective between October 1, 2000 and March 31, 2002 pursuant to which
international long distance tariffs have been further reduced by 16 to 20
percent. The TRAI has also announced its intention to review a number of other
policy and regulatory matters, including the quality standards for service
provision generally.

         Internet Policy. In November 1998, the Government announced a new
Internet policy, which aims to increase the usage of the Internet by allowing
private ISPs to provide Internet access services in India. Under the policy,
private ISPs will be allowed (1) foreign ownership not exceeding 49 percent, (2)
a license fee moratorium for the first five years, and a token fee of Rs.1, (3)
the autonomy to fix tariffs, (4) direct interconnectivity between any two
separate ISPs, (5) to set up international gateways after obtaining the
necessary security clearances and (vi) to offer "last mile" linkages within
local areas by optical fiber cable communications after obtaining the necessary
approvals. The policy has enabled the Company to add a new revenue stream by
providing gateway connectivity and bandwidth provisioning to private Internet
service providers. The Company has already invested in upgrading its existing
infrastructure with a strong Internet backbone. As of March 31, 2003, there were
approximately 190 Internet service providers competing with the Company to
provide Internet services throughout India. With international gateways being
opened up to the private sector, as of March 31, 2002, around 20 Internet
service providers were granted provisional commissioning licenses.

         New Telecom Policy. The New Telecom Policy came into effect on April 1,
1999. Under this policy, the subject of opening up international telephone
services to competition will be reviewed by the year 2004. The policy also
provides for direct inter-connectivity between telecom services providers.

         New TRAI. In January 2000, the Government amended the TRAI Act and
established two independent authorities: the New TRAI and the Appellate
Tribunal. See "--Government Regulations--Supervision."

         TRAI Directives on implementation of Carrier Selection. In July 2002,
the TRAI provided a directive to all access providers - basic service operators,
cellular mobile service operators, and the national and international long
distance operators - regarding implementation of carrier selection by callers.
According to the TRAI directive, customers should have the choice to route their
long distance calls through long distance carriers as chosen by them, for both
NLD and ILD. The TRAI directive required that in most parts of the country, the
carrier selection facility should be implemented by the end of calendar year
2003. At this time, however, it appears that the end-2003 deadline will not be
achieved.

                                       36

<PAGE>

"See Item 3. Key Information -- Risk Factors -- Delays in the implementation of
the new Carrier Access Code Regime could adversely affect us."

         Interconnect Usage Charges Regime. With the ongoing liberalization of
the telecom sector and the presence of multiple-operators and rate settlement
arrangements, TRAI introduced in January 2003 a cost -based Interconnect Usage
Charges regime to establish, harmonize and regulate rates for origination,
transit and termination of call traffic. The principle behind this regulation is
that in a multi-operator environment, it is necessary that each originating,
transiting and terminating network be paid on the principle of "work done" for
each call. Thus, an interconnect usage charge is a specified tariff for fixed
line calls to be passed on by one service provider to another. In all the cases
where a standard tariff has been specified, the consumer is required to pay only
the specified tariff. The monthly rental and local call charges for fixed
telephones are priced below cost in order to ensure that these remain affordable
and attractive to the customers and help attain the objective of higher
teledensity in the country. This results in a deficit to the providers, which
used to be met by the cost of the long distance calls made. However, with the
reduction of tariffs and other recent changes in the telecom environment, even
long distance call revenues cannot make up for the deficit. Hence, the TRAI
released a consultation paper on September 23, 2002 addressing the issue of cost
based IUC to be paid and received by the service providers. The IUC regulation
came into effect on May 1, 2003 and attempts to provide greater flexibility
within the tariff regime by providing for alternative tariff packages. The IUC
has resulted in increased tariff options available to carriers, and in the
reduction in a number of tariffs. The endeavor of the TRAI, as described above,
has been to ensure that operators realized the minimum costs of operations. It
is expected that the IUC will act as a floor to the tariffs in a situation of
free fall in tariffs. In the context of the ILD segment relevant to VSNL, the
Revenue Sharing Regulations of 14 December 2001 has prescribed forbearance for
revenue sharing between access providers, ILD carrier and international carrier.
The IUC Regulations, in addition to fixing an origination and termination charge
for the access providers, has also imposed a flat sum of Rs.5 per minute as
Access Deficit Charge (ADC) to be paid by the ILD operator to the access
provider in case the access provider happens to be a basic services operator.
The Company challenged the basis as well as the amount of the ADC before the
TDSAT in March 2003 and subsequently the TRAI agreed to review the IUC
methodology. Upon the TRAI initiating a comprehensive review of the IUC regime,
the Company withdrew the petition filed before the TDSAT. The Company has
presented to the TRAI its reasons for seeking further review of the IUC Regime.
The decision of the TRAI is awaited.

         GOVERNMENT REGULATIONS

         GENERAL

         The business of the Company is subject to comprehensive regulation by
the Ministry of Communications through the Telecom Commission and the Department
of Telecommunications pursuant to the provisions of the Indian Telegraph Act of
1885 (the "Telegraph Act") and the terms of the licenses from the Department of
Telecommunications under which the Company operates. While the Telegraph Act
sets the legal framework for regulation of the telecommunications sector, much
of the supervision and regulation of the Company is implemented more informally
through the general administrative powers of the Department of
Telecommunications, and of other Government agencies.

         In October 1999, the Department of Telecommunications, which had
performed the role of licensor and policy maker for the Ministry of
Communications and operated as India's domestic long distance service provider
and fixed-line service provider, except for the areas of Delhi and Mumbai, was
bifurcated into two departments: (1) the Department of
Telecommunications/Telecom Commission to perform the role of licensor and policy
maker and control the Company's Equity Shares held by the Government and (2) the
Department of Telecom Services to function as the service provider. With effect
from October 1, 2000, the Department of Telecom Services was incorporated and
renamed Bharat Sanchar Nigam Limited. The Government has also established an
independent Information Technology Ministry to promote the Internet, e-commerce
and knowledge-based industries. Licensing functions, however, continue to be
with the Department of Telecommunications/Telecom Commission.

                                       37

<PAGE>

         The Communication Convergence Bill 2001 was placed in the Parliament in
August 2001. If the Communication Convergence Bill 2001 is converted into an Act
of the Parliament, the existing Acts, namely, The Indian Telegraph Act, 1885;
The Indian Wireless Telegraphy Act, 1933; Telegraph Wire Unlawful Possession
Act, 1950; Cable Television Networks (Regulation) Act 1995 and The Telecom
Regulatory Authority of India Act, 1997 would stand repealed. The Communication
Convergence Bill provides for the formation of an independent authority -The
Communications Commission of India ("CCI")-to regulate the converging sectors of
broadcasting, information and telecommunications.

         When the Government's shareholding in the Company equaled or exceeded
51 percent, the Company was deemed to be an Indian Government company and
subject to laws and regulations generally applicable to public sector
enterprises in India. These laws and regulations concern personnel matters,
including appointment of key management personnel and the hiring, dismissal and
compensation of employees, budgeting and capital expenditures and the generation
of funds through the issuance of securities. For example, all persons appointed
to the Company's Board of Directors had to first be recommended by the Public
Enterprises Selection Board. Disputes between Government enterprises (such as
the Company) and Government departments generally had to be referred to a
Committee of Secretaries of the Government for mediation before either party
could bring a claim in a court of law or tribunal. A single Government ministry
or department is designated as the primary supervisor of each public sector
enterprise: the Department of Telecommunications had been so designated for the
Company. The Company's activities were also subject to scrutiny by India's
Parliament, and the Department of Telecommunications had to submit an annual
report to Parliament regarding the Company's activities. The Government had
granted "Navratna" status to selected public sector enterprises. The Company was
one of such selected "Navratna" public sector enterprises. "Navratna" status
gave the Company, among other things, enhanced autonomy, a greater degree of
administrative efficiency regarding capital expenditures and the ability to make
joint venture investments (subject to certain limits). Upon the Government of
India's transfer of 25 percent of its stake in the Company to Panatone Finvest
Limited in February 2002, the Company ceased to be a PSU.

Supervision

         In March 1997, the Government first established the Telecom Regulatory
Authority of India ("TRAI"), an independent regulatory authority under the
provisions of the TRAI Act.

         The TRAI Act was amended in 2000. The amended Act established two
independent authorities: the TRAI to regulate telecommunication services and the
Telecom Disputes Settlement and Appellate Tribunal (the "TDSAT") to adjudicate
disputes, disposal of appeals and to protect the interest of telecommunication
service providers and consumers. The regulatory functions of the TRAI fall
within two broad categories- (1) recommendatory and (2) mandatory.

         The recommendatory functions may be exercised either suo moto or on
request from the licensor on the following matters: (1) need and timing for
introduction of new service providers; (2) terms and conditions of licenses to
service providers; (3) revocation of licenses for non-compliance with the terms
and conditions of the license; (4) measures to facilitate competition and
promote efficiency in the operation of telecommunication services; (5)
technological improvements in the services provided by the service providers;
(6) type of equipment to be used by the service providers; (7) measures for the
development of telecommunication technology and any other matter related to the
telecommunication industry in general; (8) efficient management of the available
spectrum.

         The mandatory functions of TRAI include the following: (1) ensure
compliance of terms and conditions of licenses; (2) fix the terms and conditions
of inter-connectivity arrangements between service providers; (3) ensure
technical compatibility and effective inter-connection between different service
providers; (4) regulate revenue sharing arrangements among service providers;
(5) lay down standards of quality of service to be provided by service providers
and ensure the quality of service and conduct and periodically survey such
service in order to protect the interest of the consumers; (6) lay down and
ensure the time period for providing local and long distance circuits between
different service providers; (7) maintain a register of interconnect agreements
and of all such other matters as may be provided in the

                                       38

<PAGE>

regulations; (8) keep such register open for inspection; and (9) ensure
effective compliance of universal service obligations.

         The TRAI also has the authority to levy fees and other charges at such
rates and in respect of such services as may be determined by regulations and to
perform such other functions including such administrative and financial
functions as may be entrusted to it by the Government or as may be necessary to
carry out the provisions of the TRAI Act.

         The recommendations of the TRAI with respect to the matters referred to
above are not binding upon the Government. However, the Government must seek the
recommendations of the TRAI in relation to the following matters: (1) need and
timing for introduction of new service providers; and (2) terms and conditions
of new licenses given to a service provider. The TRAI is required to forward its
recommendations with respect to these matters to the Government within a period
of 60 days from the date on which such recommendations are sought or such
extended time as may be mutually agreed to between the Government and the TRAI.

         The TRAI has the authority to request the Government to furnish such
information or documents as may be necessary for the purpose of making
recommendations and the Government is obliged to furnish such information within
seven days of such request from TRAI. In the event that the Government comes to
a prima facie conclusion that the recommendations of TRAI with respect to these
matters cannot be accepted or need modification, the Government is required to
refer the recommendations back to the TRAI for its reconsideration and the TRAI
may, within 15 days from the date of receipt of such reference, forward to the
Government its recommendations after considering the reference made by the
Government and the Government shall make its final decision after receipt of
such recommendation from the TRAI.

         The TDSAT has jurisdiction to adjudicate any dispute between a licensor
and a licensee, between two or more service providers, or between a service
provider and a group of consumers. The TDSAT also has the jurisdiction to hear
and dispose of appeals against any direction, decision or order of the TRAI.

         The Communication Convergence Bill 2001, introduced in the Parliament
in August 2001, envisages the creation of the Communications Commission of India
("CCI") which would be an all-encompassing umbrella body to look into licensing,
spectrum management, dispute resolution and determination of regulation codes,
technical standards, tariffs, rates for licensed services as well as determine
the conditions for fair, equitable and non-discriminatory access to network
facility and service. It would also have the powers of a civil court under the
Code of Civil Procedure, 1908.

Licenses

         Pursuant to the Telegraph Act, the provision of any telecommunication
services in India requires a license from the Government, obtained through the
Department of Telecommunications. The Company currently holds an International
Long Distance ("ILD") Operations license issued on 12 January 1999, which is
valid until 31 March 2004; a National Long Distance ("NLD") license issued on 8
February 2002, which is valid until 2022; and a Category `A' all India Internet
service license issued on 3 May 2002, which is valid until 2014.

         The Company operates substantially all its international
telecommunications services under a license (the "ILD License") initially
granted by the Department of Telecommunications to the Company upon its
establishment in 1986. The ILD License identifies specific services that the
Company is permitted to provide, which encompass all of the services currently
provided by the Company other than Internet services and NLD services. The ILD
License initially granted to the Company was effective for a five-year period
ended March 31, 1991. The term of the ILD License was subsequently extended from
time to time, first until March 31, 1993, then until March 31, 1994, then until
March 31, 1999, and most recently, until March 31, 2004, each time with minor
expansions to the scope of services which the Company was permitted to offer. In
January 1999 the Company received a letter from the Department of
Telecommunications stating that the Company was to be the only entity authorized
by Government of India to provide basic international telephony services to and
from India until 2004. However, in

                                       39
<PAGE>

September 2000, the Government announced the early termination of the Company's
monopoly in international telephony services. Thus, instead of ending on March
31, 2004, the Company's monopoly ended on March 31, 2002.

         In connection with the opening up of the telecommunications sector, the
Government has asked the Company to execute a standard license agreement which
stipulates terms and conditions of the license to operate ILD services. The
Company has requested the Government to agree to certain modifications to the
standard license agreement incorporating certain services which the Company
already provides, as well as modifications to the methodology of calculating
license fees. The Government has notified the Company that it will not permit
modifications to the standard license agreement. The Company is evaluating
whether to re-submit its proposal to the Government. Until the Company executes
the standard license agreement, the services being provided by the Company are
provided pursuant to the Company's existing license agreement rather than the
proposed standard license agreement. Also see "Item 3. Key Information -- Risk
Factors-- The Company currently operates its international long distance
business under a license agreement that will expire on March 31, 2004 and has
not executed the new standard license agreement required by the Government and
thus may be subject to punitive action by the Department of Telecommunications".

         The previous ILD License required the Company to share with BSNL
revenues from international telecommunication services in the manner specified
by the DoT from time to time. In February 1997, the Company and the DoT agreed
to a revenue sharing arrangement, which covered the period from April 1, 1997 to
March 31, 2002. From 1997 to 1999 the revenue sharing arrangement provided for
the retention or receipt by the Company of a fixed amount per call minute, and
provided the Company with a degree of protection from adverse changes in
settlement rates and exchange rate fluctuations. With effect from October 1,
2000, the effect of decreases in combined international call revenue were shared
by the Company and BSNL. New interconnect arrangements are negotiated with BSNL
and MTNL on an annual basis.

         The Company has also been granted a NLD license, which is valid from
February 8, 2003 for a period of twenty years.

         The Company began offering Internet access services in August 1995, and
the Company operates 22 Internet access nodes. In November 1998, the Government
opened the Internet service provider market to private competition, and the
Department of Telecommunications instituted a mandatory license requirement for
the provision of Internet services. The Company had entered into a license
agreement with the Department of Telecommunications on January 25, 1999 with
effect from the same day, under which the Company was granted a license to
provide Internet services in Delhi, Mumbai, Kolkata, Chennai, Bangalore and Pune
on a non-exclusive basis. The Company has been granted a license from the
Department of Telecommunications to provide Internet services on an All-India
basis by a communication dated November 22, 2000. The terms of the Company's
Internet license are generally consistent with the policy for licensing Internet
service providers. The term of the license is 15 years. Thereafter, a fresh
license (inclusive of Internet telephony) was issued on May 3, 2002, which is
valid from January 25, 1999 to January 24, 2014. The Company is not allowed to
assign or transfer its rights under the Internet license without the prior
written consent of the Department of Telecommunications. Although under the
terms of the Internet license the Company is free to fix the tariff charged to
its subscribers, the TRAI as a practice sets the upper ceiling of the tariff for
the provision of Internet access services generally. See "--Government
Regulations--Rates." License fees have been waived through October 31, 2003, and
a nominal license fee of Rs.1 per annum is payable from November 1, 2003.

         The Department of Telecommunications retains the right to modify the
terms and conditions of the Company's licenses at any time if in its opinion it
is necessary or expedient to do so in public interest or in the interest of the
security of the state or for proper conduct of telegraphs. The Department of
Telecommunications may also terminate the licenses before their scheduled
expiration upon breach by the Company of any of its terms. In addition, the
Department of Telecommunications retains certain rights under the licenses to
receive telecommunication services on a priority or emergency basis. Under the
Telegraph Act, the Government and state governments also have the right to take
possession and/or control

                                       40
<PAGE>

of the Company's facilities and business in cases of public emergency or in the
interest of public safety. The Government also has the power to intercept
communications carried by the Company, subject to certain constitutional
safeguards.

Rates

         The Company did not control the rates charged to end users of its
international telecommunication services until March 31, 2002. The rates for
such services were established and collected by the relevant foreign
telecommunications administrations or carriers for international calls
originating (and billed) outside of India and by BSNL for international calls
originating (and billed) in India.

         The Company and the Department of Telecommunications shared revenues
received by each entity from international calls pursuant to a revenue sharing
arrangement between the two entities, and the Company received settlement
payments with respect to international calls from, or made such payments to,
foreign telecommunications administrations and carriers based on applicable
accounting rates. See "--Traffic Revenue and Revenue Sharing Arrangement." With
effect from April 1, 2002, for outgoing traffic, ILD operators are authorized to
prescribe and introduce rates for their international telecommunication services
with clearance from the TRAI.

         As described in "Industry Overview -- Developments -- Interconnect
Usage Charges Regime", as far as revenue sharing with the access provider and
international carrier is concerned, under the IUC regime the TRAI has said that
it will not fix rates. However, the IUC Regime has adversely impacted the ILD
segment and is now being reviewed by the TRAI.

         After the opening up of the international long distance services market
to competition on April 1, 2002, the Company has been able to set the rates to
be charged for outgoing international calls, subject to ceilings prescribed by
the TRAI. In accordance with the ceiling tariff announced by the TRAI with
effect from April 1, 2002, there has been a fall of around 16 to 20 percent in
the peak tariff. Further, in response to the tariff announced by other private
ILD operators in India, the Company further reduced tariffs for international
calls from July 20, 2002 by around 41 percent.

         The rates for the Company's specialized services, such as leased lines,
Inmarsat mobile services, Internet access services, electronic mail and
facsimile forwarding services, services through which subscribers may exchange
data with users of other data networks and video conferencing can be prescribed
by the Company, subject to filing with the TRAI.

The Tariff Order 1999

         Effective May 1, 1999, the TRAI implemented the Telecommunication
Tariff Order 1999 ("TTO"), which reduced the tariffs that telecommunications
service providers may charge with the intended effect of protecting consumers by
aligning tariffs that the telecommunications providers may charge with the cost
of the applicable service provided while ensuring the commercial viability of
the various service providers so as to encourage the expansion of the Indian
telecommunications industries. The tariff order reduced the maximum charge per
pulse (or metered unit) from Rs.1.40 to Rs.1.20, increased monthly line rental
rates for high use subscribers, decreased local call pulse durations (thereby
effectively increasing the local call charges) and increased domestic and
international call pulse durations (thereby effectively reducing long distance
and international call charges). The tariff order allows providers the
flexibility to set tariffs below the maximum levels. The tariff order also
specifies further reductions in domestic and international long distance and
internal call tariffs and other tariff adjustments implemented in the year
2000-2001. Accordingly, the TRAI, for the second phase of tariff re-balancing,
has reduced tariffs by 9 to 20 percent for international long distance calls
effective from October 1, 2000 to March 31, 2002. Based on the TRAI order, BSNL
had revised tariffs for long distance and international call charges effective
from October 1, 2000. The TRAI announced further revision of ILD tariff ceilings
effective April 2000, coinciding with the opening of the ILD sector to
competition. Effective April 1, 2002, the ILD tariffs of VSNL were reduced in
accordance with TRAI ceilings. Further reductions in ILD tariffs were announced
by VSNL, effective July 20, 2002. In the face of competition, the ILD tariffs
fell

                                       41
<PAGE>

below the TRAI ceilings and in January 2003, TRAI announced that it would no
longer fix ILD tariff ceilings.

ORGANIZATIONAL STRUCTURE

         As of September 1, 2003, approximately 46.60 percent of the outstanding
equity of the Company was held by Panatone Finvest Limited in conjunction with
other companies of the Tata Group, and approximately 26.12 percent was held by
the Government. Panatone Finvest Limited is in turn affiliated with the Tata
Group of companies and its shares are held by Tata Sons, Tata Power, Tata Steel
and Tata Industries. Panatone acquired this stake as a result of the
Government's decision to sell to a strategic partner through a competitive
bidding process. See "Item 4. Information on the Company--History and
Development of the Company."

         The current shareholding of Tata Sons and Tata Power in Panatone
Finvest Limited is 59.955 percent and 40 percent, respectively, with Tata Steel
and Tata Industries holding the remainder equally.

PROPERTY, PLANTS AND EQUIPMENT

Description of Property

         The following table sets forth the principal real properties owned or
leased by the Company that were used in its operations as of March 31, 2003.

<TABLE>
<CAPTION>
LOCATION                                   FUNCTION                          AREA (ACRES)              OWNED/LEASED
--------                                   --------                          ------------              ------------
<S>                              <C>                                         <C>                       <C>
MUMBAI
Fort VSB                         Company's registered office                        0.3                   Owned
                                 Mumbai gateway
Prabhadevi LVSB                  Undersea cable station                             1.8                   Owned
                                 Switching facilities
Vashi                            International data center                         0.51                   Leased

NEW DELHI
VSB Connaught Place              Delhi gateway                                     1.03                   Owned
Greater Kailash                  Satellite earth station                         126.33                   Owned
Chattarpur                       Satellite access node (under                    161.93                   Owned
                                 construction)
Dasghara                         Repeater station                                 0.101                   Leased
Meerut                           Repeater station                                  2.13                   Owned

JALANDHAR
JP Nagar                         Jalandhar gateway                                0.576                   Owned

KOLKATA
Hallisahar                       Kolkata earth station                            82.19                   Owned
Ultadanga                        Switching facilities                              1.67                   Owned
SDF Salt Lake                    Switching facilities                              1.01                 Sub-leased

CHENNAI
Adams Road                       Chennai gateway                                    2.0                   Owned
Korathur                         Earth station                                    21.69                   Owned

ERNAKULAM
Shive                            Ernakulam gateway                                 1.53                   Owned

PUNE
Dighi                            Pune gateway                                     774.5                   Owned
Arvi                             Satellite earth station                        228.275                   Owned

BANGALORE                        Satellite earth station                           0.45                   Leased
</TABLE>

                                       42
<PAGE>

<TABLE>
<CAPTION>
LOCATION                                   FUNCTION                          AREA (ACRES)              OWNED/LEASED
--------                                   --------                          ------------              ------------
<S>                              <C>                                         <C>                       <C>
ITPL                             IT Park                                          0.12                    Leased

DEHRADUN
Ahmed                            Satellite earth station                          75.4                    Owned
Purkaji                          Repeater station                                1.138                    Owned
Daurala                          Repeater station                                1.784                    Owned
Muzaffarnagar                    Repeater station                                  1.5                    Owned
Roorkee                          Repeater station                                  1.5                    Leased
Mussoorie                        Repeater station                                2.487                    Owned
Guldhar                          Repeater station                                 4.41                    Owned

KANPUR                           Kanpur gateway                                    2.0                    Leased

PATNA                            Earth Station                                    0.18                    Leased

BHUBANESHWAR                     Earth Station                                    0.23                    Leased

GUWAHATI                         Earth Station                                    0.05                    Leased

PONDICHERRY
IT Park                          Internet Node                                    0.02                    Rental
Mission Street                   Internet Node                                    0.04                    Leased

COIMBATORE                       Internet Services                                0.03                    Leased

COCHIN
Kokinada                         International Gateway                            1.53                    Owned
Parampali Nagar                  CR Office                                        0.08                    Leased

THIRUANANTHPURAM                 VSAT Station                                     0.02                    Rented

HYDERABAD
Saifabad                         Gateway Earth Station                            0.05                    Leased
Hitech City                      Gateway Earth Station                            0.05                    Owned
Seringapaly                      Gateway Earth Station                            2.00                    Owned

GANDHINAGAR                      Gateway                                          0.32                    Leased

GOA                              Internet Node Earth Station                      0.05                    Leased

INDORE                           Internet Node Earth Station                      0.02                    Leased
</TABLE>

In addition to the above, the Company has staff quarters at the locations
wherever it has substantial operations.

         None of the above described properties are subject to a major lien or
encumbrance. However, under the terms of the Shareholders' Agreement signed at
the time of privatization of the Company, Panatone Finvest Limited agreed that
the Company would demerge certain lands, mentioned in the above table, that the
Company owns at Pune, Kolkata, New Delhi and Chennai into a separate company. No
time period was specified in the agreement for such demerger. The Company,
Panatone Finvest Limited and the Government are currently discussing various
options in connection with the demerger or sale of the land with a view to
completing a transaction that is beneficial from a tax and stamp duty
perspective. Until such time the demerger takes place, the lands are under the
possession and upkeep of the Company. See "Demerger of Surplus Lands" below and
"Item 4 -- Key Information -- Risk Factors --The demerger of surplus lands held
by the Company may not be completed on satisfactory terms".

                                       43
<PAGE>

         Upon the establishment of the Company in 1986, all of the assets and
properties of the Overseas Communications Service were transferred to it by an
order of the Government of India which contemplated that details of the transfer
would be set forth in a transfer deed. A formal transfer deed has not been
executed. While the order of the Government was sufficient to transfer to the
Company valid title to all of the non-real estate assets of the Overseas
Communication Service, Indian law generally requires that transfers of real
estate be evidenced by a formal deed of transfer and registered with a central
land registry within a period of four months after the transfer in order to
protect the transferee against subsequent claims by third parties. Since the
transfer of the real estate from the Overseas Communications Service to the
Company has not been executed or registered, the Company has been advised by its
Indian counsel that, even if a transfer deed is registered, the Company's title
to its real property may be subject to potential claims of third parties in
respect of the period prior to the date of registration of the deed. The Company
does not anticipate any such claims. In clarifications from the Government, it
has been conveyed through a letter in October 2001 that vide provisions of
Section 90 of the Registration Act, 1908 there is no need to register any formal
transfer deed or deed of sale for such transfer of assets and the letter can be
considered as authority for transfer of all the fixed assets of Overseas
Communication Services situated in separate states and cities of India to the
Company.

         Indian law requires payment of stamp duty (at rates which vary among
states) on instruments which effect transfer of title to real estate. The formal
transfer deed, if executed, may be subject to stamp duty at rates ranging from
approximately three to 14 percent of the fair market value of the real estate
transferred. Such stamp duty may be payable by the Company.

         As of March 31, 2003, the Company operated from fourteen gateway
switches located at Mumbai, Kolkata, Delhi, Chennai, Ernakulam, Gandhinagar,
Jalandhar, Kanpur, Bangalore and Hyderabad which provide substantially all the
connectivity for the Company's services to the international telecommunications
network. The Company's international traffic is carried via international
satellite links and or by undersea cables.

         Description of Plant and Equipment

         The following table sets forth, as of March 31, 2003, the major
facilities, links and circuits at each main gateway, at the two earth stations
at Bangalore one earth station each located near Pune, Hyderabad, Coimbatore and
Patna.

<TABLE>
<CAPTION>
                                                                             NUMBER OF EFFECTIVE CIRCUITS
                                                                             ----------------------------
GATEWAY            FACILITIES                        LINK                    VOICE     DATA*    INTERNET*
-------         -----------------    ------------------------------------    -----     -----    ---------
<S>             <C>                  <C>                                     <C>       <C>      <C>
MUMBAI          Vikram-1             Intelsat Atlantic Ocean Region          1,343       27         0
                Satellite            ("AOR")
                Earth Station        Satellite (359 degrees)(1)

                Vikram-2             Intelsat Indian Ocean Region            1,043       13         0
                Satellite            ("IOR")
                Earth Station        Satellite (60 degrees)(1)

                Vikram-4             Intelsat TOR Satellite (66 degrees)(1)      0        0         0
                Satellite Earth
                Station

                Vikram-5             Intelsat IOR Satellite (64 degrees)(1)      0        4         0
                Satellite
                Earth Station
</TABLE>

                                       44
<PAGE>

<TABLE>
<CAPTION>
                                                                                NUMBER OF EFFECTIVE CIRCUITS
                                                                                ----------------------------
GATEWAY            FACILITIES                        LINK                       VOICE     DATA*    INTERNET*
-------         -----------------    ------------------------------------       -----     -----    ---------
<S>             <C>                  <C>                                        <C>      <C>       <C>
                Jawahar Satellite    Intelsat IOR Satellite (64 degrees)(1)         0         0          0
                Earth Station

                Arvi Land Earth      Immarsat IOR Satellite (64.5 degrees)(1)     120         0          0
                Station

                India-U.A.E.         Mumbai-Fujairah (U.A.E.)                   1,149         0          0
                Undersea Cable
                System (Gulf
                Cable)

                SEA-ME-WE 2          Singapore, Indonesia, Sri Lanka,           4,349       800          0
                Undersea Optical     India, Djibouti, Saudi Arabia,
                Fibre Cable          Egypt, Turkey, Cyprus, Italy,
                System               Tunisia, Algeria and France

                Fibre Optic Link     Japan, Korea, China, Hong Kong,            4,077     4,501          0
                Around the Globe     Thailand, Malaysia, India, U.A.E.,
                Undersea Optical     Egypt, Saudi Arabia, Italy, Spain
                Fibre Cable          and United Kingdom
                System

                SMW-3 Undersea       Japan, S. Korea, China, Taiwan,            3,699    17,779      4,247
                Optical Fibre        Hong Kong, Philippines, Vietnam,
                Cable System         Brunei, Malaysia, Singapore,
                                     Thailand, Indonesia, Australia, Sri
                                     Lanka, India, Pakistan, UAE, Oman,
                                     Saudi Arabia, Egypt, Djibouti,
                                     Cyprus, Turkey, Greece, Italy,
                                     Portugal, France, UK, Belgium,
                                     Germany

                SAFE Undersea        South Africa, Mauritius, St.Paul,            422     2,376      5,859
                Optical Fibre        Malaysia, India
                Cable System
HYDERABAD                            Intelsat IOR Satellite (66 degrees)(1)         0        31          0
KOLKATA         Kolkata              Intelsat IOR Satellite (62 degrees)(1)         0         4          0
                Satellite Earth
                Station

                Bose-1 Satellite     Intelsat IOR Satellite (64 degrees)(1)       296        67        496
                Earth Station

                Bose-4 Satellite     Intelsat IOR Satellite (66 degrees)(1)       120         0          0
                Earth Station

DELHI           Ahmed Satellite      Intelsat IOR Satellite (62 degrees)(1)     1,725       101        992
                Earth Station

                Ahmed Satellite      Intelsat IOR Satellite (57 degrees)(1)         0         0          0
                Earth Station(2)
</TABLE>

                                       45
<PAGE>

<TABLE>
<CAPTION>
                                                                                    NUMBER OF EFFECTIVE CIRCUITS
                                                                                    ----------------------------
GATEWAY            FACILITIES                        LINK                           VOICE     DATA*    INTERNET*
-------         -----------------    ------------------------------------           -----     -----    ---------
<S>             <C>                  <C>                                            <C>       <C>      <C>
                Greater Kailash      Intelsat IOR Satellite (64 degrees)(1)           268        40        0
                Satellite
                Earth Station

                Gurgaon              Intelsat IOR Satellite - 9B (64 degrees)(1)        0        93        0
                Satellite Earth
                Station

                Noida, VSAT          Intelsat IOR Satellite (62 degrees)(1)             0        93        0

                New Delhi, VSAT      Intelsat IOR Satellite                             0       233        0

                Coaxial Cable        The Department of                                  0         0        0
                System               Telecommunications

CHENNAI         Chennai              Intelsat IOR Satellite (66 degrees)(1)             0        63        0
                Satellite Earth
                Station(2)

                Thiruvalluvar        Intelsat IOR Satellite (64 degrees)(1)           927        23        0
                Satellite Earth
                Station

ERNAKULAM       Ernakulam            Intelsat IOR Satellite (60 degrees)(1)           837         0        0
                Satellite Earth
                Station

                SMW-3 Undersea       Japan, S. Korea, China, Taiwan,                3,349     5,084        0
                Optical Fibre        Hong Kong, Philippines, Vietnam,
                Cable System         Brunei, Malaysia, Singapore,
                                     Thailand, Indonesia, Australia, Sri
                                     Lanka, India, Pakistan, UAE, Oman,
                                     Saudi Arabia, Egypt, Djibouti,
                                     Cyprus, Turkey, Greece, Italy,
                                     Portugal, France, UK, Belgium,
                                     Germany

GANDHINAGAR     Gandhinagar          Intelsat IOR Satellite (64 degrees)(1)           150         0        0
                Satellite
                Earth Station

JALANDHAR       Jalandhar            Intelsat IOR Satellite (64 degrees)(1)         1,646         0        0
                Satellite Earth
                Station

BANGALORE       Sanjay Nagar         Intelsat IOR Satellite (62 degrees)(1)             0       156        0
                Earth Station

                Information          Intelsat IOR Satellite (64 degrees)(1)             0       104        0
                Technology Park
                Ltd. Satellite
                Earth Station
</TABLE>

                                       46
<PAGE>

<TABLE>
<CAPTION>
                                                                                  NUMBER OF EFFECTIVE CIRCUITS
                                                                                  ----------------------------
GATEWAY            FACILITIES                        LINK                         VOICE     DATA*    INTERNET*
-------         -----------------    ------------------------------------         -----     -----    ---------
<S>             <C>                  <C>                                         <C>       <C>       <C>
PUNE            Information          Intelsat AOR Satellite (359 degrees)(1)          0         6          0
                Technology Park
                Ltd. Satellite
                Earth Station

KANPUR          Kanpur-1             Intelsat IOR Satellite (64 degrees)(1)         238         0          0
                Satellite Earth
                Station

PATNA           Patna Satellite      Intelsat IOR Satellite (60 degrees)(1)           0         0          0
                Earth Station
                                                                                 ------    ------     ------
TOTAL EFFECTIVE CIRCUITS                                                         25,758    31,598     11,594
                                                                                 ======    ======     ======
</TABLE>

* -Circuits in terms of 64KB (Data & Internet Only)

(1)  The satellite degrees referred to in the table denote the degree at which
     the Company's earth station antenna point at the satellite and at which
     they transmit and receive communications.

(2)  Facilities used exclusively for television broadcasting services.

Circuits

         Due to a change in technology and as a part of the Company's cost
cutting initiatives, there has been a shift of circuits from satellite to cable
during the year ended March 31, 2003. As of March 31, 2003, the Company operated
25,758 effective international voice circuits, of which 8,713 were satellite
circuits and 17,045 were cable circuits. The Company operated 31,598 data
circuits of which 1,054 were satellite circuits and 30,544 were cable circuits.
The Company also operated 11,594 Internet circuits. From April 1, 2002 to March
31, 2003, the Company recorded an average of 432 international paid minutes per
day per circuit, compared to an international norm of approximately 300 paid
minutes per day per circuit.

Satellites

         As of March 31, 2003, the Company operated a total of 8,713 satellite
voice circuits and 1,054 satellite data circuits through 13 earth stations at
its eight gateway locations, two earthstations located at Bangalore and one each
located at Pune and Hyderabad. Satellite capacity is obtained from the
International Telecommunications Satellite Organization ("Intelsat") and the
International Mobile Satellite Organization ("Inmarsat"), two satellite
consortia established by national telecommunications administrations for the
purpose of owning and operating satellite communication systems. Intelsat and
Inmarsat have since been corporatized.

Undersea Cables

         As of March 31, 2003, the Company operated a total of 17,045 effective
voice circuits and 30,544 data circuits on undersea cables landing in India. The
Company has ownership interests and access to capacity in undersea cables
interconnecting the South Asia region, as well as those linking the region with
Europe, North America and Asia/Pacific. The Company also holds a 50 percent
ownership interest in an analog undersea cable between Mumbai and Fujairah,
U.A.E., which has a total capacity of 1,380 circuits, of which 1,149 were being
used as of March 31, 2003.

         The Company also holds an interest of approximately 10 percent in the
South East Asia-Middle East-Western Europe 2 (SEA-ME-WE2) optical fiber cable,
which lands in 13 countries between Singapore

                                       47
<PAGE>

and France, including India. This cable, which became fully operational in June
1994, operated 4,349 effective voice and 800 effective data circuits from Mumbai
as of March 31, 2003.

         The Company entered into a Construction and Maintenance Agreement with
other international telecommunications carriers for the construction of the
South East Asia-Middle East-Western Europe 3 (SEA-ME-WE 3), a high capacity
undersea optical fiber cable extending from Germany to Japan and Australia that
lands in a total of 33 countries (including India, with landing points at Mumbai
and Cochin). This cable operates at a total of 3,699 effective voice and 17,779
data circuits from Mumbai as also 3,349 effective voice and 5,084 data circuits
respectively from Cochin as of March 2003. The Company also operates 4,123
Internet circuits on this cable system from Mumbai and 124 circuits from Cochin.

         The Company has in addition purchased 4,650 circuits in the Fibre Optic
Link Around the Globe (FLAG-Europe Asia) cable system, a high capacity fiber
optic cable with 19 landings in 13 countries (including India) linking Asia and
Europe. This cable system was commissioned in December 1997. As of March 31,
2003, the Company operated 4,077 effective voice circuits and 4,501 effective
data circuits on this cable system.

         The Company has also invested in the South African
Telephony-S/West-African Submarine Cable/South Asia Far East (SAT-3/WASC/SAFE)
cable. The total length of this link is 27,850 km with a design life of 25
years. As of March 31, 2003, the company operated 422 voice circuits and 2,376
data circuits on this cable system. The Company also utilized 5,859 Internet
circuits on this cable.

         The Company also has ownership interests in various undersea cables
that do not land in India, but which provide connections between various
locations served by the Company. These cables include the Trans-Atlantic 12/13
Cable (connecting the United Kingdom, France and the United States), the
Trans-Pacific Cable (connecting the United States, Canada and Japan), TAT 14
(connecting United Kingdom, France, Germany and the United states), Japan-US
Cable (connecting the United States and Japan), the Asia Pacific Cable (Segment
S-J) (connecting Singapore and Japan) and the Columbus 2-America 1 Cable
(connecting Italy and the United States). In addition to its direct ownership
interests in such undersea cables, the Company has purchased indefeasible rights
of use guaranteeing access to other undersea cables in the Atlantic and Pacific
Oceans.

Switches

         As of March 31, 2003, the Company had the capacity to connect 45,040
international telephone circuits or channels to its switches. Substantially all
of the Company's telephone capacity is digital, provided by 17 digital switches
installed at the Company's 10 gateway locations. Each gateway is linked to the
other gateways via either the Company's own bandwidth or dedicated digital lines
leased from BSNL or other bandwidth providers like Gas Authority of India
Limited, Power Grid Corporation India Limited and others which permits multiple
routing options for each call and provides the system with back-up capability in
case of equipment failure or over-crowding at any gateway.

Other Facilities

         In addition to the circuits and switches described above, the Company's
infrastructure includes various facilities used primarily for its specialized
and value-added services. As of March 31, 2003, the Company owned a high
capacity underground fiber optic cable between Mumbai and Arvi via Pune,
approximately 58 earth stations, terrestrial radio communication wires
connecting the Company's international switches at three of its locations with
its earth stations and a variety of hardware used for the Company's 22 Internet
access nodes.

Review of the Useful Lives and the Consequent Carrying Values of Certain Assets

         The Company has initiated a review of the estimated useful lives and
the consequent carrying values of certain long-lived assets. As and when such
review is completed, it could result in a downward revision in the

                                       48
<PAGE>

useful lives and the consequent carrying values of the assets. The Company is
presently unable to quantify the effect, if any, that such review when completed
would have on its financial condition and results of operations.

         Also see "Item 3. Key Information--Risk Factors--The Company has
initiated a review of the useful lives and carrying values of certain long-lived
assets which could result in a reduction in the carrying value of such assets."

Demerger of Surplus Land

         Under the terms of the Share Purchase Agreement and the Shareholders'
Agreement, Panatone Finvest Limited has agreed to cause the Company to hive off
or demerge certain land the Company owns at Pune, Kolkata, New Delhi and Chennai
(the "Surplus Land") into a separate company (the "Resulting Company") pursuant
to a scheme of arrangement. The Surplus Land consists of properties which the
Company was not actively using for any business purpose at the time of the
Government divestment to Panatone Finvest Limited. The Surplus Land, which is
described further in such agreements, consists of the following:

<TABLE>
<CAPTION>
LOCATION                                            AREA (IN ACRES)
---------------------------------------------------------------------
<S>                                                 <C>
Dighi - Pune                                            524.00
---------------------------------------------------------------------
Halishahar - Kolkata                                     35.19
---------------------------------------------------------------------
Chattarpur - Delhi                                       58.00
---------------------------------------------------------------------
Greater Kailash - Delhi                                  70.00
---------------------------------------------------------------------
Padianallur - Chennai                                    85.94
---------------------------------------------------------------------
Total                                                   773.13
---------------------------------------------------------------------
</TABLE>

         Pursuant to a scheme of arrangement, shares of the Resulting Company
would be distributed pro rata to the existing shareholders of the Company. Such
a scheme would have to be approved by three-fourths in value of the creditors
and of the shareholders of the Company present and voting at a meeting of the
creditors and members, respectively. Indian counsel has advised that it
generally takes about 4-6 months from the time such a scheme of arrangement is
filed before the High Court until the time that a decree of demerger passed by
the High Court is filed with the Registrar of Companies.

         As part of the consideration for its purchase of a portion of the
Government's shares in the Company, Panatone Finvest Limited agreed to transfer
to the Government, without further consideration, a portion of the shares of the
Resulting Company that it receives, such portion to be proportionate to the
number of shares of the Company purchased by Panatone Finvest Limited from the
Government. In the event that the demerger does not occur or the Company sells
or develops the Surplus Land, Panatone has agreed to pay to the Government a pro
rata portion of any benefit accruing to the Company as a result of such sale or
development, as determined by an appraiser. In its tender/open offer, Panatone
Finvest Limited made similar undertakings to the persons who tendered their
shares of the Company and whose shares were accepted for payment.

         It is possible that the Company and the Resulting Company may have to
pay significant capital gains taxes and stamp taxes if the proposed demerger is
found by the Indian courts not to fit within the statutory definition of
"demerger" under The Income Tax Act, 1961. The Company believes these taxes
could be substantial. To avail of favorable income tax treatment, the Company
would have to create a separate realty undertaking comprising the surplus lands.
The realty undertaking would then be transferred to the Resulting Company under
the scheme of arrangement. Because the Surplus Lands are separately situated and
do not generate separate revenues, they may be found not to constitute a "realty
undertaking" under the relevant Indian law, and therefore may be found not to be
a "demerger" as well. However, a statutory demerger may also include a split or
reconstruction according to such conditions as the Government may issue in the
Official Gazette. To date, the Government has not issued such conditions

                                       49
<PAGE>

pertaining to the Surplus Lands, and the Company has not requested that the
Government do so, though it may in the future so request.

         The High Court's decree, if and when passed, will have to be submitted
to the stamp authorities for adjudication to ascertain the amount of stamp duty
which has to be paid by the Company. Under the Bombay Stamp Act, 1958 the stamp
duty shall not exceed an amount equal to 7 percent of the true market value of
the immovable property located within the State of Maharashtra transferred by
the Company to the Resulting Company or an amount equal to 0.7 percent of the
aggregate of the market value of the shares issued by the Resulting Company and
the amount of consideration paid for such demerger, whichever is higher. Under
the Income-tax Act, the expenditure incurred by the Company wholly and
exclusively for the purpose of demerger shall be allowed as a deduction equal to
1/5th of such expenditure for five successive years beginning from the year in
which demerger takes place.

         No time period is specified in the Shareholders' Agreement or the Share
Purchase Agreement for the demerger of the Surplus Lands. The Company cannot
predict if and when the demerger will take place. Until such time as the
demerger takes place, the lands are under the possession and upkeep of the
Company. See "Item 3. Key Information--Risk Factors--The demerger of surplus
land held by the Company may not be completed on satisfactory terms."

         CAPITAL EXPENDITURES

         See "Item 5. Operating and Financial Review and Prospects -- Capital
Expenditures."

         INVESTMENTS

         See "Item 5. Operating and Financial Review and Prospects --
Investments."

         SALES AND MARKETING

         The Company has embarked upon the process of creating a sales and
solutions organization for the corporate market in India. The team is intended
to initially cover the principal cities of India such as Mumbai, Delhi,
Bangalore, Chennai, Hyderabad, Kolkata, Ernakulam, Jalandhar and Kanpur. In all
theses cities the Company intends to have its own sales-force that consists of a
direct team and a channel team. The direct team will cover about 500 prime
corporate accounts across the country. The Company's sales and marketing effort
has a three-tier structure: the Company's sales force directly handles large
corporate accounts; channel partners service small and medium enterprises; and
retail service channels serve retail customers. The channel partners will be
those that are currently system integrators or IT vendors who already have a
presence in the small and medium enterprise (SME) market-place. Due to the
convergence of IT and telecommunications and the complexities involved, the
Company is also creating a solutions team which will provide support for complex
projects. These teams will be supported by Customer Relations Management. The
Company is also in the process of differentiating its offerings by providing
various service levels among its different offerings. The Company is also a part
of the Tata Indicom Enterprise Business Unit ("TIEBU") for focused coverage of
large corporate accounts.

         LEGAL PROCEEDINGS

         The Indian tax authorities have taken the position that the Company is
not entitled to tax deductions that it took in the fiscal years ended March 31,
1994, 1995, 1996, 1997 and 1998 for license fees paid by it to the DOT. The
Indian tax authorities claim that the Company owes approximately Rs.2,551
million, Rs.2,236 million, Rs.2,693 million, Rs.2,977 million and Rs.2,086
million in respect of the taxes due (including interest but excluding penalties
and measured as of March 31, 2003) in connection with the license fees for the
fiscal years ended March 31, 1994, 1995, 1996, 1998, respectively. The Income
Tax Commissioner of Appeals (Mumbai) has ruled that the Company is entitled to
take the license fee deduction for the fiscal years ended March 31, 1996, 1997
and 1998. The Income Tax Department has not appealed against this decision, and
the time limit for appeal has expired. The Income Tax Appellate

                                       50
<PAGE>

Tribunal has ruled that the Company may take the license fee deduction for the
fiscal year ended March 31, 1995. The Income Tax Department has appealed to the
High Court against this decision. If the Company loses this appeal, there is a
risk that the Income Tax Department may seek to claim the 1996, 1997 and 1998
amounts as well. The Income Tax Department's order disallowing the deduction for
the fiscal year ended March 31, 1994 is still on appeal before the Income Tax
Commissioner of Appeals, Mumbai. The Company, on the advice of counsel, believes
that it has a strong case with respect to these claims. If, however, the Company
is finally unsuccessful in all of the foregoing disputes and is required to pay
the amounts claimed for each of the years in dispute, its aggregate liability
for fiscal years 1994 to 1998 will be approximately Rs.12,543 million (US$
263.90 million), including interest but excluding penalties, measured as of
March 31, 2003.

         The Indian tax authorities have also taken the position that the
Company is not entitled to a tax benefit claimed by it in the fiscal years ended
March 31, 1996, 1997, 1998, 1999 and 2000 with respect to certain of its profits
which the Company claims as having been generated by an enterprise engaged in
telecommunications and therefore entitled to a tax holiday under certain
regulations. The tax authorities have not accepted this claim of the Company and
have disallowed it in their assessments. They claim that the Company owes
approximately Rs.179 million, Rs.491 million, Rs.856 million, Rs.2,183 million
and Rs.2,831 million in connection with taxes due (including interest but
excluding penalties and measured as of March 31, 2003) on such profits for the
years ended March 31, 1996, 1997, 1998, 1999 and 2000, respectively. The Company
disputed these assessment orders and appealed to the Income Tax Commissioner of
Appeals (Mumbai). For the fiscal years ended March 31, 1996, 1997, 1998, the
Commissioner decided against the Company's claims. The Company has gone on
further appeal for these three years to the Income Tax Appellate Tribunal. The
dispute regarding the fiscal years ended March 31, 1999 and 2000 is still
pending before the Income Tax Commissioner of Appeals (Mumbai). If the Company
is finally unsuccessful in all of these disputes, its aggregate liability will
be approximately Rs.6,540 million (US$ 137.60 million) including interest but
excluding penalties, measured as of March 31, 2003.

         Furthermore, the Indian tax authorities have taken the position that
the Company has not offered for taxation certain reimbursements it had received
from the Government during the fiscal year ended March 31, 1994. The tax
authorities claim that the Company owes approximately Rs.2,853 million in
respect of taxes due (including interest but excluding penalties) in connection
with such reimbursements. The Company has already paid the entire amount with
respect to this claim, but has appealed to the Income Tax Commissioner of
Appeals (Mumbai).

         For the fiscal year ended March 31, 2000, the tax authorities have
disallowed the company's write off in its books of accounts of its investment in
the equity shares of ICO Global Communications Inc. (which filed for bankruptcy
protection in the US in 2000), amounting to Rs.5,128 million. The tax demanded
in this regard amounts to Rs.1,974 million, which has already been paid by the
Company. However, the Company has appealed to the Income Tax Commissioner of
Appeals (Mumbai) regarding this claim, and the matter is now pending.

         In addition, the Company is involved in lawsuits, claims,
investigations and proceedings which arise in the normal course of its business.
There are no such matters pending that the Company expects to be material to its
business.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

         The following discussion of the results of operations and financial
condition of the Company for the fiscal years ended March 31, 2001, 2002 and
2003 should be read in conjunction with the financial statements of the Company
and the Notes thereto included elsewhere herein. The following discussion is
based on the Company's audited financial statements for the fiscal years ended
2001, 2002 and 2003, which have been prepared by the Company in accordance with
US GAAP. The Company's fiscal year ends on March 31 of each year, and therefore
all references to a particular fiscal year are to the twelve months ended March
31 of that year.

                                       51
<PAGE>

INTRODUCTION AND OVERVIEW

         The Company is the leading provider of public international
telecommunication services in India, directly and indirectly linking the
domestic telecommunications network to approximately 237 territories worldwide.
The Company provides international telephone, telex and telegraph services and
as of March 31, 2003, operated fourteen international switching and transmission
facilities at ten locations ("gateways") - Mumbai, Kolkata, Delhi, Chennai,
Ernakulam, Gandhinagar, Jalandhar, Kanpur, Bangalore and Hyderabad, which route
international traffic to and from the domestic telecommunications network using
a combination of satellite and undersea cable links. The Company is also
licensed to provide national long distance service within India and is India's
largest internet service provider.

         The Company derives the bulk of its revenue from payments from foreign
telecommunications administrations and private carriers for the delivery of
international calls to India and from payments from BSNL, MTNL and other access
providers in India for the delivery of international calls abroad. The Company
shares with BSNL, MTNL and other access providers revenue received by it from
foreign telecommunications administrations and carriers on incoming
international calls terminating on India's domestic network, and also revenue
received by BSNL, MTNL and other access providers from Indian domestic
subscribers on outgoing international calls initiated on such network, in
accordance with interconnect agreements between the Company, BSNL, MTNL and the
other access providers. The Company also derives revenues from other services
such as national long distance services and Internet services.

         The Company's traffic revenues are affected by the volume of voice and
data traffic between India and other countries and the number of circuits it
leases to customers, as well as the prices it sells these services at. Prices
for voice and data traffic are based on tariffs the Company's agrees bilaterally
with foreign administrations and on interconnect agreements the Company enters
into with domestic fixed line and cellular operators. Over the last several
years, the Indian communications market has experienced a significant increase
in traffic volumes in all categories, significant growth in tele-density and
high growth rates in the number of cellular subscribers. Consistent with global
trends, the Indian market has also experienced a significant decrease in
communications prices over the last several years, primarily driven by
competition, regulatory pressures in India and abroad and overcapacity. The
Company expects both these trends to continue for the foreseeable future.

         The Company's principal expenses consist of network and transmission
costs, other operating costs that include staff costs, depreciation and
administration expenses and the license fee the Company pays to the Government.

         The Company's network and transmission expenses consist of payments it
makes to foreign administrations for terminating calls from India and payments
it makes to BSNL, MTNL and other fixed line and cellular operators for calls
that originate abroad and that are terminated in India, together with the costs
of leasing satellite and undersea cable circuits that connect India to other
countries. Payments that the Company makes to foreign administrations and to
Indian fixed line and cellular operators are covered by the same agreements the
Company has for revenue tariffs, and are subject to the identical trends as its
revenues.

         The Company's financial condition and results of operations are
affected by general economic conditions prevailing in India and the extent to
which India's economy continues to modernize and further integrate with the
global economy.

         Critical Accounting Policies adopted in preparing Financial Statements

         The Company's financial statements included in this annual report are
prepared in accordance with US GAAP. US GAAP differs in certain material ways
from the Company's general purpose financial statements which have been prepared
in accordance with Indian accounting standards and laws. The Company's critical
accounting policies under which the US GAAP financial statements included in
this annual report have been prepared are as follows:

                                       52
<PAGE>

a.       USE OF ESTIMATES

         The preparation of financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent liabilities at
the date of these financial statements and the reported amounts of revenues and
expenses for the years presented. Actual results could differ from these
estimates. Material estimates included in these financial statements that are
susceptible to change include traffic revenue, allowances for trade debts and
other receivables and the valuation of unlisted investments.

b.       CASH AND CASH EQUIVALENTS

         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. The carrying value of
cash equivalents approximates fair value.

c.       TRADE AND OTHER RECEIVABLES

         Trade and other receivables are stated at their expected realizable
values, net of an allowance for doubtful debts. Amounts payable to and
receivable from the same carriers and BSNL/MTNL are shown on a net basis where a
legal right of set-off exists. These payables and receivables are generally
settled on a net basis.

d.       INVESTMENTS

         The Company accounts for its investments in securities of
telecommunication satellite companies for which readily determinable fair values
are available in accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity
Securities. SFAS No. 115 requires that investments that are not classified as
held to maturity or trading are classified as available for sale and recorded at
fair value. Unrealized gains and losses on such securities, net of applicable
taxes, are reported in other comprehensive income, a separate component of
shareholders' equity.

         Investments in telecommunication satellite companies which are not
freely transferable and for which fair values are not readily obtainable are
accounted for in accordance with APB Opinion No. 18, The Equity Method of
Accounting for Investments in Common Stock. These investments are reflected at
cost less permanent impairment, if any. Declines in the value of investments
that are other than temporary are reflected in earnings as realized losses,
based on management's best estimate of the value of the investment.

         Entities where the Company controls between 20% and 50% of the working
stock of the investee company are considered as affiliates/joint ventures and
are accounted using the equity method.

e.       PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment are stated at cost, net of accumulated
depreciation. All costs relating to the acquisition and installation of
property, plant and equipment are capitalized.

         Depreciation is charged on property, plant and equipment on a
straight-line basis from the time they are available for use, so as to make an
economic allocation of the cost at which the assets are acquired less their
estimated residual values, over their remaining estimated economic lives.
Depreciation on freehold land is not provided. The estimated useful lives of
various assets are shown below:

<TABLE>
<CAPTION>
                                                                          YEARS
                                                                          -----
<S>                                                                      <C>
Buildings                                                                     61
Plant and machinery:
   Earth stations                                                             12
   Cables                                                                10 - 25
   Exchanges                                                                  12
</TABLE>

                                       53
<PAGE>

<TABLE>
<S>                                                                        <C>
   Other network equipment                                                     8
   Office equipment                                                           20
Computers                                                                      6
Furniture, fittings and motor vehicles                                     10-15
</TABLE>

         Land acquired on lease is amortized over the period of the lease.

         Assets gifted by unrelated parties have been accounted for in
accordance with SFAS No. 116, Accounting for Contributions Received and
Contributions Made at fair value and recognized as revenue and an asset in the
period received. Such assets are depreciated over their remaining useful
economic lives.

         Property, plant and equipment includes intangible assets in the nature
of indefeasible rights of use ("IRU's") for international telecommunication
circuits in submarine cables, which the Company acquires from time to time.
These rights extend over specific time periods. The amounts paid according to
the terms of these transactions are recorded as additions to property, plant and
equipment, respectively, and amortized over the contracted period of use. The
Company's current amortization policy complies with SFAS No. 142, Goodwill and
Other Intangible Assets, which is applicable from fiscal years beginning after
December 15, 2002.

         The Company has not and does not trade in IRU's or bandwidth or enter
into any swap or other similar agreements relating to IRU's or bandwidth.

f.       IMPAIRMENT AND DISPOSAL OF LONG LIVED ASSETS

         The Company periodically evaluates the carrying value of its long-lived
tangible assets whenever events or circumstances indicate the carrying value of
such assets may exceed their recoverable amounts. An impairment loss is
recognized when the estimated future cash flows (undiscounted and without
interest) expected to result from the use or disposition of an asset are less
than the carrying amount of the asset. Measurement of an impairment loss is
based on the lower of the fair value and the net realizable value of the asset.

         In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. SFAS No. 144 applies to all long-lived assets, including
discontinued operations, and consequently amends APB opinion No. 30, Reporting
the Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. SFAS No. 144 develops one accounting model for long-lived assets
that are to be disposed of by sale, as well as addresses the principal
implementation issues. SFAS No. 144 requires that long-lived assets that are to
be disposed off by sale be measured at the lower of book value or fair value
less cost to sell. Additionally, SFAS No. 144 expands the scope of discontinued
operations to include all components of an entity with operations that: (1) can
be distinguished from the rest of the entity, and (2) will be eliminated from
the ongoing operations of the entity in a disposal transaction. SFAS No. 144
also amends Accounting Research Bulletin (ARB) No. 51, Consolidated Financial
Statements to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary.

         The Company adopted SFAS No. 144 with effect from April 1, 2002, with
no material impact on its results of operations, financial position or cash
flows. However, see "Item 3. Key Information--Risk Factors--The Company has
initiated a review of the useful lives and the consequent carrying values of
certain long-lived assets which could result in a reduction in the carrying
value of such assets."

g.       OPERATING LEASES

         Costs in respect of operating leases are expensed on a straight-line
basis over the lease term.

                                       54
<PAGE>

h.       RETIREMENT BENEFITS

         Gratuity

         In accordance with Indian law, the Company provides for gratuity, which
is a defined benefit retirement plan covering all eligible employees. The plan
provides for lump sum payments to vested employees at retirement, death while in
employment or on termination of employment in an amount equivalent to 15 days
salary payable for each completed year of service or part thereof in excess of
six months subject to a maximum of Rs.350,000. Vesting occurs upon completion of
five years of service. The Company makes annual contributions to a fund
administered by trustees, based on an external actuarial valuation carried out
annually. The Company accounts for its liability for future gratuity benefits in
accordance with SFAS No. 87, Employers' Accounting for Pensions.

         Leave encashment

         Leave encashment, which is a defined benefit plan, comprises of
encashment of vacation entitlement carried forward by employees. These balances
are encashable during the tenure of employment, on the employee leaving the
Company or on retirement. The Company makes a provision towards leave encashment
liability based on the total unavailed leave credited to each employee's account
and his respective salary as at the end of each reporting date.

         Pension

         Pension contributions are charged to the statement of income based on
actuarial valuation. Pension contributions mainly comprise the Company's share
of contribution relating to Overseas Communications Service employees who were
transferred to VSNL in the financial year ended March 31, 1990.

         Provident fund

         In addition to the above benefits, all eligible employees receive
benefits from a provident fund, which is a defined contribution plan. The
employee and employer each make monthly contributions to the plan equal to 12
percent of the employee's salary (basic and dearness allowance). The
contributions are made to the provident fund trust established by the Company.
The Company is obligated to make good any shortfall in the statutorily assured
rate of return on the assets of the trust, which has remained constant at 9.5
percent during the years ended March 31, 2002 and 2003. Currently, the Company
has no further obligation under the provident fund beyond its contribution,
which is expensed when incurred.

i.       REVENUE RECOGNITION

         Revenues for long distance telephone services are recognized at the end
of each month based upon minutes of incoming or outgoing traffic completed in
such month. Revenues from leased circuits are recognized based upon contracted
fee schedules. Revenues from Internet services are recognized based on usage by
subscribers. The majority of revenues are derived from payments by BSNL/MTNL for
completing outgoing calls made from India and from payments by foreign
administrations for incoming calls that originate outside India.

         Income from Intelsat, Ltd. is accounted as dividend income and included
as part of non-operating income.

j.       OPERATING AND OTHER EXPENSES

         The principal components of the Company's operating and other expenses
are network and transmission costs, license fees paid to the DoT, light and
power expenses and repairs to plant and machinery.

         Network and transmission costs include payments to BSNL/MTNL and other
fixed and cellular operators in India for incoming traffic and to foreign
administrations and carriers for outgoing traffic, as

                                       55
<PAGE>

well as the cost of leasing transmission facilities, including lines from BSNL
and other domestic operators and satellite circuits from satellite companies. As
discussed in Note 1(d) to the financial statements included in this Form 20-F,
the Company must pay a proportion of the amounts received from domestic
operators to transit and destination foreign administrations. Similarly, a
portion of the payments from the foreign administrations is paid to domestic
operators for completing calls within India.

         Other operating costs include general and administrative expenses other
than network and transmission costs and license fees, such as salaries,
depreciation and other overheads.

k.       FOREIGN CURRENCY TRANSACTIONS

         The Company's functional currency is the Indian rupee. Foreign currency
transactions are normally recorded at the exchange rates prevailing on the first
working day of the month in which the transaction falls. In the case of traffic
revenue and charges for the use of transmission facilities, foreign currency
transactions are recorded at the exchange rate prevailing on the last day of the
prior month. Foreign currency denominated monetary assets and liabilities are
converted into Indian rupees using exchange rates prevailing on the balance
sheet dates. Gains and losses arising on conversion of foreign currency
denominated monetary assets and liabilities and on settlement of foreign
currency transactions are included in the determination of net income.

l.       INCOME TAX

         Income tax comprises current income tax and the net change in the
deferred tax asset or liability in the year. Deferred income taxes are accounted
for using the asset and liability method for the future tax consequences of
temporary differences between the tax basis and the carrying value of assets and
liabilities.

         Deferred tax benefits are recognized on assets to the extent that it is
more likely than not that future taxable profits will be available against which
the asset can be utilized. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which the temporary differences are expected to be received or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the income statement in the period of enactment of the change.

m.       DIVIDENDS

         Any dividends declared by the Company are based on the profit available
for distribution as reported in the statutory financial statements of the
Company prepared in accordance with Indian GAAP. Accordingly, in certain years,
the net income reported in these financial statements may not be fully
distributable. As of March 31, 2002 and 2003, the amounts available for
distribution are Rs. 8,338 million and Rs.7,786 million, respectively. Dividends
declared for the years ended March 31, 2001, 2002 and 2003 were Rs.50, Rs.87.50
and Rs.8.50 per equity share, respectively. The Company paid dividends of Rs.760
million, Rs.35,625 million (including Rs. 21,375 million as special dividend)
and Rs.3,563 million during the years ended March 31, 2001, 2002 and 2003
respectively.

n.       EARNINGS PER SHARE

         The Company reports basic and diluted earnings per equity share in
accordance with SFAS No. 128, Earnings Per Share. Basic earnings per equity
share has been computed by dividing net income by the weighted average number of
equity shares outstanding for the period. For the purposes of earnings per
share, stock dividends declared by the Company have been given retroactive
effect for all the years presented.

o.       COMPREHENSIVE INCOME

         The Company reports comprehensive income in accordance with SFAS
No.130, Reporting Comprehensive Income. Accounting principles generally require
that recognized revenues, expenses, gains and losses be included in net income.
Unrealized gains and losses on available for sale securities, exchange

                                       56
<PAGE>

differences on translation of foreign affiliates/joint ventures along with net
income are components of comprehensive income.

p.       SEGMENT INFORMATION

         The Company identifies international telephony, Internet and leased
line services as its operating segments. Operating segments other than the
international telephony segment do not meet the quantitative thresholds
specified by SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, and do not qualify as reportable segments. Segment-wise
information has been provided in Note 25 to the financial statements.

OPERATING RESULTS

         The following table sets forth information regarding the Company's
operating revenue for the fiscal years ended March 31, 2001, 2002 and 2003.

<TABLE>
<CAPTION>
                                                                        YEARS ENDED MARCH 31,

                                                   2001              2002              2003              2003
                                                ----------     -----------------    ----------     -----------------
                                                               (RS. IN MILLIONS)                   (US$ IN MILLIONS)
                                                ----------------------------------------------     -----------------
<S>                                               <C>          <C>                    <C>          <C>
OPERATING REVENUE
Incoming telephone                                46,674            41,503            27,143             571
Incoming telex                                       112                70                36               1
Outgoing telephone                                18,345            16,153             9,656             203
Outgoing telex                                       112                88                60               1
Leased circuits                                    3,140             3,584             4,231              89
Internet access services                           2,980             2,305             2,251              48
Other revenue                                        553             1,347             1,964              41
                                                  ------            ------            ------             ---

Total traffic revenue                             71,916            65,050            45,341             954
                                                  ------            ------            ------             ---
</TABLE>

         Revenue

         The principal components of the Company's revenue are (1) payments from
foreign telecommunications administrations and carriers for incoming traffic
(prior to deducting amounts payable by the Company for outgoing traffic), which
are typically denominated mostly in Special Drawing Rights ("SDRs") or US
Dollars, and (2) payments from domestic operators for outgoing traffic (prior to
deducting amounts payable by the Company for incoming traffic), which are
denominated in Rupees. The major factors influencing revenue include traffic
volume and its composition in terms of incoming and outgoing calls and country
of origination and destination, the interconnection agreements with BSNL/MTNL
and other private basic and cellular operators, settlement rates negotiated with
foreign administrations and the Rupee/SDR and the Rupee/Dollar exchange rates.
See "Item 4. Information on the Company--Traffic Revenue and Revenue Sharing
Arrangement."

         Telephone Revenue. Revenue from telephone traffic historically has
constituted the most substantial component of the Company's revenue, accounting
for 90.41, 88.63 percent and 81.16 percent of revenue for the fiscal years,
2001, 2002 and 2003, respectively. The decline in telephone traffic revenue as a
percentage of total revenue is due primarily to a significant decline in the
settlement rates and to the increasing revenue contribution from specialized and
value-added services such as Internet access and international leased lines.

         Telephone revenue decreased by 36.17 percent during fiscal 2003 as
against the 11.32 percent decrease during fiscal 2002. The Company made its best
effort to protect and maintain its volume of ILD traffic at almost the same
level as in the previous year; it was greatly assisted in this by the continued
flow

                                       57
<PAGE>

of traffic from BSNL and MTNL based on the Government's directive to them to
route calls through the Company as a "Most Favored Customer" for a fixed period.
In fiscal 2003, incoming paid minutes of traffic carried by the Company were
marginally lower than in fiscal 2002 whereas outgoing paid minutes were higher.
Total paid minutes carried by the Company were marginally lower in fiscal 2003
compared to fiscal 2002. The Government allowed private players into the ILD
business from April 1, 2002 and by July 2002, VSNL had two competitors in this
business, Data Access and Bharti Tele-ventures Limited. The immediate effect of
competition was that international call tariffs fell by about 50 percent during
the next six months. This came on top of the Company's earlier tariff reductions
effective April 1, 2002, with a peak rate reduction of around 15 percent. At the
same time, settlement rates for incoming ILD traffic fell, reducing the
Company's revenue retention per minute for incoming traffic.

         Incoming call revenues decreased by 34.60 percent during fiscal 2003 as
against the 11.07 percent decrease during fiscal 2002. The decrease in revenue
is attributable partly to a reduction in settlement rates and partly to the
opening up of the sector to competition, which among other things resulted in a
decline in the incoming paid minutes of traffic carried by the Company in fiscal
2003 compared to fiscal 2002. The average settlement rate received from foreign
administrations and carriers in respect of incoming telephone traffic for fiscal
2001, 2002 and 2003 decreased in US Dollar terms from US$0.46, to US$0.33 and to
US$ 0.23 per minute, respectively as a result of decreases in settlement rates
applicable to the Company. The Company is facing further declines in
international settlement rates for incoming traffic, particularly with US
carriers. See "Item 4. Information on the Company--Traffic Revenue and Revenue
Sharing Arrangements--Payments to and from Foreign Administrations or Carriers."

         Outgoing call revenue decreased by 40.22 percent in fiscal 2003 as
against the 11.95 percent decrease during fiscal 2002 primarily due to the
significant fall in the tariffs in fiscal 2003. Declines in tariff rates for
telephone services offered by the Company, including reduction in peak
international call tariffs for fiscal 2000 by about 27 percent and fiscal 2001
by 20 percent approximately, was mandated by the TRAI. The TRAI had mandated a
further 23 percent reduction in peak international call tariffs for fiscal 2002.
The TRAI has since mandated a further reduction in tariffs of 16 to 20 percent
for international long distance calls. Such tariff reductions occurred between
October 1, 2000 and March 31, 2002. These declines in tariffs have been a major
factor in adversely affecting revenues and have not been outweighed by the
slight increase in the outgoing paid minutes of traffic carried by the Company
in fiscal 2003 compared to fiscal 2002. Subsequently, in January 2003, the TRAI
announced that the operators could fix the tariffs after taking its approval.
See "Item 3. Key Information--Risk Factors--The Government's new tariff regime
and competition could have a material adverse effect on our results of
operations and financial condition." While further declines in tariff rates can
be expected to increase traffic volumes, there can be no assurance that lower
tariff rates will not lead to unfavorable revisions to the interconnect
agreements with BSNL or MTNL or otherwise adversely affect the Company's
business and prospects.

         Telex Revenue. Total revenue from telex services decreased from Rs.224
million in fiscal 2001, to Rs.158 million in fiscal 2002 and to Rs.96 million
(US$ 2.02 million) in fiscal 2003. Such decreases are attributable principally
to a switchover of customers from telex services to other forms of communication
such as facsimile, telephone and E-mail. Telex revenue accounted for 0.31
percent of total traffic revenues in fiscal 2001, 0.24 percent in fiscal 2002
and 0.21 percent in fiscal 2003.

         Leased Circuits Revenue. Revenue from leased circuits increased by
14.14 percent during fiscal 2002 and by 18.05 percent during fiscal 2003, which
is primarily attributable to an increase in transmission capacity.

         Internet Access Services Revenue. Internet access services were first
introduced by the Company in India in August 1995. Revenues from Internet
services were Rs.2,980 million, Rs.2,305 million and Rs.2,251 million (US$ 47.36
million) during fiscal 2001, fiscal 2002 and fiscal 2003, respectively, a
decrease of 22.65 percent and 2.34 percent during fiscal 2002 and fiscal 2003,
respectively. The decrease in Internet revenues is due to the significant
reduction in tariffs over the period. The Company was initially the sole
provider of Internet services in India. However, the Government announced a new
Internet policy in November 1998 which allowed the entry of private Internet
service providers. As of March 31, 2003, there were approximately 190 licensed
Internet service providers in India. See "Item 4. Information on the
Company--Industry Overview--Developments."



                                       58
<PAGE>

         In late 1998, the Department of Telecommunications instituted a
mandatory license requirement for the provision of Internet services. The
Company and the DoT entered into a license agreement effective January 25, 1999,
under which the Company was granted a license to provide Internet access service
in six cities on a non-exclusive basis. Subsequently, as a part of the
compensation package for the removal of monopoly two years ahead of schedule, an
all-India license was provided.

         Other Traffic Revenue. Other traffic revenues include revenues from
services such as the transmission of television signals, telegraph services,
electronic mail, frame relay and facsimile forwarding services, services through
which subscribers may exchange data with users of other data networks,
electronic data interchange and video conferencing. Revenue from these sources
accounted for 0.77 percent of revenues in fiscal 2001, 2.07 percent in fiscal
2002 and 4.33 percent in fiscal 2003.

         Income from Satellite Consortia. Following the corporatization of
Intelsat during July 2001 and Inmarsat during April 1999, any income we receive
from Intelsat and Inmarsat would be in the form of dividends and no such income
has been received either during fiscal 2002 or during fiscal 2003. Prior to its
corporatization, Intelsat used to periodically distribute a portion of the
surplus generated to its shareholders in proportion to their holdings.

         Operating Costs

         The principal components of the Company's operating costs are network
and transmission costs, other operating costs and the license fee paid to the
DoT.

         The following table sets forth certain information regarding the
components of the Company's operating costs for the fiscal years ended March 31,
2001, 2002 and 2003.

<TABLE>
<CAPTION>
                                                      YEARS ENDED MARCH 31,
                                        ------------------------------------------------
                                          2001         2002         2003         2003
                                                     (RS. IN                   (US $ IN
                                                     MILLIONS)                 MILLIONS)
                                        --------     ---------    --------     ---------
<S>                                     <C>          <C>          <C>          <C>
Network and transmission costs
Transmission costs to Domestic           27,341       23,050       13,528         285
Operators(1)

Transmission costs to foreign            13,866       10,721        6,741         142
administrations(2)
Other transmission costs                  3,943        5,806        5,775         121
Total                                    45,150       39,577       26,044         548
                                         ------       ------       ------         ---
Other operating costs including           4,752        6,701        6,076         128
depreciation
Government levy/license fee               5,022        5,393        4,037          85
                                         ------       ------       ------         ---

Total operating costs                    54,924       51,671       36,157         761
                                         ------       ------       ------         ---
</TABLE>

(1)      Out of such amounts, payments in respect of incoming telephone calls
         amounted to Rs.27,079 million, Rs.21,699 and Rs.12,805 million (US$
         269.41 million) for the fiscal years ended March 31, 2001, 2002 and
         2003, respectively.

(2)      Of such amounts, payments in respect of outgoing telephone calls
         amounted to Rs.12,578 million, Rs.9,684 and Rs.6,270 million (US$
         131.92 million) for the fiscal years ended March 31, 2001, 2002 and
         2003, respectively.

         Network and Transmission Costs. Network and transmission costs include
transmission costs to BSNL, MTNL and other access providers for incoming traffic
and to foreign administrations and carriers for outgoing traffic (See "Item 4.
Information on the Company--Traffic Revenue and Revenue Sharing

                                       59
<PAGE>

Arrangement"), as well as the cost of leasing certain transmission facilities,
including lines from BSNL and other private providers as well as satellite
circuits from Intelsat, Inmarsat and New Skies Satellites, NV.

         Transmission costs to domestic operators for incoming traffic decreased
by 15.69 percent and 41.31 percent during fiscal 2002 and fiscal 2003
respectively, principally due to the decrease in interconnect charges. Payments
to foreign administrations and carriers for outgoing traffic decreased by 22.68
percent and 37.12 percent in fiscal 2002 and fiscal 2003 respectively. This
decrease was primarily as a result of decreases in settlement rates for outgoing
traffic. The average settlement rate paid to foreign administrations and
carriers decreased in US Dollar terms from US$0.51 per minute to US$0.34 per
minute and to US$0.19 per minute for the fiscal years ending March 31, 2001,
2002 and 2003 respectively.

         The cost of leasing transmission facilities increased by 47.25 percent
and decreased by 0.53 percent during fiscal 2002 and fiscal 2003 respectively.
The increase in fiscal 2002 is primarily attributable to the increased cost of
providing domestic connectivity to various services while the decrease in fiscal
2003 is primarily attributable to the surrender of satellite capacity.

         Other Operating Costs. Other operating costs consist of staff costs,
depreciation, energy costs and other costs, including for repairs, maintenance
and marketing. During fiscal 2002 other operating costs increased by 41.01
percent and decreased by 9.33 percent during fiscal 2003. The increase in fiscal
2002 is primarily attributable to the higher staff cost due to accounting of
compensation cost of the Company's Employee Stock Purchase Scheme and higher
provision for bad & doubtful debts relating to certain foreign carriers, such as
MCI Worldcom and Teleglobe Canada (both of which filed for bankruptcy
protection). These unusual items were not applicable in fiscal 2003,
contributing to the lower operating costs.

         License Fee. As per the new standard license agreement proposed by the
Government, license fees payable to the DoT amount to 15 percent of adjusted
gross revenues (which the Government defines as gross call revenues minus access
charges actually paid to other carriers for carrying of calls minus service and
sales taxes actually paid to the Government), whereas in fiscal years 2002 and
2001, the Company paid to DoT a license fee of Rs.0.25 million per annum on
average circuits commissioned under the revenue sharing agreement with DoT/BSNL.
The change in the basis of computation led to a decrease of 25.14 percent in
license fee cost during fiscal 2003.

         Operating Profit

         The following table sets forth certain information regarding the
Company's gross telephone and operating profits for the fiscal years ended March
31, 2001, 2002 and 2003.

<TABLE>
<CAPTION>
                                                       YEARS ENDED MARCH 31,
                                        ----------------------------------------------------
                                           2001        2002         2003           2003
                                                      RS. (IN                       US $
                                                     MILLIONS)                 (IN MILLIONS)
                                        ---------    ---------    ---------    -------------
<S>                                     <C>          <C>          <C>          <C>

Gross profit on telephone               Rs.25,362    Rs.26,273    Rs.17,724          373
services (1)
Operating profit                           18,152       13,379        9,184          193
</TABLE>

(1)      Telephone revenue net of interconnect charges paid to the domestic
         operators for incoming telephone calls and settlement charges paid to
         foreign administrations and carriers for outgoing telephone calls after
         prior year adjustments.

         Gross profit on telephone services increased 4.05 percent and decreased
32.54 percent in fiscal 2002 and fiscal 2003 respectively. The Company derives
substantially all its revenue from payments from foreign telecommunication
administrations and private carriers for the delivery of international calls to
India and from payments from BSNL and MTNL for the delivery of international
calls abroad. Consequently, the Company and BSNL/MTNL share revenues received by
each entity from international

                                       60
<PAGE>

calls pursuant to a revenue sharing arrangement between them. (See "Item 4.
Information on the Company--Traffic Revenue and Revenue Sharing Arrangement").

         Investment and Other Income

         The following table sets forth certain information regarding the
components of the Company's investment and other income for the fiscal years
ended March 31, 2001, 2002 and 2003.

<TABLE>
<CAPTION>
                                                     YEARS ENDED MARCH 31,
                                        -----------------------------------------------
                                          2001         2002         2003         2003
                                                     RS. (IN                   (US $ IN
                                                     MILLIONS)                 MILLIONS)
                                        --------     --------     --------     --------
<S>                                       <C>        <C>            <C>        <C>
Revenue from Intelsat                      1,160            -            -         -
Profit / (loss) on sale of                    (5)          (2)           1         -
investments
Exchange gains (Net)                       2,878          939          167         4
Interest Income (Net)                      3,963        4,380        2,368        50
Other income                                 185          434          257         5
Share of Loss in Affiliates                    -            -         (143)       (3)
                                        --------     --------     --------     -----
Total                                      8,181        5,751        2,650        56
</TABLE>

         The principal components of investment and other income are net foreign
exchange gains (comprised mainly of net gains arising from period-end
retranslations of settlement payments owed by foreign administrations and
carriers, as well as net gains realized upon receipt of such settlement
payments, and net gains arising from the retranslation of period-end cash
balances) and revenues from Intelsat and Inmarsat.

         As of March 31, 2003, the Company held 9,015,314 ordinary shares, par
value US$3.00 per share, of Intelsat, Ltd., a company incorporated under the
laws of Bermuda. These shares represent 5.42 percent of the issued and
outstanding ordinary shares of Intelsat. Intelsat has over 200 shareholders,
including public and private communications companies and national governments
from around the world. Intelsat is a leading provider of satellite
communications services worldwide, supplying voice, data, video and Internet
backbone connectivity in over 200 countries and territories. Intelsat's
satellite network includes 24 satellites in orbit and leased capacity on 2
additional satellites owned by strategic partners in the Asia-Pacific region.

         In March 2000, the US Congress passed the Open-market Reorganization
for the Betterment of International Telecommunications Act, referred to as the
ORBIT Act, the stated purpose of which is "to promote a fully competitive global
market for satellite communication services for the benefit of consumers and
providers of satellite services and equipment" by fully privatizing the
intergovernmental satellite organizations, including Intelsat and its spin-off
company, New Skies Satellite ("NSS"). The ORBIT Act, as amended in October 2002,
requires Intelsat to conduct an initial public offering of its equity securities
by December 31, 2003, which may be extended by the U.S. Federal Communications
Commission to June 30, 2004. Depending upon stock market conditions at the time,
existing shareholders might have the opportunity to participate in the offering.
However, there is no certainty about the timing of such offering.

         During 1998-99, Intelsat as part of its restructuring process
incorporated NSS as a corporation with limited liability under the laws of
Netherlands and transferred certain assets and liabilities to NSS accounted for
at historic book values. In return, NSS issued 10,000,000 shares of common stock
of par value Dutch Guilder 1 each to Intelsat. Intelsat distributed 9,000,000
shares of NSS in the year 1998-99 and

                                       61
<PAGE>

1,000,000 shares of NSS in 1999-2000 in proportion to the investment share of
its members at the time of distribution. Consequently, the Company acquired
301,215 shares in 1998-99 and 43,000 shares in 1999-2000. NSS announced a 10: 1
stock split prior to its initial public offer (IPO) in October 2000 and
redesignated its shares from Guilders to Euros. Thus, the Company's total
holding in NSS as of March 31, 2003 stands at 3,442,150 ordinary shares of par
value 0.05 Euros each. The market value per share as of March 31, 2003 was US $
4.17 per share.

         Inmarsat, previously an inter-governmental organization, was privatized
on April 15, 1999. The Company's shareholding in Inmarsat Ventures plc,
(formerly Inmarsat Holdings Limited) is in proportion to its investment share
upon privatization which represents 2.02 percent of the issued share capital of
Inmarsat Ventures plc. The Company has been informed that in order to satisfy
the provisions of the US ORBIT Act, Inmarsat may be required to undertake an
initial public offering of its shares, which may, depending upon the stock
market circumstances at the time, include the opportunity for existing
shareholders to participate in the secondary offering. However, there is no
certainty about the timing of such offering.

         TVCL is a joint venture between the Company, Telstra-Australia and
Infrastructure Leasing & Financial Services Ltd., initially formed with
investment equity in the ratio of 40:40:20. Currently, the Company holds Rs.92
million out of the total paid up capital of Rs.314 million. TVCL has invested in
a hybrid VSAT project and has diversified into consulting, facility management
services and turnkey VSAT projects for large organizations. The shares of TVCL
are recorded at face value and consequently the Company has applied the
provision for diminution in value of investments and written off these
investments to their current fair value in the year ended March 31, 2000. As per
the proposed restructuring plan undertaken by TVCL, Essel Shyam Communications
Ltd. ("ESCL"), a company incorporated in India, has been identified as a
strategic partner. Further, Telstra-Australia will exit the joint venture and
the shareholders of TVCL comprising the remaining joint venture partners, namely
the Company and IL&FS and the Employee Welfare Trust, will get 15% in the
aggregate of the equity share capital of ESCL in exchange for their holding in
TVCL. In addition, ESCL will pay cash compensation of Rs.20 million to the
Company and IL&FS in the aggregate.

         The company has an equity interest of 19.9% in Tata Teleservices
Limited ("TTSL"). The Company has the right to appoint two directors in TTSL.
TTSL and its subsidiaries provide basic telephony and Internet services in
Andhra Pradesh and Maharashtra. Investment in TTSL has been equity accounted in
accordance with APB Opinion No. 18, The Equity Method of Accounting for
Investments in Common Stock.

         Net Interest

         Net interest represents the net interest amount receivable or payable
by the Company on its bank and other deposits and borrowings under its overdraft
facilities. Net interest income increased to Rs.4,380 million during fiscal 2002
from Rs.3,963 million in fiscal 2001. During fiscal 2003, interest income
receivable decreased to Rs.2,368 million (US$ 49.82 million), which includes the
interest on income tax refund of Rs.535 million (US$ 11.26 million). The
decrease in other interest income is primarily due to decrease in the interest
rates and in average bank deposits.

         Income before Taxation

         As a result of the above factors, income before taxation decreased by
24.01 percent from Rs.25,173 in fiscal 2001 to Rs.19,130 million in fiscal 2002.
It further decreased by 38.14 percent to Rs.11,834 million (US$ 248.98 million)
during fiscal 2003.

                                       62
<PAGE>

         Income Tax Expense

         The Company's effective income tax rates (including dividend tax of
Rs.105 million, Rs.3,634 million and Rs.Nil million respectively) were 38.74
percent, 50.15 percent and 37.10 percent for fiscal 2001, fiscal 2002 and fiscal
2003, respectively. The effective income tax rates excluding dividend tax were
38.32 percent, 31.15 percent and 37.10 percent respectively compared to the
effective statutory income tax rate of 39.55, 35.70 and 36.75 percent for all
such fiscal years. The differences between the effective income tax rates and
the effective statutory income tax rates were attributable to things such as
exchange gains treated as capital receipts for income tax provision and
writedowns in the value of our investments that are not allowed for tax and
income tax exempt under tax holiday.

         Significant claims by the revenue authorities in respect of income tax
matters are in respect of:

         (a)      expenditure on license fees for the fiscal years 1994-98
                  disallowed by the revenue authorities;

         (b)      deductions claimed under Section 80-IA of the Income Tax Act
                  for the fiscal years 1996-2000 disallowed by the revenue
                  authorities; and

         (c)      reimbursement by DoT of income tax paid by the Company on the
                  DoT levy during fiscal year 1993-94, which has been taxed by
                  the revenue authorities.

         The Company has contested these claims, which are in various stages of
appeal. For a description of these claims and the amounts involved, see "Item 4.
Information on the Company -- Legal Proceedings."

         Net Income

         As a result of the above factors, net income decreased by 38.16 percent
in fiscal 2002 to Rs.9,537 million from Rs.15,422 in fiscal 2001. It further
decreased by 21.95 percent in fiscal 2003 to Rs.7,444 million (US$ 156.62
million).

         Recent Accounting Pronouncements

         SFAS NO. 143

         In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs, 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 capitalized as part of the
carrying amount of the long-lived asset. SFAS No. 143 will become applicable to
the Company for its fiscal year beginning on April 1, 2003, and when adopted, is
not expected to have any impact on the results of operations, financial position
or cash flows.

         SFAS NO. 146

         In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies the EITF Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity including
Certain Costs Incurred in a Restructuring". The principal difference between
SFAS No. 146 and Issue 94-3 relates to SFAS No. 146's requirements for
recognition of a liability for a cost associated with an exit or disposal
activity. SFAS No. 146 requires that a liability for a cost associated with an
exit or disposal activity be recognized when the liability is incurred. Under
Issue 94-3, a liability for an exit cost was recognized at the date of an
entity's commitment to an exit plan. A fundamental conclusion reached by the
FASB in this Statement is that an entity's commitment to a plan, by itself, does
not create an obligation that meets the definition of a liability.

                                       63
<PAGE>

Therefore, this Statement eliminates the definition and requirements for
recognition of exit costs in Issue 94-3. This Statement also establishes that
fair value is the objective for initial measurement of the liability. SFAS No.
146 is effective for exit or disposal activities that are initiated after
December 31, 2002. The Company believes that the adoption of SFAS No. 146 will
not have a material impact on its financial position or results of operations.

         SFAS NO. 148

         In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation. This Statement amends FASB Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. Statement 123 required prospective application of the fair value
recognition provisions to new awards granted after the beginning of the period
of adoption. When Statement 123 was issued in 1995, the Board recognized the
potential for misleading implications caused by the "ramp-up" effect on reported
compensation cost from prospective application of the fair value based method of
accounting for stock-based employee compensation to only new grants after the
date of adoption. However, the Board was concerned that retroactive application
would be excessively burdensome to financial statement preparers because the
historical assumptions required to determine the fair value of awards of
stock-based compensation for periods prior to the issuance of Statement 123 were
not readily available. This Statement permits two additional transition methods
for entities that adopt the preferable method of accounting for stock-based
employee compensation. Both of those methods avoid the ramp-up effect arising
from prospective application of the fair value based method. In addition, to
address concerns raised by some constituents about the lack of comparability
caused by multiple transition methods, this Statement does not permit the use of
the original Statement 123 prospective method of transition for changes to the
fair value based method made in fiscal years beginning after December 15, 2003.

         SFAS NO. 149

         In February 2003, the FASB issued SFAS No. 149, Amendments of Statement
No. 133 on Derivative Instruments and Hedging Activities. This Statement amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.
This Statement amends Statement 133 for decisions made (1) as part of the
Derivatives Implementation Group process that effectively required amendments to
Statement 133, (2) in connection with other Board projects dealing with
financial instruments, and (3) in connection with implementation issues raised
in relation to the application of the definition of a derivative, in particular,
the meaning of an initial net investment that is smaller than would be required
for other types of contracts that would be expected to have a similar response
to changes in market factors, the meaning of underlying, and the characteristics
of a derivative that contains financing components. This Statement is effective
for contracts entered into or modified after June 30, 2003. All provisions of
this Statement should be applied prospectively.

         FIN 45

         In November 2002, the FASB issued FIN 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an interpretation of FASB No 5, 57 and 107 and
rescission of FASB interpretation No. 34. This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. This Interpretation does not prescribe a specific
approach for subsequently measuring the guarantor's recognized liability over
the term of the related guarantee. This Interpretation also incorporates,
without change, the guidance in FASB Interpretation No. 34, Disclosure of
Indirect Guarantees of Indebtedness of Others, which is being superseded. The
initial recognition and initial measurement provisions of this

                                       64
<PAGE>

Interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002, irrespective of the guarantor's fiscal
year-end. The disclosure requirements in this Interpretation are effective for
financial statements of interim or annual periods ending after December 15,
2002. The interpretive guidance incorporated without change from Interpretation
34 continues to be required for financial statements for fiscal years ending
after June 15, 1981, which is the effective date of Interpretation 34.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's principal capital resources are primarily generated from
its operations. In addition, the Company borrows funds for short term
requirements from time to time in order to meet temporary working capital needs.
The Company believes that its cash and cash equivalents and ability to borrow
will be sufficient to meet its liquidity requirements in the near future.

         The Company generated Rs. 23,075 million, Rs. 9,485 million and Rs.
9,861 million (US$ 207.47 million) in cash flows from its operations for fiscal
2001, 2002 and 2003, respectively. Net cash provided by operations consisted
primarily of net income as increased by depreciation, reduction in trade and
other receivables and accrued expenses and other liabilities, which is partly
offset by a decrease in trade payables.

         The Company used Rs. 41,416 million, generated Rs. 26,068 million and
used Rs. 11,697 million (US$ 246.10 million) of its cash flows for its investing
activities for fiscal 2001, 2002 and 2003, respectively. Net cash used in
investing activities that involved the acquisition of additional property, plant
and equipment was Rs. 4,238 million, Rs. 2,509 million and Rs. 2,868 million
(US$ 60.34 million) for fiscal 2001, 2002 and 2003, respectively. In fiscal
2001, the Company invested Rs. 37,272 million in short term deposits whereas in
fiscal 2002 there was a net withdrawal of Rs. 28,581 million from short term
deposits for making the dividend payment of Rs. 35,625 million. In fiscal 2003,
there was an increase in short term deposits of Rs. 5,845 million (US$ 122.97
million) due to additional deposits with maturities exceeding 90 days. During
fiscal 2003, the Company made investments of Rs. 2,987 million (US$ 62.84
million) in TTSL and UTL.

         The Company used Rs. 760 million, Rs. 29,874 million and Rs. 5,774
million (US$ 121.48 million) of its cash flows for its financing activities for
fiscal 2001, 2002 and 2003, respectively. This primarily consisted of net
proceeds of short term borrowings of Rs. 5,751 million in fiscal 2002 and
repayment of short term borrowings of Rs. 2,211 million (US$ 46.52 million) in
fiscal 2003, together with the regular dividend paid of Rs. 760 million, Rs.
2,850 million and Rs. 3,563 million (US$ 74.96 million) during fiscal 2001, 2002
and 2003, respectively. In fiscal 2002, in anticipation of the Company's
privatization, the Company paid an additional Rs. 32,775 million (US$ 689.56
million) as a special dividend.

         As of March 31, 2003, the Company's cash and cash equivalents were Rs.
272 million (US$ 5.72 million) as against Rs. 7,881 million as of March 31,
2002, reflecting a decrease of Rs. 7,609 million (US$ 160.08 million) mainly
because during the year the Company kept its funds in deposits with a maturity
of more than 90 days as against deposits with a maturity of less than 90 days
kept during the previous year. This was because the Company did not anticipate
any significant short term funding requirements during the year. Deposits with a
maturity of more than 90 days appear as short term investments rather than cash
and cash equivalents in the Company's financial statements. This reduced the
cash and cash equivalents as on March 31, 2003 compared to March 31, 2002 but
increased short term investments from Rs. 10,361 million (US$ 217.99 million) as
on March 31, 2002 to 17,052 million (US$ 358.76 million) as on March 31, 2003.
Also see Notes 3 and 4 to the financial statements appearing in this annual
report.

         The Company's working capital, which the Company defines as the excess
of current assets (including short term investments) over current liabilities,
increased from Rs. 28,056 million as of March 31, 2002 to Rs. 28,428 million
(US$ 598.11 million) as of March 31, 2003. This increase is primarily due to the
following reasons:

                                       65
<PAGE>

         a)       Increase in short-term investments from Rs. 17,469 million as
                  on March 31, 2002 to Rs. 23,314 million (US$ 490.51 million)
                  as on March 31, 2003.

         b)       During fiscal 2003, the Company made short term borrowings of
                  Rs. 3,540 million (US$ 74.48 million) to pay for income tax
                  demands to enable the Company to keep its surplus funds in
                  short-term investments yielding higher interest rates. In
                  comparison, short term borrowings in fiscal 2002 were Rs.
                  5,751 million.

         c)       Trade payables decreased from Rs. 5,728 million as on March
                  31, 2002 to Rs. 2,422 million (US$ 50.96 million) as on March
                  31, 2003 due mainly to a reduction in settlement rates with
                  respect to basic telephony.

         d)       Increase in other assets (comprising payment of advance
                  tax-net of provisions for tax, advance paid for capital goods,
                  prepaid expenses and inventories) from Rs. 8,293 million as on
                  March 31, 2002 to Rs. 12,803 million (US$ 269.37 million) as
                  on March 31, 2003.

OFF-BALANCE SHEET ARRANGEMENTS

         The Company does not have any off-balance sheet financing arrangements.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

         The Company had the following contractual and commercial commitments as
of March 31, 2003:

CONTRACTUAL OBLIGATIONS

<TABLE>
<CAPTION>
                                                    PAYMENTS DUE BY PERIOD
                                                         (RS.MILLION)
                                      ----------------------------------------------------
                                               LESS THAN      1-3        3-5     MORE THAN
                                      TOTAL      1 YEAR      YEARS      YEARS     5 YEARS
                                      ------   ---------     -----      -----    ---------
<S>                                   <C>      <C>           <C>        <C>      <C>
Purchase obligations                   1,314      1,309          5        Nil        Nil
Other long term liabilities           11,063      2,829      4,138      3,096      1,000
reflected on the issuer's balance
sheet under GAAP
Total                                 12,377      4,138      4,143      3,096      1,000
</TABLE>

         The Company is not involved in any trading activities.

CAPITAL EXPENDITURES

Process of the Company's Capital Investment Plans

         Indian government agencies and public sector companies are required to
implement capital expenditure programs through a series of five year plans.
Prior to February 2002, when the Company was a public sector company, its five
year plans were typically subject to mid-term review, which historically led to
material changes in the Company's estimates of both the amount and the types of
capital expenditures on specific projects. The materiality of these changes was
compounded by the Company's weaknesses in preparing budgets and appraising and
monitoring capital expenditure projects. In addition, the aggregate capital
expenditures under any five year plan were often revised upward or downward as
was necessitated by changes in the telecommunications market and the evolving
needs of the Company.

         Subsequent to the privatization of the Company in February 2002, the
Company is no longer required to follow the Governmental system of five year
plans. Hence, the Tenth Five-Year Plan prepared earlier under Government
guidelines has been abandoned.

         As a result of privatization as well as the deregulation of the
industry, the Company's capital expenditure opportunities have also changed.
Prior to privatization, the Company was significantly

                                       66
<PAGE>

constrained in its ability to plan and undertake capital investments. Following
its privatization, the Company's opportunities have expanded, and the Company is
in the process of reviewing and crystallizing its business plan and capital
expenditures.

         The Company henceforth intends to prepare and modify as necessary
annual capital expenditure plans to reflect the changing competitive market. The
Company hopes to achieve topline growth in its existing voice and data business,
and Internet dial up services, while simultaneously backward integrating by
entering into the NLD market. The Company also expects to introduce newer
technologies such as Asynchronous Transfer Mode, In-Platform, Voice Over
Internet Protocol and Service Level Agreement Enablement in its network. The
Company also expects to equip its infrastructure to provide new value added
services like Bandwidth on Demand, Virtual Private Network services, and
Broadband Services.

Planned Capital Expenditure

         The capital expenditure intended for use on expansion of ILD switch
capacity, ATM network, NLD network and upgradation of IT facilities was partly
spent in 2002-03. The efforts in these directions will continue in 2003-04, in
the major areas described below:

         The Company has planned the following projects, to increase revenues
from its existing service portfolio and to generate new revenue streams. These
plans are subject to ongoing review and modification by the Company's Board of
Directors in light of changing competitive conditions and the Company's
financial condition and results of operations.

<TABLE>
<CAPTION>
                                                 PROJECT OUTLAY DURING
                                                       2003-04
                                                 ---------------------
                                                   RS.           US$
                SCHEME                           MILLION       MILLION
-----------------------------------------        -------       -------
<S>                                              <C>           <C>
International Long Distance (ILD)- Voice             356           7
National Long Distance (NLD)- Voice                2,450          51
Corporate Data                                       312           7
Retail -Internet Services                            415           9
Network Management System                            335           7
Others                                               387           8
New Cable Acquisition                              4,700          99
Investment/Diversification                         2,310          49
                                         TOTAL    11,230         236
</TABLE>

Some significant areas of capital expenditure and investment planned for the
year 2003-04 are as follows:

         Centralized Network Management System ("CNMS"):

         The implementation of CNMS is with a view to effectively manage the
Company's ILD and NLD services by establishing a network management system
framework. The objectives of CNMS are to improve the quality of the Company's
services and the Company's responsiveness to customers. To this end, the CNMS
framework is intended to reduce the average time taken by the Company to
identify and correct network faults, and to enhance the procedures by which the
Company maintains its systems and network. The capital expenditure planned for
CNMS is Rs.335.30 million (US$ 7.05 million) for 2003-04.

         ITMC Redesign

         The International Transmission Maintenance Centre is the backbone of
the Company's network, and the Company plans to achieve a network availability
level of 99.99 percent. The project involves the expansion and upgradation of
existing network elements, phasing out old equipment and simplifying the
network's architecture. The Company hopes that this project will result in high
circuit uptimes (i.e., times

                                       67
<PAGE>

when the circuit is functional) for our customers and enable us to achieve an
overall improvement in operational effectiveness. The project cost is estimated
Rs. 140.8 million (US$ 2.96 million).

         New Cable Acquisitions

         In order to meet customers' bandwidth demands, the Company plans to
acquire additional international bandwidth capacity. VSNL has planned to invest
Rs.4,700 million (US$ 98.88 million) in international cable capacity in fiscal
2003-04. A major bandwidth acquisition will be capacity on the SEA-ME-WE4 cable.

         Expansion of Switching Facilities in New Delhi and VOIP Gateways:

         Expansion of switching facilities is necessitated due to the increase
in the traffic in New Delhi and due to the fact that the existing switches in
New Delhi have become obsolete. The planned capital expenditure for this
expansion is Rs.31.60 million (US$ 0.66 million) in fiscal 2003-04.

         The Company anticipates significant growth in "voice over internet
protocol" ("VOIP") traffic in the coming years. In order to equip itself
adequately to carry the increasing VOIP traffic the Company plans to install two
advanced VOIP gateways in New Delhi and Jallandhar during fiscal 2003-04. The
capital expenditure for the installation of the gateways is estimated to be
Rs.9.6 million (US$ 0.66 million).

         SLA Verification System

         Responding to market needs, VSNL needs to provide SLA (Service Level
Agreement) facilities to Corporate Data customers. This envisages the setting up
a fail-proof Internet system infrastructure, which means that each critical
equipment in the system would have both online and offline equipment and would
switch between one another in case of failure. The capital expenditure planned
is Rs. 80 million (US$ 1.68 million) spread over two years.

         IN Platform and ATM Expansion

         The IN platform provides the ability to offer several new services. ATM
expansion can reduce bandwidth used. ATM is a high speed, low delay,
multiplexing and switching technology that can support many types of user
traffic including voice, data, and video applications. ATM is a flexible service
that can be used by customers that require international point to point
connectivity, point to multi-point connectivity and multi-point to multi-point
connectivity. The IN-platform and ATM Expansion were commissioned in March 2003,
though the payments will be effected in 2003-04. The cash outflow is expected to
be Rs.202 million (US$ 4.25 million) in 2003-04.

         National Long Distance Services Rollout

         The Company has been given a license to operate NLD services as part of
the compensation for the early termination of its ILD monopoly. The Company
plans to cover the area for which it has been granted a NLD license with a fiber
optic backbone, which will be used by the Company to provide advanced voice,
video and data transmission services. The Company was required to provide a
performance bank guarantee for Rs.4,000 million (US$ 81.92 million) against its
obligations under the NLD license agreement. Under the license agreement, the
Company is committed to roll out its network by establishing points of presence
in 322 national points of presence or Long Distance Charging Areas ("LDCA",)
across the country in a phased manner as stipulated below:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                      Cumulative percentage of national        Cumulative percentage of
                Time Period (from     coverage at LDCA level where point of    coverage of uneconomic and
Phase           February 8, 2002)     presence has to be established           remote areas
----------------------------------------------------------------------------------------------------------
<S>             <C>                   <C>                                      <C>
I                   2 years                          15                                   2
----------------------------------------------------------------------------------------------------------
II                  3 years                          40                                   4
----------------------------------------------------------------------------------------------------------
III                 4 years                          80                                   7
----------------------------------------------------------------------------------------------------------
IV                  7 years                         100                                All (43)
----------------------------------------------------------------------------------------------------------
</TABLE>

                                       68
<PAGE>
         Each phase listed above is considered an independent obligation and
upon completion of each phase, Rs. 1000 million (US$21.04 million) will be
released from the Company's performance bank guarantee. The Company has built a
part of its own NLD fiber optic backbone and further investment is envisaged
over the next three years, which the Company expects will meet its obligations
under the NLD license.

         Accordingly, the Company has plans to lay a fiber optic backbone
connecting an estimated 260 LDCAs in fiscal years 2003-04, 2004-05 and 2005-06.
As of March 31, 2003, 60 LDCAs had been completed. The Company plans to complete
an additional 115 LDCAs by March 31, 2004. For coverage of all 322 LDCAs in a
phased manner over the seven-year time frame ending February 7, 2010, the
Company plans to invest an estimated Rs. 7220 million (US$ 151.90 million).

         In fiscal 2003-04, the Company plans to invest Rs. 2,450 million (US$
51.55 million) in developing this network.

         Information Technology Facilities

         The Company plans to upgrade and implement state of the art systems
such as internet data centre facilities, billing mediation systems, customer
relationship management systems, least cost routing systems and enterprise
resource planning facilities. The proposed capital expenditure provisioned for
these systems is Rs. 648.70 million (US$ 13.65 million) for fiscal 2003-04.

         Prior Period Capital Expenditures

         The following table sets forth the actual capital expenditures of the
Company under the revised Ninth Five Year Plan, covering the period April 1997
to March 2002, by type of investment for the periods indicated. Subsequent to
the privatization of the Company, the capital expenditures for the fiscal year
2003 were under the purview of the Company's annual operating plan for the year
rather than the Five Year Plan.

<TABLE>
<CAPTION>
                                                                YEAR ENDED MARCH 31,
                                               ------------------------------------------------------
                                               1998      1999      2000      2001      2002      2003
                                               ----      ----      ----      ----      ----      ----
                                                                (MILLIONS OF RUPEES)
<S>                                            <C>       <C>       <C>       <C>       <C>       <C>
Transmission .............................     1,062     3,513     1,464     1,620     1,279       994
Switching ................................       294       202        50        11       245       242
Specialized and value-added Services .....       323       662       659       609       225       194
Satellite mobile services ................       521        62         6         0         0         0
Restoration/replacement ..................        29        41        36        58        15         0
Technical and office equipment ...........       247       330       153       300       108       383
Buildings and civil works ................       180       163       582       529        42       103
Capital contributions to                         786       671       922       309        66         0
   Intelsat/Inmarsat and IRUs ............
NLD Projects                                       0         0         0         0         0      1379
Other projects and investments ...........     1,135     1,972       442        36        22      3004
                                               -----     -----     -----     -----     -----     -----

     Total ...............................     4,577     7,616     4,314     3,472     2,002     6,299
                                               =====     =====     =====     =====     =====     =====
</TABLE>

INVESTMENTS

         United Telecom Limited (UTL)

                                       69
<PAGE>

         The Company, along with Telecommunication Consultants of India Limited,
MTNL and Nepal Ventures Private Limited, has formed a joint venture company
called "United Telecom Limited" to provide basic services in Nepal through the
use of wireless in local loop technology. UTL started providing services in
September 2003.

         The Company has an equity stake of 26.66 percent in UTL. The Company
invested Rs.183.325 million (US$ 3.85 million) towards contributions to equity
in UTL in fiscal 2003 and plans to invest a further Rs.133 million (US$ 2.80
million) in the current fiscal year 2003-04. Therefore, the total investment of
the Company in UTL will be Rs.333 million (US$ 7.01 million) for 26.66 percent
of the total equity.

         ICO Global Communications (Holdings) Limited

         ICO, a company registered in Bermuda, was incorporated in January 1995
to provide Global Mobile Personal Communications Services. ICO was listed on
NASDAQ in July 1998. The Company has invested a sum of US$150 million in ICO.

         As of March 31, 1999, the Company's investment in ICO stood at Rs.5,471
million (US$ 115.11 million). On August 27, 1999, ICO filed a voluntary petition
for reorganization under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court in the District of Delaware. In May 2000, ICO
emerged from bankruptcy protection with a plan to reduce the equity stake of the
existing investors to 1 percent. The Company had, therefore, made a provision
for a loss of 99 percent of its investment in ICO in its financial statements
for the fiscal year ended March 31, 1999. The Company recognized a charge of
Rs.5,416 million (US$ 113.95 million) and Rs.54 million (US$ 1.14 million) as
permanent impairment in the fiscal years ended 1999 and 2000, respectively.
Subsequent to March 31, 2000, the Company has been allotted 180,053 shares of
New ICO, representing 0.65 percent of the total equity of New ICO. In addition,
the Company has been allotted 975,398 warrants, each convertible into two Equity
Shares of New ICO upon the payment of US$90 per warrant. Such warrants are
exercisable until May 15, 2006.

         Intelsat, Ltd.

         The International Telecommunications Satellite Organization, was
created on an interim basis in 1964 as an intergovernmental organization in
order to establish and operate a global satellite system. Intelsat was formally
established in February 1973 upon entry into force of an international treaty.
On July 18, 2001, Intelsat converted into a private limited company incorporated
in Bermuda, called Intelsat, Ltd. As of March 31, 2003, the Company held
9,015,314 ordinary shares, par value US$3.00 per share, of Intelsat. These
shares represent 5.42 percent of the issued and outstanding ordinary shares of
Intelsat.

         Post corporatization, the Company's investment in Intelsat, Ltd. has
been accounted for in accordance with APB Opinion No. 18, The Equity Method of
Accounting for Investments in Common Stock, at cost since the fair value of
equity shares is not readily obtainable.

         The ORBIT Act, as amended in October 2002, requires Intelsat to conduct
an initial public offering of its equity securities by December 31, 2003, which
may be extended by the U.S. Federal Communications Commission to June 30, 2004.
Shareholders of Intelsat might be given the opportunity to participate in any
such offering.

                                       70
<PAGE>

         New Skies Satellite NV ("NSS")

         During 1998-99, Intelsat as part of its restructuring process
incorporated NSS as a corporation with limited liability under the laws of
Netherlands and transferred certain assets and liabilities to NSS accounted for
at historic book values. In return, NSS issued 10,000,000 shares of common stock
of Dutch Guilder 1 to Intelsat. Intelsat distributed 9,000,000 shares of NSS in
the year 1998-99, and 1,000,000 shares of NSS in 1999-2000 in proportion to the
investment shares of its members at the time of distribution. Consequently, the
Company acquired 301,215 shares in 1998-99 and 43,000 shares in 1999-2000 which
were recorded as a reduction in the investment in Intelsat and a new investment
in NSS at face values.

         NSS announced a 10:1 stock split prior to its initial public offering
in October 2000 and redesignated its shares from Guilders to Euros. The
Company's total holding in NSS as of March 31, 2003 stood at 3,442,150 ordinary
shares of 0.05 Euros each. The market value per share as of March 31, 2003 was
US$4.17 per share.

         International Maritime Satellite Organization ("Inmarsat")

         Inmarsat was an intergovernmental organization with membership from 88
countries providing satellite mobile communications in air, on land and at sea.
Inmarsat converted to a private limited company incorporated in England and
Wales effective April 15, 1999. Upon corporatization, the Company's investment
in the holding company, Inmarsat Holdings Limited, stood at 202,219 shares
representing approximately 2.02 percent of the paid up capital. Subsequently,
there was a 10:1 stock split in March 2001. The Company now holds 2,022,190
shares of 10 pence each in Inmarsat Ventures plc.

         The Company plans to invest Rs.79 million (US$ 1.66 million) in
Inmarsat for the fiscal year 2003-04.

         TVC India Private Limited (formerly Telstra Vishesh Communications
Limited) ("TVCL")

         TVCL is a joint venture between the Company, Telstra-Australia and
Infrastructure Leasing & Financial Services Ltd.("ILFS"), initially formed with
investment equity in the ratio of 40:40:20. Currently, VSNL holds Rs.92 million
(US$ 1.94 million) out of the Company's total paid up capital of Rs.314 million
(US$ 6.61 million). TVCL undertakes turnkey VSAT projects for large
organizations besides providing consultancy and facility management services. As
a result of Telstra's exit from the joint venture, the company is being
restructured and a new partner, Essel Shyam, has been inducted. As a part of the
reorganization of TVCL, VSNL is to receive shares of Essel Shyam Limited in lieu
of its holding in TVCL. However, in view of the difficult financial position of
TVCL, VSNL has decided to write off Rs.92 Million (US$ 1.94 million) during
2002-03.

         Tata Teleservices Limited ("TTSL")

         TTSL is a company of the Tata Group, which along with its subsidiaries
is licensed to provide basic telephony in the Indian states of Andhra Pradesh,
Delhi, Gujarat, Karnataka and Tamil Nadu and has an equity interest in
Maharashtra (including Mumbai) and is assessing Kerala, Punjab, Haryana and
Uttar Pradesh. Since the Company has no direct access to voice customers, the
investment in TTSL could give the Company substantial access to end users.

         The VSNL board constituted a committee to examine the modalities of the
investment in TTSL and reviewed the findings at its meeting on October 21, 2002.
The committee decided that VSNL would invest up to Rs.8,350 million (US$ 175.68
million) in TTSL's equity over a seven-year period. The committee also decided
that the investment should be made at par, based on various valuations including
an independent valuation by ICICI Securities, which the committee had appointed.
Accordingly, during 2002-03, VSNL invested Rs.2,804 million (US $ 58.99 million)
in exchange for 19.9 percent of TTSL's equity.

                                       71
<PAGE>

         A further investment is planned in the current fiscal year 2003-04 of
Rs.1,873 million (US$ 39.41 million) inclusive of a spillover payment of Rs.380
million (US$ 7.99 million) from fiscal year 2002-03.

         VSNL America Inc.

         Subsequent to the end of fiscal 2003, the Company invested US$ 750,000
in its newly formed, wholly owned subsidiary VSNL America Inc. The main purpose
of this investment is to expand the Company's International Virtual Private
Network business in the US. International Virtual Private Network services is a
rapidly growing business, serving the global needs of Indian IT services
companies and as well as other large corporations.

         VSNL Lanka Ltd.

         The Telecommunications Regulatory Commission of Sri Lanka has opened
Sri Lanka's ILD sector for outside providers to provide External Gateway
Services in Sri Lanka. The international long distance market in Sri Lanka
opened up in August 2002. Subsequent to the end of fiscal 2003, the Company
acquired an External Gateway Services license against a license fee of
US$60,000, which allows the Company to offer ILD voice and data services in Sri
Lanka. The Sri Lankan market is estimated at 400 million ILD minutes annually.
The Company has plans to invest Rs. 90 million (US$ 1.89 million) in VSNL Lanka
in the current fiscal year.

         RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

         The Company conducts its own internal research activity in order to
achieve its strategic goals and to participate in current technological
advancements. The Company plans to invest in internal research and development.
The main focus of the Company's internal research and development activity is
software development for communications applications and the development of
telecommunications equipment for specific requirements of the Company. The
research and development of the Company with respect to communications
applications has focused, in recent years, on web based electronic data
interchange, store and forward fax applications and graphic user interface
terminals for Internet applications.

         In accordance with the accounting policy on research and development
adopted by the Company in fiscal year 2000, all costs incurred on research and
development by the Company are charged to the income statement under the
relevant line items. In addition, costs incurred with respect to the purchase of
capital equipment for research and development are capitalized.

         REVIEW OF USEFUL LIVES AND THE CONSEQUENT CARRYING VALUES OF CERTAIN
         ASSETS

         The Company has initiated a review of the estimated useful lives and
the consequent carrying values of certain long-lived assets. As and when such
review is completed, it could result in a downward revision in the useful lives
and the consequent carrying values of the assets. The Company is presently
unable to quantify the effect, if any, that such review when completed would
have on its financial condition and results of operations. Also see "Item 3.
Information on the Company--Risk Factors--The Company has initiated a review of
the useful lives and the consequent carrying values of certain long lived assets
which could result in a reduction in the carrying value of such assets."

         TREND INFORMATION

         While the Company currently continues to generate most of its revenues
from its ILD telephony business, there is no certainty that this could be so in
the future. This is because the opening of this business to competition from
April 2002 has continued to result in increased competitive pressure for
volumes. Simultaneously, prices have also dropped steeply over the last twelve
months because inbound carriers now have the choice of sending traffic through
several operators. The Company's "most favored customer" status over traffic
from BSNL, which controls nearly over 85 percent of outgoing traffic, comes

                                       72
<PAGE>
\
to an end in February 2004. There is no certainty that BSNL or MTNL will
continue to route their traffic through the Company after February, 2004. In the
event of this happening, the Company's outgoing traffic could be substantially
affected.

         The Company, however, has certain new initiatives in place including an
association with Mobile First (an alliance of private operators) for carrying
their outgoing international traffic. The Company believes that such initiatives
will enable it to compete better in the current environment.

         The Company's success in the ILD and NLD business also depends on the
ability to access retail customers who choose the Company's service. A key
element in this process is the implementation of the Carrier Access Code system,
which will enable customers to choose the ILD and NLD operators of their choice.
The speed of implementation of the Carrier Access Code depends on Government
policy, which is currently unclear.

         The BPO and ITS markets in India have been growing rapidly, which could
result in significant speedy growth in the Company's Corporate Data transmission
business. However, the presence of new competitors with large amounts of
bandwidth is reducing prices for these services. The Company hopes that the
introduction of innovative pricing, differentiated packages and diverse
offerings will enable it to compete effectively in these businesses.

         The Company is the largest Internet service provider in the country.
However, the growth in subscribers may not result in revenue growth because in
our experience, new subscribers tend to be less active users. It is possible
that the market may move towards other bandwidth intensive applications, such as
video on demand, gaming, interactive education etc. Many of the Company's
competitors, such as Bharti Tele-ventures, have acquired large amounts of
bandwidth, and the Company might have to reposition itself to compete
effectively in bandwidth intensive businesses.

         The Company has initiated a review of the estimated useful lives and
the consequent carrying values of certain long-lived assets. As and when such
review is completed, it could result in a downward revision in the useful lives
and the consequent carrying values of the assets. The Company is presently
unable to quantify the effect, if any, that such review when completed would
have on its financial condition and results of operations.

BUSINESS OUTLOOK FOR FISCAL 2004

         Based on currently available information, the Company expects its
business outlook for the fiscal year ending March 31, 2004 to be as follows:

         Under the Company's annual operating plan, gross revenue for the fiscal
         year ending March 31, 2004 is expected to be in the range of Rs. 34,000
         million (US$ 715.34 million). Of this amount, the Company has achieved
         approximately Rs. 8,403 million (US$ 176.79 million) in gross revenue
         for the first quarter ending June 30, 2003 as measured in accordance
         with Indian GAAP.

         The above mentioned expectations and projections regarding trends and
our future performance are forward-looking statements. These expectations and
projections are based on currently available economic and financial information
along with our operating plans and are subject to future uncertainties that
could cause actual results to differ materially from those that may be indicated
by these statements. We do not undertake to update any forward-looking statement
that may be made from time to time by or on our behalf.

                                       73
<PAGE>

         FINANCIAL AND MANAGEMENT ACCOUNTING AND REPORTING SYSTEMS

         The Company, which remained wholly owned by the Government until late
1992, continued to be subject to various laws and Government policies in respect
of public sector enterprises and to follow procedures appropriate for a public
sector entity until the recent privatization. Consequently, the Company's
financial and management accounting and reporting systems are not as developed
as those of certain comparable companies outside India. In addition, the
Company's procedures for preparing budgets and appraising and monitoring capital
expenditure projects are less precise than those used by comparable private
sector companies. In order to address certain of these deficiencies, the Company
continues to improve data input for its traffic accounts, has increased the
number and quality of its financial and accounting personnel, and is in the
process of installing new systems and procedures, including an integrated
financial accounting and budgeting system.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

         DIRECTORS AND OFFICERS OF THE COMPANY

         The Company's Articles of Association ("Articles") provide for a Board
of not less than three and not more than twelve Directors. The Company's Board
of Directors has ultimate responsibility for the administration and management
of the affairs of the Company. The Articles of Association of the Company were
extensively amended at the 16th Annual General Meeting held on August 20, 2002,
to be in consonance with the provisions of the Shareholders' Agreement and Share
Purchase Agreement. The amended Articles prescribe the rights of the Government
of India and Panatone Finvest Limited as agreed under Shareholders' Agreement to
be exercised through their nominee directors on the board, if at the Board
meeting, or through its authorized representative, if at the shareholders
meeting as described in "Item 10. Additional Information--Memorandum and
Articles of Association".

         On February 13, 2002 the Government of India ("GOI"), Panatone Finvest
Limited ("Strategic Partner"), Tata Sons Limited, Tata Power Company Limited,
Tata Iron and Steel Company Limited and Tata Industries Limited ("Principals")
signed a Shareholders' Agreement ("SHA") as per the provisions of which the GOI
transferred 7,12,50,000 Equity Shares owned by the Government, representing 25
percent of the aggregate number of the issued and outstanding Equity Shares of
the Company which were sold to the Strategic Partner pursuant to the terms and
subject to the conditions set forth in the Share Purchase Agreement ("SPA"). As
per the provisions of the SPA and SHA, the composition of the Board of Directors
of the Company is determined as given below.

(a)      On the closing the Board shall comprise 12 directors.

(b)      As long as the Government holds at least 10 percent of the voting
         equity share capital of the Company the composition of the Board shall
         be as follows:

         (i)      Four out of twelve directors shall be permanent or
                  non-retiring directors, of which the Government and Panatone
                  Finvest Limited shall be entitled to appoint two directors
                  each.

         (ii)     The remaining eight directors shall be liable to retire by
                  rotation. Of the retiring directors, four directors shall be
                  independent directors on the Board.

         (iii)    Of the four independent directors Panatone Finvest Limited and
                  the Government shall be entitled to nominate and recommend
                  names of two independent directors each.

         (iv)     The composition of the remaining four directors i.e. the
                  retiring and non independent directors shall be determined by
                  the following:

                                       74
<PAGE>

                  i.       As long as Panatone Finvest Limited together with its
                           Affiliates holds 25 percent of the voting equity
                           share capital of the Company, two directors shall be
                           nominated each by the Government and Panatone Finvest
                           Limited.

                  ii.      As soon as Panatone Finvest Limited acquires and
                           holds more than 25 percent but less than 30 percent
                           of the voting equity share capital of the Company,
                           Panatone Finvest Limited shall have the right to
                           appoint three directors on the Board and the
                           Government shall have the right to appoint one
                           Director on the Board.

                  iii.     As soon as Panatone Finvest Limited acquires and
                           holds more than 30 percent of the voting equity share
                           capital of the Company, Panatone Finvest Limited
                           shall have the right to appoint all the four
                           directors.

                           (a)      Notwithstanding anything to the contrary
                                    contained in the SPA and SHA (i) the
                                    Government shall have the right to appoint
                                    two non retiring Directors so long as the
                                    Government holds at least 10 percent of the
                                    voting equity share capital of the Company
                                    and (ii) the Government shall be entitled to
                                    appoint one non retiring director on the
                                    Board so long as the Government is a
                                    shareholder in the Company.

                           (b)      Subject to the provisions of sub clauses (c)
                                    above and (e) below, if a Person, other than
                                    a Party to the SHA ("Party"), to whom the
                                    Government, Panatone Finvest Limited or a
                                    party to the SHA ("Shareholder") as the
                                    party to the SHA has transferred its Shares
                                    (or any equity rights or interests therein)
                                    or renounced the Right pursuant to the SHA,
                                    requests the right to nominate one or more
                                    directors, and at the time of such request,
                                    such request complies with the requirements
                                    of the Act, the right to nominate one or
                                    more directors (depending on the percentage
                                    of the equity share holding in the Company
                                    held by the Shareholder who has transferred
                                    the Shares or renounced the Right, as the
                                    case may be) shall be taken from such
                                    Shareholder who has transferred the Shares
                                    or renounced the Right, as the case may be
                                    and not from the other Shareholders and such
                                    request shall not be fulfilled by increasing
                                    the total number of directors constituting
                                    the Board. For the purpose of clarity and
                                    removal of doubt, if at any time after the
                                    expiry of three years from the Closing,
                                    Panatone Finvest Limited, together with its
                                    Affiliates, holds less than 25 percent of
                                    the voting equity share capital of the
                                    Company, the composition of the Board shall
                                    be suitably changed in accordance with the
                                    provisions of the Act.

                           (c)      Notwithstanding the foregoing, at least
                                    three-fourths of the total number of
                                    directors on the Board shall, at all times,
                                    be Indian Nationals.

                           (d)      For purposes of clarity and avoidance of
                                    doubt, the Government and Panatone Finvest
                                    Limited agree that if additional independent
                                    directors are required to be appointed to
                                    the Board to comply with any Laws or
                                    regulation or to comply with the provisions
                                    of any listing agreement, then, by mutual
                                    agreement between the Government and
                                    Panatone Finvest Limited, either the
                                    strength of the Board shall be increased to
                                    the extent required or the number of
                                    directors that each of the Government and
                                    Panatone Finvest Limited shall be entitled
                                    to appoint under paragraphs (a) and (b)
                                    above shall be proportionately reduced.

                                       75
<PAGE>

                           (e)      The proportion of representation of the
                                    Parties to the SHA on any committees or
                                    sub-committees of the Board shall be the
                                    same as that of the Parties on the Board.

                           (f)      In the event that the Board constitutes a
                                    share transfer committee for the purpose of
                                    effecting the transfer of the Shares, such
                                    share transfer committee shall include one
                                    nominee of Panatone Finvest Limited and the
                                    Government each.

                           (g)      Panatone Finvest Limited, Principal(s) and
                                    the Government shall cause the Company to
                                    take all and any steps as may be required
                                    under the Act to effect the appointment of
                                    the directors. Each of the Government and
                                    Panatone Finvest Limited shall be entitled
                                    to remove and replace its nominees (except
                                    the independent directors) from time to time
                                    as provided in Article 5.3 of the SHA. Both
                                    the Government and Panatone Finvest Limited
                                    shall vote the Equity Shares held by them to
                                    elect the directors nominated/appointed in
                                    accordance with this Agreement. As long as
                                    Panatone Finvest Limited holds 25 percent of
                                    the then-outstanding Equity Shares, one of
                                    the directors nominated by Panatone Finvest
                                    Limited shall be the Managing Director of
                                    the Company.

                           (h)      If any director is reasonably expected to be
                                    or is absent for a period of not less than
                                    three (3) calendar months from India where
                                    the registered office of the Company is
                                    located, the Board may, at a meeting of the
                                    Board or by circulation of a written
                                    resolution of the Board in accordance with
                                    applicable Law, appoint an alternate
                                    director. The alternate director shall be an
                                    individual nominated by the director in
                                    whose place such alternate director is being
                                    appointed, and the Shareholders shall cause
                                    their nominees on the Board to approve the
                                    appointment of such individual as an
                                    alternate director.

                           (i)      Each Shareholder shall be entitled to remove
                                    any director appointed by it to the Board by
                                    Notice to such director and the other
                                    Parties. Any vacancy occurring on the Board
                                    by reason of retirement, death,
                                    disqualification, resignation, removal or
                                    the inability to act of any director for any
                                    reason whatsoever shall be filled only by
                                    another nominee of the party whose nominee
                                    was so affected so as to maintain a Board
                                    consisting of the number of nominees
                                    specified above. Retirement of any director
                                    shall also be subject to any applicable
                                    provisions in the Articles of Association.

         On February 13, 2002 as per the provisions of the SPA and SHA the Board
was reconstituted. As of September 2, 2003, the Board of Directors of the
Company consists of twelve directors with four independent directors, two
directors nominated by the GOI as non-retiring directors and the remaining six
being nominated by Panatone Finvest Limited. The Managing Director is a
non-retiring director so long as he holds the office as such. At the 16th Annual
General Meeting of the Company held on August 20, 2002, the appointment of Mr.
S.K. Gupta and Mr. N. Srinath as the Managing Director and the Whole time
director respectively was approved by the shareholders. Mr. S.K. Gupta was
appointed as the Managing Director of the Company until the date of his
superannuation, September 30, 2002. Mr. Srinath was appointed as the Whole time
director for a period of five years from the date of his appointment, February
13, 2002.

         In respect of the re-appointment of Mr. Gupta beyond September 30,
2002, the Board at its meeting held on August 20, 2002 noted that Mr. Gupta will
be employed as a senior executive with Tatas with effect from October 1, 2002 on
a five years' contract basis, and will be deputed in the Company as the

                                       76
<PAGE>

Managing Director of the Company for a period of up to two years with effect
from October 1, 2002, and the Board approved the appointment as the Managing
Director of the Company on deputation from Tatas with effect from October 1,
2002 for a period of up to two years from that date. At the 17th Annual General
Meeting on September 2, 2003, the appointment of Mr.S.K Gupta for a period of up
to two years from October 1, 2002, was approved by the shareholders.

         The business address of each of the directors is the registered office
of the Company. The current directors and their positions are as follows:

<TABLE>
<CAPTION>
            Name                  Age           Position                      Term                 Director Since
------------------------------    ---     ---------------------    ----------------------------    ---------------
<S>                               <C>     <C>                      <C>                             <C>
Ratan N Tata..................    65      Chairman                 Liable to retire by rotation    February 2002

Shailendra Kumar Gupta........    61      Managing Director        Reappointed by the Board        September 1999
                                                                   for a further period of up
                                                                   to two years from October
                                                                   1, 2002. Not liable to
                                                                   retire by rotation so long
                                                                   as he holds office as
                                                                   Managing Director

Srinath Narasimhan............    41      Director (Operations)    Up to February 2007             February 2002

Rakesh Kumar (1)..............    55      Government Nominee       Non-retiring Director           January 2002

Y. S Bhave (1)................    53      Government Nominee       Non-retiring Director           May 2002

Subodh Bhargava (2)...........    61      External Director        Liable to retire by rotation    May 2002

Suresh Krishna (2)............    67      External Director        Liable to retire by rotation    May 2002

Ishaat Hussain................    56      External Director        Liable to retire by rotation    July 2002

Kishor A Chaukar..............    55      External Director        Liable to retire by rotation    July 2002

Vivek Singhal (2).............    63      External Director        Liable to retire by rotation    August 2002

Ashok Jhunjhunwala (2)........    49      External Director        Liable to retire by rotation    August 2002

Firdose A. Vandrevala.........    52      External Director        Liable to retire by rotation    February 2003
</TABLE>

(1)  Typically, nominee directors continue on the Board of the Company for so
     long as the nomination is not changed by the Government.

(2)  Independent directors liable to retire by rotation.

         OTHER PRINCIPAL OFFICERS

         The following individuals are the principal executive officers of the
Company in addition to those officers who are members of the Board of Directors:

<TABLE>
<CAPTION>
         NAME             AGE                          POSITION                           OFFICE HELD SINCE
------------------------  ---     -----------------------------------------------------   -----------------
<S>                       <C>     <C>                                                     <C>
Amitabh Khanna             46     Chief Financial Officer (Deputed from the Tata Group)     June 2003
</TABLE>

                                       77
<PAGE>

<TABLE>
<S>                        <C>    <C>                                                       <C>
S.G. Ranade                50     Company Secretary & Vice President (Legal)                January 2002

K.P. Tiwari                53     Vice President (Operations)                               January 2002

Arun Gupta                 46     Vice President (Finance)                                  January 2002
</TABLE>

         Set forth below is selected biographical information for certain of the
Company's directors and officers:

         Mr. Ratan N. Tata (Chairman) was born in Mumbai on December 28, 1937.
He received a Bachelor of Science degree in architecture from Cornell University
in 1962, and completed an Advanced Management Program conducted by Harvard
University in 1974-75. Mr. Tata joined the Tata Group in 1962. He was appointed
director-in-charge of National Radio & Electronics Company Limited (NELCO) in
1971. He was named chairman of Tata Industries Limited in 1981. In 1991, Mr.
Tata was appointed chairman of Tata Sons Limited. He also currently holds the
chairmanship of several major Tata companies including Tata Steel, Tata
Engineering, Tata Power and Indian Hotels. Besides his directorships on the
boards of various Tata companies, Mr. Tata is the chairman of two of the largest
private sector-promoted philanthropic undertakings in India. He serves as a
member of the central board of the Reserve Bank of India (RBI) as well as of the
Prime Minister's Council on Trade and Industry. His foreign affiliations include
memberships of the international advisory boards of J.P. Morgan Chase,
Booz-Allen and Hamilton Inc. and the American International Group; of the board
of governors of the East-West Center; and of the board of trustees of the Ford
Foundation. In 1999, he was appointed to serve on the International Investment
Council set up by the President of the Republic of South Africa. Mr. Tata has
been appointed as a member of the Asia Pacific advisory committee to the board
of directors of the New York Stock Exchange.

         Mr. Shailendra Kumar Gupta (Managing Director) was born on September 9,
1942. He earned a Bachelor of Science degree from Lucknow University and a
degree in electrical engineering from Roorkee University, graduating with a gold
medal in 1964. He thereon became a lecturer in electrical engineering at Roorkee
University. Mr. Gupta joined the Indian Telecom Service in September 1965 and
held various positions in the Department of Telecommunications and Mahanagar
Telephone Nigam Limited. Mr. Gupta became chairman and managing director of the
Company in September 1999. After the Tata Group acquisition of the Company in
February 2002, Mr. Gupta continues as the Company's managing director. During
his career, he was deputed through the United Nations to Malawi, Africa as a
switching telecom expert during 1982-83. He also trained in Japan in C-400 cross
bar systems and at the University of Essex, U.K., in computer software
engineering. In July 2001, he was elected as a director to the board of the
privatized INTELSAT. Mr. Gupta, with effect from October 1, 2002, has been
deputed to the Company from Tata Services Limited.

         Mr. Srinath Narasimhan (Director -Operations) was born on July 8, 1962.
He received a degree in mechanical engineering from IIT (Madras) and completed
his management degree from IIM (Calcutta), specializing in marketing and
systems. Joining the Tata Administrative Services in 1986, Mr. Srinath has held
positions in the project management, sales and marketing, and corporate
functions in different Tata companies over the last 14 years. He was a project
executive in Tata Honeywell from 1987 to 1988. He then moved to Tata Industries
as executive assistant to the chairman until mid-1992. He was part of the team
that set up Tata Information Systems (later Tata IBM). In June 1992 he moved
into that company full-time for the next six years. In March 1998, he returned
to Tata Industries as general manager (projects) and worked with Tata
Teleservices in this capacity for a year. In April 1999, he moved to Hyderabad
as chief operating officer. In late 2000 he took over as chief executive officer
of Tata Internet Services, a position he held till February 2002, when he moved
to the Company as director (operations).

         Mr. Rakesh Kumar (Director), Senior Deputy Director General (SU), DoT,
is a graduate in science from the University of Allahabad. He also has a degree
in mechanical engineering with honors from Varanasi and holds an MBA (marketing)
from the Faculty of Management Studies, Delhi University. Mr. Rakesh Kumar is a
fellow of the Institute of Engineers; fellow of the Institute of Electronics and
Telecom Engineers; and director, Quality Circle Forum of India, besides being a
board member and trustee of

                                       78
<PAGE>

several other organizations. He is also on the advisory panel of the Union
Public Service Commission (UPSC) and a regular visiting faculty at a training
centre of the Department of Telecommunications at Ghaziabad.

         Mr. Y.S. Bhave (Director) is joint secretary and financial advisor,
Department of Information Technology, as well as of the Ministry of Environment
and Forests. Mr. Bhave completed his M.Sc in electronics in 1970 and joined the
Indian Administrative Services in 1972. Mr. Bhave has held positions including
chief executive officer of the Maharashtra Industrial Development Corporation;
managing director, Maharashtra Small-Scale Industries Development Corporation;
managing director, Maharashtra State Finance Corporation; development
commissioner (industries) and secretary (industries), Government of Maharashtra;
chairman, Maharashtra State Electricity Board; and president and chief executive
officer, Indian Institute of Software Engineering, amongst others. During
1989-90 he obtained a degree of Master in Public Administration from Harvard
University.

         Mr. Subodh Bhargava (Director) was born in Agra in 1942, and holds a
degree in mechanical engineering from the University of Roorkee. He started his
career with Balmer Lawrie & Co., Calcutta before joining the Eicher Group of
Companies in Delhi in 1975. On March 31, 2000, he retired as the group chairman
and chief executive and is currently an advisor to the group. He is the past
president of the Confederation of Indian Industry (CII) and the Association of
Indian Automobile Manufacturers; and the vice president of the Tractor
Manufacturers Association. He is a member of the Insurance Tariff Advisory
Committee, the Economic Development Board of the government of Rajasthan and the
board of governors of the Centre for Policy Research. He is the chairman of the
National Accreditation Board for Certifying Bodies (NABCB) under the aegis of
the Quality Council of India (QCI). He is currently on the board of IIM, Indore;
the Indian Institute of Foreign Trade, New Delhi; and the Entrepreneurship
Development Institute of India, Ahmedabad. He is on the boards of governors of
other institutions for graduate engineering and bachelors and masters degree
programs in business management.

         Mr. Suresh Krishna, (Director) was born in Madurai, South India, on
December 24, 1936. He received a Bachelor of Science degree from Madras
Christian College in 1955 and an M.A. in literature from the University of
Wisconsin in 1959. He did his post-graduate work in literature at the University
of Munich, Germany. Mr. Krishna is the chairman and managing director of
Sundaram Fasteners Limited. He has been involved in several other public bodies
set up from time to time by the central as well as the state governments. Among
other things, he has been appointed as a director on the central board of the
Reserve Bank of India.

         Mr. Ishaat Hussain, (Director) joined the Board of Tata Sons as an
executive director on July 1, 1999, and became the finance director of Tata Sons
Ltd. with effect from July 28, 2000, a position he continues to hold. Prior to
joining Tata Sons he was the senior vice president and executive director -
finance, in Tata Steel for almost ten years. Mr Hussain completed his schooling
from the Doon School in 1963 and joined St. Stephens College, Delhi to graduate
in economics. A chartered accountant from England and Wales, Mr Hussain joined
the board of The Indian Tube Company (a Tata Steel associate company) in 1979.
He moved to Tata Steel in 1981 after Indian Tube was merged with Tata Steel.
Besides being on the board of Tata Sons Limited, he is the chairman of Tata SSL
Limited and Voltas Limited. He is also on the boards of several Tata companies,
including Tata Steel, Tata Industries, Tata Teleservices, Titan Industries
Limited.

         Mr. Kishor A. Chaukar, (Director) currently the managing director of
Tata Industries Limited (TIL), holds a post-graduate degree in management from
IIM, Ahmedabad. Mr. Chaukar is also a member of the Tata Group executive office,
which is engaged in strategy formulation at the House of Tata. Mr. Chaukar was
previously the managing director of ICICI Securities & Finance Company Limited
(July 1993 to October 1998), and a member of the board of directors of ICICI
Limited from February 1995. His other experiences include stints in Godrej Soaps
Limited and in the Bhartiya Agro Industries Foundation

         Mr. Vivek Singhal (Director) is the Chairman of the Electronics &
Software Export Corporation and has joined the Company as an Additional Director
(Independent) on the Board of the Company with effect from the conclusion of the
16th Annual General Meeting held on 20 August 2002. Mr. Singhal

                                       79
<PAGE>

started his own company, Computronics India, in 1971. Mr. Singhal is a Member on
the Government Body/Advisory Council of the Department of Science & Technology
and Ministry of Information Technology, Government of India. He is also on the
Board of Directors of Bharat Yantra Nigam Limited, Government of India, Bharat
Sanchar Nigam Limited (BSNL), Indraprastha Mahavidyalaya, Delhi, and the
Department of Electronics Accreditation Computer Courses (DOEACC) Society, under
the Ministry of Information Technology, Government of India. He is the Chairman
of Electronics & Computer Software Export Promotion Council (ESC) and Chairman
(Northern Region) of Federation of Indian Export Organizations (FIEO). He is
President of Computronics International Ltd. and Biotech International Ltd.

         Prof. Ashok Jhunjhunwala (Director) is the Professor & Head of the
Department of Electrical Engineering of the Indian Institute of Technology and
joined the Company as an Additional Director (Independent) on the Board of the
Company with effect from the conclusion of 16th Annual General Meeting held on
20 August 2002.

         Mr. F.A. Vandrevala (Director) is the managing director of Tata Power
Company Ltd. since September 1, 2002. He joined the Company on November 1, 2001
as deputy managing director after a 29-year career at Tata Steel and in August
2003 became the Non-Executive Chairman of Tata Teleservices. Mr. Vandrevala
graduated with a Bachelor of Technology degree in electrical engineering (Hon)
from the Indian Institute of Technology, Kharagpur, and subsequently earned a
post graduate diploma in business management from XLRI, Jamshedpur. He is a
director on the boards of several Tata companies. He has held various important
positions in CII and is presently the chairman of CII, Western Region.

         Mr. Amitabh Khanna, Chief Financial Officer, is a senior finance
professional with more than 19 years of operational finance and business
strategy experience with various multinational telecommunications companies
including Nortel Networks, Ericsson and British Telecommunications. He received
his bachelor in commerce from the Sri Ram college of Commerce, Delhi University
and qualified as a Chartered Accountant with Price Waterhouse. He latter went on
to receive a Masters in Business Administration from the International Institute
of Management Development, University of Geneva. He is a fellow member of the
Institute of Chartered Accountants of India and associate member of the
Institute of Company Secretaries of India. He has been deputed to the Company as
Chief Financial Officer from Tata Services Limited.

         Mr. S.G. Ranade, Company Secretary and Vice President (Legal), has been
with the Company since 1987. Prior to joining the Company, Mr. Ranade was Deputy
Secretary of Maharashtra Elektrosmelt Limited, Mumbai. He is a member of the
institute of Company Secretaries of India. Mr. Ranade holds degrees in commerce
and law from the University of Mumbai.

         Mr. K.P. Tiwari, Vice President (Operations) joined the Overseas
Communications Services in 1976 and has been employed by the Company since its
establishment. Prior to joining the Overseas Communications Services, Mr. Tiwari
worked for the Indian Post and Telegraph Department for 4 years. Mr. K.P. Tiwari
holds a Master of Science Degree in Electronics from Kanpur University.

         Mr. Arun Gupta, Vice President (Finance), joined the Company in 1998.
Prior to joining the Company, Mr. Gupta worked in finance for 18 years in
various capacities at Sikkim Industrial Development & Investment Corporation
Ltd., Pradeshiya Industrial & Investment Corporation of UP Ltd., and Risk
Capital & Technology Finance Corporation Ltd. (a subsidiary of Industrial
Finance Corporation of India Ltd.). He also officiated as Managing Director at
IFCI Ventures. He held the office of Chief Financial Officer of the Company
between February 2002 and June 2003. Mr. Gupta holds a Bachelor of Science
degree from University of Delhi, a Master of Business Administration degree with
a concentration on finance from A.M. University and a Bachelor of Law degree
from the University of Delhi.

         No director or officer of the Company has any family relationship with
any other officer or director of the Company.

         Other than as described above, there are no arrangements or
understandings among any director or any officer and any other person regarding
their election to their post with the Company.

                                       80
<PAGE>

         COMPENSATION OF DIRECTORS AND OFFICERS

         The directors, other than the full-time directors and the Government
nominee directors, of the Company received a sitting fee not exceeding Rs.5,000
(US$105.20) for attending each Board and Committee meeting. In fiscal 2003,
Rs.255,000 (US$5,365.03) was paid towards sitting fees. The directors are also
reimbursed for travel and out-of-pocket expenses in connection with their
attendance at Board and Committee meetings.

         For the fiscal year ended March 31, 2003, the aggregate amount of
compensation paid by the Company to all directors and principal officers of the
Company was approximately Rs.13.87 million (US$0.29 million). The functional
directors, Mr. S.K Gupta was paid an aggregate compensation of Rs.4.86 million
(US $ 0.10 million) and Mr. Srinath was paid an aggregate of Rs.3.75 million (US
$ 0.08 million). No other principal officer received remuneration from the
Company (salary, bonus, housing allowance, perks and benefits, etc.) in excess
of Rs.2 million (US$ 0.04 million) for fiscal year 2003.

         Subsequent to the Panatone Finvest Limited takeover, certain officers
and employees have been deputed to the Company from other Tata Group companies.
The total payments made by the Company to these companies towards the cost of
the deputed officers was approximately Rs.11.35 million (US$ 0.24 million) in
fiscal 2003.

         For the fiscal year ended March 31, 2003, the aggregate amount set
aside or accrued by the Company to provide pension, retirement or similar
benefits for principal officers and directors of the Company was approximately
Rs.4.49 million (US$0.09 million).

         A performance reward scheme is in place that is applicable to all
employees and functional directors of the Company. This performance reward is
based on the improvement of the Company's overall performance during the
financial year under consideration. The performance of the Company is evaluated
in relation to the previous year's performance based on several pre-defined
parameters. Depending upon the degree of improvement in the overall performance
of the Company all employees are entitled to receive rewards as per their salary
scale. During the fiscal year 2003, a total of Rs.0.87 million (US$ 0.02
million) was paid to the functional Directors and other principal officers based
on the overall performance for fiscal year 2002. During fiscal 2001, the
employees had received 33.67 percent of their annual basic pay as a reward,
which was paid out during fiscal 2002. The functional directors and other
principal officers had received a total of Rs.1.07 million under this scheme
during the fiscal year 2002.

OPTIONS TO PURCHASE SECURITIES FROM THE COMPANY.

         EMPLOYEE STOCK PURCHASE SCHEME ("ESPS")

         As part of the process of disinvestment, the Government on various
dates transferred 5,661,546 Equity Shares (approximately 1.85 percent of the
Company's equity capital) to the employees of the Company at a price
significantly lower than the fair value on the date of transfer. The transfer
issuance of such Equity Shares has been accounted for as a charge to
compensation cost of Rs.896 million and an accretion to additional paid in
capital. Accordingly, Rs.896 million has been charged to compensation cost for
the year ended March 31, 2002.

         The Company has elected to use the intrinsic value method specified
under APB Opinion No. 25, Accounting for Stock Issued to Employees to account
for the compensation cost of the employee stock purchase rights plan granted to
the employees of the Company. Pro forma disclosures required by SFAS No. 123,
Accounting for Stock-Based Compensation have been provided in Note 18 to the
financial statements to this annual report.

                                       81
<PAGE>

         BOARD COMMITTEES

Audit Committee

         The committee has five members. The committee is chaired by independent
director Mr. Subodh Bhargava. Other independent directors, Mr. Vivek Singhal and
Dr. Ashok Jhunjhunwala, along with Mr. Y.S Bhave and Mr. Ishaat Hussain, who are
non-official, part-time directors are also members. The broad powers and scope
of the committee is as follows:

         Powers:

                  i)       to investigate any activity within its scope of work

                  ii)      to seek information from any employee.

                  iii)     to obtain outside legal or other professional advice.

                  iv)      to secure attendance of outsiders with relevant
                           expertise, if considered necessary.

         Scope of work :

                  i)       oversight of the company's financial reporting
                           process and the disclosure of its financial
                           information to ensure that the financial statements
                           are correct, sufficient and credible.

                  ii)      recommending the appointment and removal of external
                           auditors, fixation of audit fee and also approval for
                           payment for any other services, as may be applicable
                           in case of the Company.

                  iii)     reviewing with management the annual financial
                           statements before submission to the board, focusing
                           primarily on

         -        any changes in accounting policies and practices.

         -        major accounting entries based on exercise of judgement by
                  management.

         -        qualifications in draft audit report.

         -        significant adjustments arising out of audit.

         -        the going concern assumption.

         -        compliance with accounting standards.

         -        compliance with stock exchange and legal requirements
                  concerning financial statements.

         -        any related party transactions i.e. transactions of the
                  company of material nature, with promoters or the management,
                  their subsidiaries or relatives etc. that may have potential
                  conflict with the interests of the Company at large.

                  iv)      reviewing with the management, external and internal
                           auditors, the adequacy of internal control systems.

                  v)       reviewing the adequacy of internal audit function,
                           including the structure of the internal audit
                           department, staffing and seniority of the official
                           heading the department, reporting structure coverage
                           and frequency of internal audit.

                  vi)      discussion with internal auditors any significant
                           findings and follow up thereon.

                  vii)     reviewing the findings of any internal investigations
                           by the internal auditors into matters where there is
                           suspected fraud or irregularity or a failure of
                           internal control systems of a material nature and
                           reporting the matter to the board.

                                       82
<PAGE>

                  viii)    discussions with external auditors before the audit
                           commences nature and scope of audit as well as have
                           post-audit discussion to ascertain any area of
                           concern.

                  ix)      reviewing the Company's financial and risk management
                           policies.

                  x)       to look into the reasons for substantial defaults in
                           the payment to the depositors, debenture holders,
                           shareholders (in case of non-payment of declared
                           dividends) and creditors.

Remuneration Committee

         The Board, at its meeting held on July 29, 2002, constituted the
Remuneration Committee of the Board to include Mr. Suresh Krishna, independent
director, as its Chairman, Mr. Ratan N. Tata and Mr. Subodh Bhargava as its
members, and the Secretary of the Company as its convener. The Remuneration
Committee determines the Company's policy on specific remuneration packages for
executive directors including pension rights and any compensation payment. The
first meeting of the Remuneration Committee was held on May 29, 2003 and decided
the remuneration of the whole-time directors for the fiscal year 2002-03.

         EMPLOYEES

         As of March 31, 2003, the Company had 2,752 employees, of whom 1,081
were executive employees (technical employees and other employees with the rank
of officer or higher, including fulltime directors of the Company) and 1,671
were non-executive employees. As of March 31, 2002, and March 31, 2001, the
Company had 2,880 employees and 2,991 employees, respectively. Upon its
establishment in 1986, the Company assumed responsibility for all the 3,148
employees of the Overseas Communications Service (690 executives and 2,458
non-executives). Since then, the Company has gradually rationalized its work
force, both reducing the total number of employees and increasing the proportion
of employees who are engineers or otherwise highly skilled. The Company seeks to
improve employee productivity through continuing education and training and by
emphasizing the importance of quality of service and customer satisfaction.
There are also about 26 employees deputed from the Tata Group.

         All non-executive employees of the Company are members of local unions
organized at each Company site, which are affiliated as the Federation of the
Videsh Sanchar Nigam Limited Employees Unions (the "Federation"). The Federation
is a Company-wide union and is not affiliated with any larger industry-wide or
national union. Executive officers of the Company meet with the Federation
regularly to discuss and resolve concerns that non-executive employees have and
also negotiate collective bargaining agreements to govern the terms and
conditions of non-executive employees. Employee concerns are resolved through
regular meetings/ discussions with the Federation.

         Most executive employees (other than directors) of the Company are
members of a similarly organized Officers' Association, which acts as an
informal consultative mechanism for conveying the officers' views regarding
personnel policies to the Company's management.

         During the current fiscal year, the Company has stepped up its internal
communication and training activities. The Company has also introduced a new
performance management system for its executive employees.

         In order to rationalize its manpower with its business needs, the
Company announced a Voluntary Retirement Scheme on May 9, 2003. The scheme
commenced on May 15, 2003 and was open to employees who were 40 years of age or
above with 10 years of service. Approximately 1,675 employees (575 executives
and 1,100 non-executives) were eligible to participate. The scheme closed on
July 14, 2003 and a total of 953 employees opted to retire voluntarily, which
included 246 executives (23 percent of the total executive workforce) and 707
non-executives (44 percent of the total non-executive workforce). An amount of
approximately Rs.950 million (US $ 19.99 million) has been paid towards the VRS

                                       83
<PAGE>

compensation i.e. on an average Rs.1 million (US $ 0.02 million) per employee
was paid to the retiring employees.

         As of August 15, 2003, the members of the Board of Directors and the
executive officers of the Company as a group, owned an aggregate of 10,725
Shares, representing 0.003 percent of the Company's Shares issued and
outstanding at such date.

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

         MAJOR SHAREHOLDERS

         As of September 1, 2003, approximately 46.60 percent of the outstanding
equity of the Company was held by Panatone Finvest Limited in conjunction with
other companies of the Tata Group, and approximately 26.12 percent was held by
the Government. See "Item 4. Information on the Company--History and Development
of the Company," "Item 4. Information on the Company--Organizational Structure,"
and "Item 6. Directors, Senior Management, and Employees--Directors and Officers
of the Company."

         The following table sets forth certain information regarding the
beneficial ownership of the Equity Shares at September 1, 2003, including the
beneficial ownership of Shares of each person or group known by the Company to
own beneficially 5 percent or more of the outstanding Shares, as reported by
such persons.

<TABLE>
<CAPTION>
                                                 NUMBER OF SHARES
NAME OF BENEFICIAL OWNER                        BENEFICIALLY OWNED(1)      PERCENTAGE
------------------------                        ---------------------      ----------
<S>                                             <C>                        <C>
Panatone Finvest Limited......................     128,250,000                45.00
Government of India (2).......................      74,446,885                26.12
</TABLE>

----------------------
(1)  Number of shares and percentage ownership is based on 285,000,000 Equity
     Shares outstanding as of September 1, 2003. Beneficial ownership is
     determined in accordance with rules of the SEC and includes voting and
     investment power with respect to such shares. Shares subject to options
     that are currently exercisable or exercisable within 60 days of September
     1, 2003 are deemed to be outstanding and to be beneficially owned by the
     person holding such options for the purpose of computing the percentage
     ownership of such person, but are not deemed to be outstanding and to be
     beneficially owned for the purpose of computing the percentage ownership of
     any other person. All information with respect to the beneficial ownership
     of any principal shareholder has been furnished by such shareholder and,
     unless otherwise indicated below, the Company believes that persons named
     in the table have sole voting and sole investment power with respect to all
     the shares shown as beneficially owned, subject to community property laws,
     where applicable.

(2)  The Shares owned by the Government are registered in the name of the
     President of India or his nominees in the register of shareholders of the
     Company.

         The Company's ADSs are listed on the New York Stock Exchange. Each ADS
represents two Equity Shares. As of June 30, 2003, approximately 31,028,010
Equity Shares (10.89 percent of the total Equity Shares outstanding as of such
date) were held by the custodian, ICICI Limited (the "Custodian"), for The Bank
of New York, as depositary for the Company's ADSs. The Company is unable to
estimate the percentage of ADSs or Equity Shares held in the United States or
the number of record holders in the United States.

         RELATED PARTY TRANSACTIONS

         The Company's principal related parties consist of its principal
shareholders, government departments, government owned or controlled companies
and affiliates of the Company. The Company routinely enters into transactions
with its related parties, such as provisioning telecommunication services,
paying license fees and subletting premises. Transactions with DoT and BSNL/MTNL
are subject to the revenue sharing agreement discussed in Note 1(d) of the
Financial Statements.

                                       84
<PAGE>

         Other related party transactions and balances are immaterial
individually and in the aggregate.

         The Company grants loans to employees for acquiring assets such as
computers and vehicles and for purchase of equity shares of the Company. The
annual rate of interest at which the loans have been made to employees is 4
percent. The loans are secured by the assets acquired by the employees. As of
March 31, 2002 and 2003, amounts receivable from employees aggregated to Rs.301
million and Rs.260 million, respectively, and are included in trade and other
receivables. Interest free short term advances made to employees aggregated Rs.8
million and Rs.10 million as of March 31, 2002 and 2003, respectively.

         The Company also grants an interest subsidy in excess of 4 percent of
the interest rate for loans taken by the employees for the purchase of property.
The cost of the interest subsidy of Rs.9 million, Rs.11 million and Rs.20
million for the years ended March 31, 2001, 2002 and 2003, respectively, is
included in staff costs.

ITEM 8.  FINANCIAL INFORMATION

         We have elected to provide financial statements pursuant to Item 18 of
this Form 20-F. There have not been any significant changes in the Company's
financial condition, other than those stated in the financial statements
attached to this annual report and as otherwise described in this annual report,
since the date of the attached annual financial statements.

ITEM 9.  THE OFFER AND LISTING

         TRADING MARKETS

         GENERAL

         The Company's shares are currently listed on stock exchanges at
Kolkata, Delhi, Chennai, Mumbai and the National Stock Exchange in India. There
has recently been negligible trading of the Company's shares on the Chennai,
Delhi and Kolkata stock exchanges. Therefore, at the Company's Annual General
Meeting on September 2, 2003, the shareholders of the Company approved a
proposal to delist the Company's shares from these stock exchanges. Accordingly,
the Company will delist the shares from the Chennai, Delhi and Kolkata stock
exchanges.

         The Company's American Depositary Shares (ADSs) represented by American
Depositary Receipts (ADRs) are listed on the New York Stock Exchange and on
September 23, 2003, the last reported sale price was US$ 5.29 per ADS on the New
York Stock Exchange. Each ADS represents two Shares. The ADSs were issued by The
Bank of New York (the "Depositary"), pursuant to a Deposit Agreement.

         The number of outstanding Shares of the Company as of June 30, 2003 was
285,000,000. As of June 30, 2003, there were 89,287 record holders of the Shares
listed and traded on the Indian Stock Exchanges. As of June 30, 2003, there were
approximately 15,514,005 of the Company's ADRs (equivalent to 31,028,010
Shares).

         PRICE HISTORY

         PRINCIPAL MARKET FOR THE COMPANY'S ADSs

         The table below sets forth, for the periods indicated, the high and low
sales prices on the New York Stock Exchange for the ADSs since August 15,2000,
the original date of listing of the ADSs.

                                       85
<PAGE>

<TABLE>
<CAPTION>
                                                               ADS PRICE
                                                       ------------------------
                                                        HIGH               LOW
                                                       -----              -----
                                                           (IN US DOLLARS)
<S>                                                    <C>                <C>
Yearly Period:
Fiscal 2001 (beginning August 15, 2000).......         18.75              9.50(1)
Fiscal 2002 ..................................         15.74              5.55
Fiscal 2003 ..................................          8.08              3.10

Quarterly Periods:

Fiscal 2002
   First Quarter..............................         15.74             11.40
   Second Quarter ............................         13.87              7.09(2)
   Third Quarter..............................         10.50              8.27
   Fourth Quarter.............................          9.60              5.55(3)

Fiscal 2003
   First Quarter..............................          8.08              6.00
   Second Quarter ............................          6.40              4.54(4)
   Third Quarter..............................          4.61              3.53
   Fourth Quarter.............................          4.08              3.10

Fiscal 2003 March.............................          3.70              3.10

Fiscal 2004 Monthly Periods:
   April .....................................          3.40              2.95
   May........................................          4.00              3.20
   June.......................................          5.49              4.03
   July.......................................          6.25              4.55
   August.....................................          5.62              4.81(5)
   September (through September 23)...........          5.61              5.00
</TABLE>

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

(1) - Stock split 3:4 in December 2000

(2) - Cash dividend of US$2.09 paid in September 2001

(3) - Cash dividend US$3.11 paid in January 2002

(4) - Cash Dividend of US$0.51 on July, 2002

(5) - Cash Dividend of US$0.37 paid in September 2003.

On September 23, 2003, the closing price of the Company's ADSs on the New York
Stock Exchange was US$ 5.29.

Source: Yahoo Finance

         The table below sets forth, for the periods indicated, the high, low
and closing sales prices for the Shares on the BSE.

                                       86
<PAGE>

                           THE STOCK EXCHANGE, MUMBAI

<TABLE>
<CAPTION>
                                                             PRICE PER
                                                               SHARE
                                                       ------------------------
                                                         (in Indian Rupees)
           PERIOD                                       HIGH             LOW
           ------                                      ------          --------
<S>                                                    <C>             <C>
Yearly Periods:
   Fiscal 1998................................           1300             700
   Fiscal 1999................................            970             660
   Fiscal 2000................................           3250             565
   Fiscal 2001................................         1938.6          198.35(1)
   Fiscal 2002................................            402          134.65
   Fiscal 2003................................            202           71.50

Quarterly Periods:
Fiscal 2002
   First Quarter..............................         402.00          272.00
   Second Quarter.............................         345.00          160.75(2)
   Third Quarter..............................         259.00          201.00
   Fourth Quarter.............................         228.00          134.65(3)

Fiscal 2003
   First Quarter..............................         202.00          146.65
   Second Quarter.............................         154.90          107.15(4)
   Third Quarter..............................         114.90           88.30
   Fourth Quarter.............................         100.25           71.50

Fiscal 2003 March.............................          90.70           71.50

Fiscal 2004 Monthly Periods:
   April......................................          78.90           68.00
   May........................................          92.15           75.05
   June.......................................         131.40           91.00
   July.......................................         142.00          109.05
   August.....................................         133.35          112.00(5)
   September (through September 23)...........         127.50          113.40
</TABLE>

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

         On September 23, 2003 the closing price of a Share on the BSE was Rs.
119.15

(1)  Post-Bonus price - A bonus of 2:1 was declared and became effective during
     November 2000.

(2)  Stock Price adjustment of Rs.50 per share subsequent to the Company's
     dividend of 500 percent for the year 2001 took place on September 3, 2001

(3)  Stock Price adjustment of Rs.75 per share subsequent to the Company's
     dividend of 750 percent for the year 2002 took place on January 16, 2002

(4)  Stock Price adjustment of Rs.12.50 per share subsequent to the Company's
     final dividend of 125 percent for the year 2002 took place on July 26, 2002

(5)  Stock Price adjustment of Rs.8.50 per share subsequent to the Company's
     final dividend of 85 percent for the year 2003 took place on August 12,
     2003

Source: The Stock Exchange, Mumbai

                                       87
<PAGE>

The table below sets forth, for the periods indicated, the high, low and closing
sales prices and the average daily trading volume for the Shares on the NSE.

                             NATIONAL STOCK EXCHANGE


<TABLE>
<CAPTION>
                                                             PRICE PER
                                                               SHARE
                                                       ------------------------
                                                         (in Indian Rupees)
      PERIOD                                            HIGH             LOW
      ------                                           ------          --------
<S>                                                    <C>             <C>
Yearly Periods:
   Fiscal 1998................................           1300             715
   Fiscal 1999................................            995             640
   Fiscal 2000................................           3298             561
   Fiscal 2001................................           1990             210(1)
   Fiscal 2002................................            400          134.70

Quarterly Periods:

Fiscal 2002
   First Quarter..............................         400.00          270.00
   Second Quarter.............................         340.10          160.90(2)
   Third Quarter..............................         258.95          198.00
   Fourth Quarter.............................         235.00          134.70(3)

Fiscal 2003
   First Quarter..............................         197.40          146.25
   Second Quarter.............................         156.00          108.00(4)
   Third Quarter..............................         115.00           88.40
   Fourth Quarter.............................         100.00           71.20

Fiscal 2003 March.............................          90.75           71.20

2003 Monthly Periods:
   April......................................          78.90           68.50
   May........................................          93.30           74.90
   June.......................................         131.40           91.50
   July.......................................         142.10          109.00
   August.....................................         135.50          113.20(5)
   September (through September 23)...........          126.9          112.00
</TABLE>

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

On September 23, 2003, the closing price of a Share on the National Stock
Exchange was Rs 119.20.

(1)  Post-Bonus price - A bonus of 2:1 was declared and became effective during
     November 2000.

(2)  Stock Price adjustment of Rs.50 per share subsequent to the Company's
     dividend of 500 percent for the year 2001 took place on September 3, 2001

(3)  Stock Price adjustment of Rs.75 per share subsequent to the Company's
     dividend of 750 percent for the year 2002 took place on January 16, 2002

(4)  Stock Price adjustment of Rs.12.50 per share subsequent to the Company's
     final dividend of 125 percent for the year 2002 took place on July 26, 2002

(5)  Stock Price adjustment of Rs.8.50 per share subsequent to the Company's
     final dividend of 85 percent for the year 2003 took place on August 12,
     2003

Source: The National Stock Exchange

                                       88
<PAGE>

         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. In May
1996, the Securities and Exchange Board of India ("SEBI") 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 is required to be registered with
SEBI. The depositary system is expected eventually to improve significantly the
operations of the Indian securities markets. Pursuant to the Depositaries Act,
the National Securities Depositary Limited was established by the Unit Trust of
India, the Industrial Development Bank of India and the NSE in 1996 to provide
electronic depositary facilities for trading in equity and debt securities. The
National Securities Depositary Limited, which commenced operations in November
1996, was the first depositary in India. The BSE announced plans to establish
another depositary, and has accordingly incorporated the Central Depositary
Services Limited, which commenced operations on July 15, 1999. The depositary
system has significantly improved the operations of India's securities market.

         Trading of securities in book-entry form commenced in December 1996 and
is available for securities of about 5,000 companies at September 2003. In order
to encourage "dematerialization" of securities, SEBI has set up a working group
on dematerialization of securities comprising Foreign Institutional Investors,
custodians, stock exchanges, mutual funds and the National Securities Depositary
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, SEBI has notified scrips of
various companies for compulsory dematerialized trading by certain categories of
investors such as foreign and other institutional investors and has also
notified compulsory dematerialized trading in specified scrips for all retail
investors. SEBI proposes to increase the number of scrips in which
dematerialized trading is compulsory for all investors significantly in the near
future. SEBI has also provided that the issue and allotment of shares in public,
rights or offer for sale after a specified date (to be notified to SEBI) shall
only be in dematerialized form and an investor shall be compulsorily required to
open a depositary account with a participant.

         However, even in 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
transactions on the stock exchange involving lots less than 500 securities.

         Under the Takeover Code, upon the acquisition of more than 5 percent of
the outstanding shares of a public Indian Company, a purchaser is required to
notify the Company and all the stock exchanges on which the shares of the
Company are listed. Upon the acquisition of 15 percent or more of such shares or
a change in control of the Company, the purchaser is required to make an open
offer to the other shareholders offering to purchase at least 20 percent of all
the outstanding shares of the Company at a minimum offer price as determined
pursuant to the rules of the Takeover Code. Upon conversion of ADSs into Equity
Shares, an ADS holder will be subject to the Takeover Code. Open market
purchases of securities of Indian companies in India by Foreign Direct Investors
or investments by Non-Resident Indians, Overseas Corporate Bodies and Foreign
Institutional Investors above the ownership levels set forth above require
approval of the Government of India on a case-by-case basis.

ITEM 10. ADDITIONAL INFORMATION

         SHARE CAPITAL

         Not Applicable.

         MEMORANDUM AND ARTICLES OF ASSOCIATION

         Set forth below is information relating to the share capital of the
Company, including certain provisions of its Articles and the Companies Act,
1956 (the "Companies Act"). The Company is registered under the Companies Act
with the Registrar of Companies, Mumbai, India with Company No. 39266. The

                                       89
<PAGE>

following description of the Company's Articles of Association and Memorandum of
Association does purport to be complete and are qualified in their entirety by
the Company's Articles of Association and Memorandum of Association that are
included as exhibits to this Annual Report on Form 20-F, incorporated herein by
reference.

         The Memorandum and Articles of Association of the Company were drafted
and adopted by the company in the year 1986 when the Company was formed as a
wholly owned Government Company, and were designed to provide necessary
authority to The President of India (the then majority shareholder) in terms of
appointment of Directors, powers of the Board and other operational aspects
subject to applicable statutory provisions. The Memorandum and Articles of
Association were amended several times since 1986 to suit the changing business
activities and structure of the Company as it changed from a wholly owned
Government Company due to disinvestments from time to time. Since the Objects
Clause contained in the Memorandum of Association and the Articles of
Association were framed in year 1986 and were largely based on the activities of
the erstwhile Overseas Communications Service at the time of its conversion into
a company, as a result of privatization it needed to be suitably amended. Over
the years from 1986 to 2002, the shareholding of Government of India was reduced
to 52.97 percent, and the Company continued to be a Government Company, and
accordingly the restrictive provisions appropriate to a Government Company in
the Memorandum and Articles of Association of the Company were implemented.

         On 13 February, 2002, a 25 percent stake of the Company was transferred
to Panatone Finvest Limited by the Government pursuant to the Share Purchase
Agreement ("SPA"), the transfer of 1.85 percent stake to the employees through
Employee Stock Purchase Scheme and thus the stake held by Government of India in
Company stood reduced to 26.12 percent.

         The shareholders, by way of postal ballot approved the amendment to the
Memorandum of Association of the Company and by way of a special resolution at
their meeting held on 20th August, 2002 approved the amendments to the Articles
of Association of the company. See "Item 6. Directors, Senior Management and
Employees--Directors and Officers of the Company."

         GENERAL

         The Company's authorized share capital is Rs.3,000,000,000, divided
into 300,000,000 Shares with a face value of Rs.10 each. At the date hereof,
285,000,000 Shares were issued and fully paid. SEBI has allowed Indian companies
to split the par value of their Equity Shares into denominations lower than
Rs.10 per share. All Share and per Share amounts appearing in the financial data
presented elsewhere herein have been retroactively restated to reflect this
bonus issue.

         The Shares are in registered form. The Shares are the only class of
share capital of the Company currently in existence. There are no convertible
debentures or warrants of the Company currently in existence.

         Under our Memorandum of Association, the main objects of the Company
include:

         -     Managing, controlling and maintaining the operations of the
               Overseas Communications Service of the Department of
               Telecommunication, Ministry of Communications, Government of
               India, with all its assets and liabilities including contractual
               rights and obligations on such terms and conditions as may be
               prescribed by the Government of India from time to time.

         -     Planning, establishing, developing, providing, operating and
               maintaining all types of international telecommunication
               networks, systems and services including, Telephone, Telex,
               Message Relay, Data transmission, Facsimile, Television,
               Telematics, value Added Network Services, New Business Services,
               Audio and Video Services, Maritime and Aeronautical Communication
               Services and other international telecommunications services as
               are in use elsewhere or to be developed in future.

                                       90
<PAGE>

         -     Planning, establishing, developing, providing, operating and
               maintaining telecommunications systems and networks within India
               as are found necessary for international telecommunications.

         -     Providing and maintaining international leased telecommunication
               services.

         -     Designing, developing, installing, maintaining and operating long
               distance domestic and international basic and value added
               telecommunications, global mobile telecommunications, electronic
               mail services, globally managed data networks, data telecom
               networks, video conferencing, international gateway networks and
               satellite networks in and outside India.

         DIRECTORS

         Pursuant to Article 5.1 of the Shareholders' Agreement, the board of
directors of VSNL has been reconstituted and shall consist of up to twelve
directors. Four of the directors shall be permanent and non-retiring directors,
of which the Government and Panatone Finvest Limited are entitled to nominate
two each. Four of the directors shall be retiring and independent directors, of
which the Government and Panatone Finvest Limited are entitled to nominate and
recommend two each. Four of the directors shall be retiring and non-independent
directors, of which the Government and Panatone Finvest Limited are entitled to
nominate two each, unless Panatone Finvest Limited owns (a) more than 25.0
percent but less than 30.0 percent of the Shares, in which case Panatone Finvest
Limited will be entitled to nominate three of the four directors and the
Government will be entitled to nominate one of the four directors, or (b) more
than 30.0 percent of the Shares, in which case Panatone Finvest Limited will be
entitled to nominate all four directors. In addition, Panatone Finvest Limited
has the right to designate one of the directors nominated by it as the managing
director of the Company so long as it owns at least 25.0 percent of the Shares.

         The remaining directors of the Company are liable to retire by
rotation, and one-third of such directors are elected by the shareholders each
year at the Company's Annual General Meeting. The directors to retire in every
year shall be those who have been longest in office since their last election,
but as between persons who became directors on the same day shall be determined
by lot unless they otherwise agree between themselves. The retiring directors
shall be eligible for re-election.

         See "Item 6. Directors, Senior Management and Employees--Directors and
Officers of the Company."

         Compensation. The fulltime directors are entitled to receive
compensation for their service to the Company. The external directors are
entitled to receive a sitting fee for each meeting of the Board or a committee
thereof that they attend. The fee for attending any meeting may be determined by
the Board from time to time but must be within the maximum limit prescribed
under the Companies Act. Subject to any provisions of the Companies Act,
directors may be entitled to additional remuneration, if the director is called
upon to perform an extraordinary service in behalf of the Company. In addition,
directors may be reimbursed for reasonable traveling and other related expenses
in connection with attending any meetings of the Board or a committee thereof.

         Borrowing Powers. Subject to the provisions of the Company Act, the
Board may pass a resolution at a meeting of the Board from time to time to
borrow and/or secure the payment of any sum or sums of money for the purposes of
the Company. The Board has the power, in its discretion, to determine the terms
and conditions of such borrowing, including issuing bonds, debentures or any
mortgage, charge or other security on the undertaking of any property of the
Company.

         Qualification; Retirement. A director need not hold any of the
Company's Shares to qualify as a director. There is no age limit requirement for
a director's retirement.

                                       91
<PAGE>

         DIVIDENDS

         The Company's shareholders, acting at the Annual General Meeting, may
declare a dividend upon the recommendation of the Board of Directors. The amount
of the dividend so declared may not exceed the amount recommended by the Board
although a lesser amount may be declared. Dividends are distributed and paid
within 30 days of the declaration by the shareholders. The Company's Board also
is authorized under the Articles to declare and pay interim dividends to
shareholders. It is customary in India to pay to holders of shares issued in any
fiscal year a pro rata portion of the annual dividend for the portion of the
year such shares were issued.

         Dividends are payable only in cash to registered holders on a record
date fixed prior to the relevant General Meeting.

         Dividends may be paid only out of profits of the Company for the
relevant year, after transfer to the reserves of the Company of a percentage of
its profits for that year of not less then 2.5 percent if the dividend is in
excess of 10 percent. The Companies Act further provides that, in the event of
inadequacy or absence of profits in any year, a dividend may be declared for
such year out of the Company's accumulated profits, subject to certain
limitations.

         Under the Companies Act, the dividend amount is required to be
maintained in a separate bank account within five days of declaration of such
dividend.

         The Board of Directors of the Company recommended a dividend of Rs.8.50
on every share of Rs.10 for the financial year ended March 31, 2003, and the
same has been approved at the Annual General Meeting held on September 2, 2003.
See "Item 3. Key Information -Dividends."

         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 ten percent 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.

         Any shareholder of the Company may appoint a proxy. The instrument
appointing a proxy must be lodged with the Company 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 alteration of the Articles,
commencement of a new line of business, issuance of further Shares without
preemptive rights and reduction of share capital, require that the votes cast in
favor of the resolution (whether by show of hands or upon a poll) be not less
than three times the number of votes, if any, cast against the resolution.

         BONUS SHARES

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

                                       92
<PAGE>

         PREEMPTIVE RIGHTS AND ISSUE OF ADDITIONAL SHARES

         The Company may by ordinary resolution increase its 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
shareholders holding 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 special resolution to that effect adopted at an Annual General Meeting of
shareholders. Under the Companies Act, in the event of an issuance of
securities, subject to the limitations the Company must first offer such Shares
to existing shareholders by notice specifying (1) the number of Shares offered
and the date, within 30 days from the date of offer, by which the offer must be
accepted and (2) the right, exercisable by the shareholder, to renounce the
shares offered in favor of any other person. The Board 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 the Company in accordance with the
Articles.

         GENERAL MEETING OF SHAREHOLDERS

         The Company is required to convene an Annual General Meeting of its
shareholders within six months after the end of each fiscal year and may convene
an Extraordinary General Meeting of shareholders when necessary or at the
request of a shareholder or shareholders holding not less than ten percent of
the paid-up capital of the Company 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. 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 the
registered office of the Company 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 if so determined by the Board.

         The Articles provide that a quorum for a General Meeting is the
presence of at least five shareholders, including a representative of the
President of India and Panatone Finvest Limited.

         REGISTER OF SHAREHOLDERS; RECORD DATES; TRANSFER OF SHARES

         The Company's share transfer agent maintains a register of shareholders
of the Company. For the purpose of determining Shares entitled to annual
dividends the register is closed for a specified period prior to the Annual
General Meeting. The Companies Act and the Company's listing agreement with the
BSE (and the other Indian Stock Exchanges) permit the Company, pursuant to a
resolution of the Board and upon at least 30 days' advance notice to the BSE
(and such 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 the Company to determine
which shareholders are entitled to certain rights pertaining 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 various laws affecting companies in India)
may, on application made by an investor, SEBI or certain other parties, direct
the rectification of the register of records. 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

                                       93
<PAGE>

contravention. Pending such 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 if the Company Law Board so orders.

         Transfer of Shares of the Company is effected by an instrument of
transfer in the form prescribed by the Government of India coupled with delivery
of the share certificates. The transfer agent of the Company is M/s. Sharepro
Services, located in Mumbai.

         The above procedure is not applicable where the Shares are
dematerialized and transferred electronically. To encourage "dematerialization"
of securities in India, SEBI has required certain types of securities of certain
Indian companies to be traded and settled in book-entry form. The Shares of the
Company have been designated as one of such securities. To effect transfer of
Shares in book-entry form, the seller and purchaser must establish accounts with
a depositary participant appointed by the National Securities Depositary Limited
or Central Securities Depositary Limited, a depositary established pursuant to
the Depositories Act, 1996,. Charges for opening an account with an Securities
Depositary Limited participant, transaction charges for each trade and custodian
charges for securities held in each account vary depending upon the business
practice of each Securities Depositary Limited participant. Upon delivery, the
Shares purchased will be registered in the name of the Securities Depositary
Limited participant and held by such Securities Depositary Limited participant
for the account of the purchaser. So long as the Shares are traded through the
book-entry system of Securities Depositary Limited, ownership of beneficial
interest in the Shares will be shown on, and transfer of such ownership will be
effected only through, records maintained by Securities Depositary Limited
participants.

         The requirement for dematerialization of the Shares may apply to the
ADR holders when the underlying Shares are withdrawn from the depositary
facility upon surrender of the ADRs. In order to trade the underlying Shares in
the Indian market, the withdrawing ADR holder will be required to hold such
Shares in book-entry form and to comply with the Securities Depositary Limited
procedures described above. If dematerialization of any underlying Shares is
requested by an ADR holder, the cost incurred by the Depositary therefor will be
borne by the withdrawing ADR holder. Transfer of Shares in book-entry form is
not subject to any Indian transfer tax. See "Taxation--Indian Taxation."

         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 ADRs of a company, investors who exchange ADRs 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.l,000 for each day such 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.

         AUDIT AND ANNUAL REPORT

         At least 21 days before the Annual General Meeting of shareholders, the
Company must circulate a detailed version of the Company's audited balance sheet
and profit and loss account and the reports of the Board of Directors and the
auditors thereon. The Company also is required under the Companies Act to make
available upon request of any shareholder a complete balance sheet and profit
and loss account of the Company in the case of circulation of abridged accounts.

         Under the Companies Act, the Company must file with the Registrar of
Companies the balance sheet and annual profit and loss account presented to the
shareholders within 30 days of the conclusion of the Annual General Meeting and
an annual return within 60 days of the conclusion of the meeting.

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         RIGHTS OF THE GOVERNMENT OF INDIA UNDER THE SHAREHOLDERS' AGREEMENT
         ("SHA") TO BE EXERCISED THROUGH ITS NOMINEE DIRECTORS ON THE BOARD

Approval of Matters

(a)      The property, business and affairs of the Company shall be managed
         exclusively by and be under the direction of the Board. The Board may
         exercise all such powers of the Company and have such authority and do
         all such lawful acts and things as are permitted by applicable Law and
         the Memorandum of Association and Articles of Association. Subject to
         (b) below, all decisions, actions and resolutions of the Board shall be
         adopted by the affirmative vote of a simple majority of the members of
         Board.

(b)      Notwithstanding any other provision of SHA or otherwise permitted or
         provided under the Act, no obligation of the Company or any of its
         subsidiaries shall be entered into, no decision shall be made and no
         action shall be taken by or with respect to the Company or any of its
         subsidiaries in relation to the following matters unless such
         obligation, decision or action as the case may be, is approved if, at
         any meeting of the Company's shareholders, duly called for the purpose
         of considering such obligation, decision or action, by an affirmative
         vote of the one authorized representative of both the Government and
         Panatone Finvest Limited, and if at the meeting of the Board by an
         affirmative vote of, at least one nominee director of each of the
         Government and Panatone Finvest Limited:

         (i)      Any change in the Memorandum of Association and Articles of
                  Association;

         (ii)     The granting of any security or the creation of any
                  Encumbrance on the assets of the Company or the incurrence of
                  any indebtedness or guaranteeing the debts of any Person which
                  in the aggregate at any time exceeds the net worth of the
                  Company;

         (iii)    The taking of any steps to wind-up or terminate the corporate
                  existence of the Company or any of its Affiliates or entering
                  into any arrangement with the creditors of the Company in
                  relation to all or substantial part of the assets of the
                  Company;

         (iv)     Any one or a series of transactions which causes a sale,
                  lease, exchange or disposition of land and building of the
                  Company or its subsidiary which are acquired by the Company at
                  any time prior to the Closing (as defined in the SHA);

         (v)      Subject to (xv) hereunder, any sale, lease, exchange or
                  disposition of any property, assets or equipments (other than
                  land and building) of the Company or its subsidiary which are
                  acquired by the Company at any time prior to the Closing,

         (vi)     The making, directly or indirectly, of loans or advances in
                  excess of Rs.500 million to any Person other than in the
                  ordinary course of business of the Company;

         (vii)    The entering into of an amalgamation, merger or consolidation
                  with any other company or body corporate;

         (viii)   Any change in the number of directors of the Company from that
                  provided in this Agreement;

         (ix)     Any agreement with or commitment to any Shareholder or its
                  Principal(s) or their respective Affiliates, except where, and
                  to the extent, (a) such agreement or commitment between the
                  Company or any of its Affiliates on the one hand and the
                  Government or any Government Authority on the other is
                  required under applicable Law or (b) such agreement is on an
                  arms' length basis and in good faith;

         (x)      Establishment of any subsidiary or associated company by
                  Company;

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<PAGE>

         (xi)     Transfer of any rights or interest in Affiliates of the
                  Company including, without limitation, Transfer of Relevant
                  Interests in securities of such Affiliates held by the
                  Company;

         (xii)    Any agreement, license or permission in respect of the use of
                  the name and/or logo of the Company (except where such
                  agreement, license or permission is for the purpose of, or in
                  connection with, advertising or promotional activities only by
                  the Company);

         (xiii)   the delegation by the Board to any Person of the Board's
                  authority to approve or authorize any matter described in this
                  article (b);

         (xiv)    change directly or indirectly in the use of land and building
                  of the Company other than for the purposes of the main objects
                  of the Company as defined in the Memorandum of Association of
                  the Company;

         (xv)     Any one or a series of transactions, which causes a sale,
                  lease, exchange or disposition of obsolete equipments or
                  equipments not in use, of the Company or its subsidiary having
                  an aggregate value exceeding 25 percent of the total value of
                  the net fixed assets of the Company as specified in the
                  Audited Financial Statement ;

         (xvi)    Any commitment or agreement to do any of the foregoing.

(c)      Notwithstanding anything to the contrary contained in the SHA in the
         event any of the aforesaid items of business mentioned in (b) above is
         not approved by the Board or Shareholders at a meeting or otherwise
         then such non-approved items shall not be implemented by the Company
         and the Strategic Partner and the Government (Parties to SHA) shall not
         directly or indirectly take any steps to cause the Company to implement
         such items of business. The non-approval of the aforesaid items of
         business at a meeting or otherwise of the Board or the Shareholders
         shall not be considered as subject matter of dispute, difference,
         disagreement or the like between the Government and the Strategic
         Partner and the non approval of such item of business will not be
         referred to Arbitration under SHA.

         ACQUISITION BY THE COMPANY OF ITS OWN SHARES

         Until 1999, 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 amended the Indian Companies Act and consequently this
reduction in capital is now permitted in certain circumstances. The reduction of
capital requires compliance with specific buy-back guidelines specified in the
Indian Companies (Amendment) Act, 1999, and by SEBI.

         ADR holders will not be eligible to participate in a buyback in case of
tender offers, odd lots and open market purchases unless they surrender their
ADSs and receive delivery of the underlying Shares. ADR holders should note that
Shares withdrawn from the depositary facility may not be redeposited into such
depositary facility.

         There can be no assurance that the underlying Shares offered by the ADR
holders in any buyback of Shares by the Company will be accepted by the Company.
The regulations relating to the buyback of securities have only been introduced
recently and there is very limited experience in the interpretation of such
regulations. ADR Holders are advised to consult their Indian legal advisers
prior to participating in any buyback by the Company, including in relation to
any tax issues relating to such buyback.

         Foreign Institutional Investors should note that in the event of a
buyback by the Company, the prescribed threshold limit for shareholdings by
Foreign Institutional Investors may be exceeded by default regardless of any
participation or non-participation by them in the buyback. The treatment of the
Foreign Institutional Investors threshold limits in the buyback context is
uncertain, and Foreign Institutional Investors are advised to consult their
Indian legal advisers in this regard.

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         LIQUIDATION RIGHTS

         Subject to the rights of creditors, employees and of the holders of any
other shares entitled by their terms to preferential repayment over the Shares,
in the event of winding up of the Company, the holders of the Shares are
entitled to be repaid the amounts of capital paid up or credited as paid up on
such 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.

         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 (the "Takeover Code"), which prescribes certain
thresholds or trigger points that give rise to these obligations. The Takeover
Code is under constant review by SEBI and was recently amended.

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

         -     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 percent or 10 percent or 14 percent of the shares or
               voting rights in a company is required to disclose at every
               stage, the aggregate of his shareholding or voting rights 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.

         -     A person who holds more than 15 percent of the shares or voting
               rights in any company is required to make annual disclosure 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).

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

         With respect to takeovers (other than bail-out takeovers) of listed
companies, the Takeover Code, as amended, provides for mandatory bid and open
offer requirements, summarized below:

         -     An acquiror 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
               acquiror to exercise 15 percent or more of the voting rights in a
               company, unless such acquiror makes a public announcement
               offering to acquire an additional 20 percent of the shares of the
               company.

         -     An acquiror who, together with persons acting in concert with
               him, holds between 15 percent and 75 percent cannot acquire
               additional shares or voting rights that would entitle him to
               exercise more than 5 percent of the voting rights in any
               financial year ending on 31 March unless such acquirer makes a
               public announcement offering to acquire an additional 20 percent
               of the shares of the company.

         -     Any further acquisition of shares or voting rights by an acquiror
               who holds 75 percent of the shares or voting rights in a company
               triggers the same public announcement requirements.

         -     In addition, regardless of whether there has been any acquisition
               of shares or voting rights in a company, an acquiror 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

                                       97
<PAGE>

               to control the management or the policy decisions of the company)
               unless such acquiror makes a public announcement offering to
               acquire a minimum of 20 percent 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, as amended, permits conditional offers as well as
the acquisition and subsequent delisting of all shares of a company and provides
specific guidelines for the gradual acquisition of shares or voting rights.
Specific obligations of the acquiror and of the board of directors of the target
company in the offer process have also been set out. Acquirors making a public
offer will be required to deposit in an escrow account 25 percent of the total
consideration (if the total consideration is Rs.1.0 billion (US$ 21.04 million)
or less) up to and including Rs.1 billion and 10 percent for the excess over
Rs.1 billion, which amount will be forfeited in the event that the acquiror does
not fulfill his obligations. In addition, the Takeover Code introduces the
"chain principle" whereby the acquisition of a holding company will obligate the
acquiror to make a public offer to the shareholders of each of the publicly
listed companies acquired through the acquisition of the holding company.

         The general requirements to make such a public announcement do not,
however, apply entirely to bail-out takeovers when a promoter (i.e., 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 fiscal year, accumulated losses resulting in erosion of more than 50
percent (but less than 100 percent) of the total sum of its paid-up capital and
free reserves at the end of the previous fiscal year. A "sick industrial
company" is a company registered for more than five years which has, at the end
of any fiscal 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 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 (7) Allotment pursuant to an application made by a shareholder for
rights issue. (8) Interse Transfer of shares among group companies, relatives,
Indian Promoters and foreign collaborators who are shareholders (9) Acquisition
of shares by way of transmission, succession or inheritance (10) Acquisition by
Government Company (11) Transfer of shares from venture capital funds or foreign
venture capital investors registered with Securities Exchange Board Of India
(SEBI) to promoters of venture capital undertaking or venture capital
undertaking pursuant to an agreement between them.

         In addition, the Takeover Code does not apply to shares represented by
ADSs so long as such shares remain in the ADR depositary facility.

         The Company has 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 percent or more of the
company's outstanding equity shares, the acquirer must report its holding to the
relevant stock exchange(s). If an acquisition could result in the acquirer and
its associates holding equity shares which carry 10 percent or more of the
voting rights, then the acquirer must notify the relevant stock exchange(s). If
such acquisition is deemed a takeover, the acquirer must, before acquiring such
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 percent 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. Clauses 40A and 40B and such regulations will not apply to
shares so long as they are represented by ADRs.

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         MATERIAL CONTRACTS

         The Company's material contracts are entered into in the ordinary
course of business and include rate sharing agreements and interconnect
agreements with international and domestic telecommunication providers. Certain
of these agreements are attached as exhibits to this annual report.

         EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

         RESTRICTION ON CONVERSION OF RUPEES

         There are restrictions on the conversion of Rupees into US 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 percent of the foreign
exchange received on the trade or current account at a market-determined rate
and the remaining 40 percent at the official rate. All importers were, however,
required to buy foreign exchange at the market rate except for importers of
certain specified priority imports. In March 1993, the exchange rate was unified
and allowed to float and made convertible on the revenue account. In February
1994 and again in August 1994, the Reserve Bank of India announced relaxations
in payment restrictions for 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 1999, the process
of current account convertibility was advanced by relaxing restrictions on
foreign exchange for various purposes, such as foreign travel and medical
treatment.

         RESTRICTIONS ON SALE OF THE EQUITY SHARES UNDERLYING THE COMPANY'S
         AMERICAN DEPOSITARY RECEIPTS AND FOR REPATRIATION OF SALE PROCEEDS

         American Depositary Receipts issued by Indian companies to
non-residents have free transferability outside India. Until recently, under
Indian law it was not permitted for a depositary to accept deposits of
outstanding equity shares and issue ADSs evidencing such shares. Thus, an
investor in ADSs who surrendered an ADS and withdrew equity shares would not be
permitted to redeposit those equity shares to obtain ADSs, nor would an investor
who purchased equity shares on the Indian market have been permitted to deposit
them in the ADS program. The Government of India has recently permitted two-way
fungibility of ADRs. However, this is still subject to sectoral caps and certain
conditions, including compliance with the provisions of the Issue of Foreign
Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt
Mechanism) Scheme 1993 and the periodic guidelines issued by the Government.
Such restrictions on foreign ownership of the underlying equity shares may cause
the Company's Equity Shares to trade at a discount or premium to its ADSs.

         In February 2002, the RBI issued a circular stating that the terms of
Regulations 4A of the Reserve Bank of India Notification FEMA 20/2000-RB dated
May 3, 2000, as amended by Notification No. FEMA 41/2001-RB dated March 2, 2001,
allow a registered broker to purchase shares of an Indian company on behalf of a
person resident outside of India for the purpose of converting those shares into
ADSs/GDSs. However, such conversion is subject to compliance with the provisions
of the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through
Depository Receipt Mechanism) Scheme 1993 and the periodic guidelines issued by
the Central Government. This would mean that ADSs converted into Indian shares
may be converted back into ADSs, subject to the limits of sectoral caps.

         The Operative Guidelines for the limited two-way fungibility under the
Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through
Depository Receipt Mechanism) Scheme 1993 has also been approved by the
Government of India.

         These guidelines provide that a re-issuance of ADSs/GDSs are permitted
to the extent that ADSs/GDSs have been redeemed for underlying shares and sold
in the domestic market. The re-issuance must be within specified limits. The
conditions to be satisfied in this regard are: (i) the shares are purchased on a
recognized stock exchange; (ii) the Indian company has issued ADS/GDS; (iii) the
shares

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<PAGE>

are purchased with the permission of the custodian of the ADSs/GDSs of the
Indian company and are deposited with the custodian; and (iv) the number of
shares so purchased shall not exceed the number of ADSs/GDSs converted into
underlying shares.

         The procedure for conversion of shares into ADSs/GDSs is as follows:
(i) on request by the overseas investor for the acquisition of shares for
re-issuance of ADSs/GDSs, the SEBI registered broker will purchase shares from a
stock exchange after verifying with the custodian as to the availability of
"Head Room" (i.e. the number of ADSs/GDSs originally issued minus the number of
ADSs/GDSs outstanding further adjusted for ADSs/GDSs redeemed into underlying
shares and registered in the name of the non-resident investor(s)); (ii) an
Indian broker purchases the shares in the name of the overseas depositary; (iii)
after the purchase, the Indian broker places the domestic shares with the
Custodian; (iv) the Custodian advises the overseas depositary on the custody of
domestic shares and to issue corresponding ADSs/GDSs to the investor; and (v)
the overseas depositary issues ADSs/GDSs to the investor.

         Holders who seek to sell in India any Equity Shares received upon
surrender of any ADS, and to convert the Rupee proceeds of such sale into
foreign currency and remit such foreign currency outside of India, will require
the approval of the Reserve Bank of India for each such transaction. Although
such approvals are generally forthcoming, there can be no assurance that any
such approval can be obtained in a timely manner or at all.

         GENERAL

         Shares of Indian companies represented by ADSs may be approved for
issuance to foreign investors by the Government of India under the Issue of
Foreign Currency Convertible Bonds and Equity Shares (through Depositary Receipt
Mechanism) Scheme, 1993 (the "1993 Regulation"), as modified from time to time,
promulgated by the Government. The 1993 Regulation is distinct from other
policies or facilities, as described below, relating to investments in Indian
companies by foreign investors. The issuance of ADSs pursuant to the 1993
Regulation also affords to holders of the ADSs the benefits of Section 115AC of
the Indian Income Tax Act, 1961 for purposes of the application of Indian tax
law.

         FOREIGN DIRECT INVESTMENT

         In July 1991, the Government raised the limit on foreign equity
holdings in Indian companies from 40 percent to 51 percent in certain high
priority industries. The Reserve Bank of India gives automatic approval for such
foreign equity holdings. The Foreign Investment Promotion Board, currently under
the Ministry of Industry, was thereafter formed to negotiate with large foreign
companies wishing to make long-term investments in India. Foreign equity
participation in excess of 51 percent in such high priority industries or in any
other industries up to Rupees six billion is currently allowed only with the
approval of the Foreign Investment Promotion Board. Proposals in excess of
Rupees six billion require the approval of the Cabinet committee on Foreign
Investment. Proposals involving the public sector and other sensitive areas
require the approval of Cabinet Committee on Economic Affairs. These facilities
are designed for direct foreign investments by non-residents of India who do not
qualify as Non-Resident Indians, Overseas Corporate Bodies or Foreign
Institutional Investors (as each term is defined below) ("Foreign Direct
Investors"). The Department of Industrial Policy and Promotion, a part of the
Ministry of Industry, issued detailed guidelines in January 1997 for
consideration of foreign direct investment proposals by the Foreign Investment
Promotion Board (the "Guidelines"). Under the Guidelines, sector specific
guidelines for foreign direct investment and the levels of permitted equity
participation have been established. In January 1998, the Reserve Bank of India
issued a notification that foreign ownership of up to 50 percent, 51 percent, 74
percent or 100 percent depending on the category of industry, would be allowed
without prior permission of the Reserve Bank of India. The issues to be
considered by the Foreign Investment Promotion Board, and the Foreign Investment
Promotion Board's areas of priority in granting approvals are also set out in
the Guidelines. The basic objective of the Guidelines is to improve the
transparency and objectivity of the Foreign Investment Promotion Board's
consideration of proposals. However, because the Guidelines are administrative
guidelines and have not been codified as either law or regulations, they are not
legally binding with respect to any recommendation made by the Foreign
Investment Promotion Board or with respect to any decision taken by the
Government of India in cases involving foreign direct investment.

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<PAGE>

         In May 1994, the Government announced that purchases by foreign
investors of ADSs as evidenced by ADRs and foreign currency convertible bonds of
Indian companies will be treated as direct foreign investment in the equity
issued by Indian companies for such offerings. Therefore, offerings that involve
the issuance of equity that results in Foreign Direct Investors holding more
than the stipulated percentage of direct foreign investments (which depends on
the category of industry) would require approval from the Foreign Investment
Promotion Board. In addition, in connection with offerings of any such
securities to foreign investors, approval of the Foreign Investment Promotion
Board is required for Indian companies whether or not the stipulated percentage
limit would be reached, if the proceeds there from are to be used for investment
in non-high priority industries. With respect to the activities of the Company,
Foreign Investment Promotion Board approval is required for any direct foreign
investment in the Company which exceeds 51 percent of the total issued share
capital of the Company.

         In July 1997, the Government issued guidelines to the effect that
foreign investment in preferred shares will be considered as part of the share
capital of a company and will be processed through the automatic Reserve Bank of
India route or will require the approval of the Foreign Investment Promotion
Board, as the case may be. Investments in preferred shares are included as
foreign direct investment for the purposes of sectoral caps on foreign equity,
if such preferred shares carry a conversion option. If the preferred shares are
structured without a conversion option, they would fall outside the foreign
direct investment limit but would be treated as debt and would be subject to
special Government of India guidelines and approvals.

         Foreign direct investment is now freely allowed in all sectors
including the services sector, except where the existing and notified sectoral
policy does not permit foreign direct investment beyond a ceiling. Foreign
direct investment for virtually all items/activities can be brought in through
the automatic route under powers delegated to the Reserve Bank of India and for
the remaining items/activities through Government Approval. Government approvals
are accorded on the recommendation of the Foreign Investment Promotion Board.

         INVESTMENT BY NON-RESIDENT INDIANS, PERSONS OF INDIAN ORIGIN AND
OVERSEAS CORPORATE BODIES

         A variety of special facilities for making investments in India in
shares of Indian companies are available to individuals of Indian nationality or
origin residing outside India, persons of Indian origin and to overseas
corporate bodies ("OCBs"), at least 60 percent owned by such persons. These
facilities permit Non-Resident Indians, Persons of Indian Origin and OCBs to
make portfolio investments in shares and other securities of Indian companies on
a basis not generally available to other foreign investors. These facilities are
different and distinct from investments by Foreign Direct Investors described
above.

         INVESTMENT BY FOREIGN INSTITUTIONAL INVESTORS

         In September 1992, the Government issued guidelines which enable
Foreign Institutional Investors, including institutions such as pension funds,
investment trusts, asset management companies, nominee companies and
incorporated/institutional portfolio managers, to invest in all the securities
traded on the primary and secondary markets in India. Under the guidelines,
Foreign Institutional Investors are required to obtain an initial registration
from SEBI and a general permission from the Reserve Bank of India to engage in
transactions regulated under the Foreign Exchange Management Act of 1999.
Foreign Institutional Investors must also comply with the provisions of the SEBI
Foreign Institutional Investors Regulations, 1995. When it receives the initial
registration, Foreign Institutional Investors also obtain general permission
from the Reserve Bank of India to engage in transactions regulated under the
Foreign Exchange Management Act of 1999. Together, the initial registration and
the Reserve Bank of India's general permission enable registered Foreign
Institutional Investors to buy (subject to the ownership restrictions discussed
below) and sell freely securities issued by Indian companies, to realize capital
gains on investments made through the initial amount invested in India, to
subscribe or renounce rights offerings for shares, to appoint a domestic
custodian for custody of investments held and to repatriate the capital, capital
gains, dividends, and income received by way of interest and any compensation
received towards sale or renunciation of rights offerings of shares.

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         OWNERSHIP RESTRICTIONS

         SEBI and the Reserve Bank of India regulations restrict investments in
Indian companies by Foreign Direct Investors. Under current SEBI regulations
applicable to the Company, Foreign Direct Investors in aggregate may hold no
more than 40 percent of the Company's Equity Shares, excluding the Equity Shares
underlying the ADSs, and Non-Resident Indians and Overseas Corporate Bodies in
aggregate may hold no more than 10 percent of the Company's Equity Shares,
excluding the Equity Shares underlying the ADSs. Furthermore, SEBI regulations
provide that no single Foreign Institutional Investor may hold more than 10
percent of the Company's total Equity Shares and no single Non-Resident Indian
or OCB may hold more than 5 percent of the Company's total Equity Shares.

         Foreign Institutional Investors may only purchase securities of public
Indian companies (other than ADSs) through a procedure known as a "preferential
allotment of shares," which is subject to certain restrictions. These
restrictions will not apply to Equity Shares issued as stock dividends or in
connection with rights offerings applicable to the Equity Shares underlying
ADSs. There is uncertainty under Indian law about the tax regime applicable to
Foreign Institutional Investors which hold and trade ADSs. Foreign Institutional
Investors are urged to consult with their Indian legal and tax advisers about
the relationship between the Foreign Institutional Investors guidelines and the
ADSs and any Equity Shares withdrawn upon surrender of ADSs.

         More detailed provisions relating to Foreign Institutional Investors
investment have been introduced by the SEBI with the introduction of the SEBI
Foreign Institutional Investors Regulations, 1995. These provisions relate to
the registration of Foreign Institutional Investors, their general obligations
and responsibilities, and certain investment conditions and restrictions. One
such restriction is that the total investment in equity and equity-related
instruments should not be less than 70 percent of the aggregate of all
investments of the Foreign Institutional Investors in India. The SEBI has also
permitted private placements of shares by listed companies with Foreign
Institutional Investors, subject to the prior approval of the Reserve Bank of
India under the Foreign Exchange Regulation Act of 1973. Such private placement
must be at the average of the weekly highs and lows of the closing price over
the preceding six months of the preceding two weeks, whichever is higher.

         VOTING RIGHTS

         Holders of the Company's ADSs will not be entitled to instruct the
Depositary how to vote the Shares underlying the ADSs. Rather, each holder, by
accepting an ADR, authorized and directed the Depositary to vote as set forth
below.

         The Depositary will vote the deposited Shares as instructed by the
Company's Board of Directors or give a proxy or power of attorney to vote the
deposited Shares to a person designated by the Board of Directors. However, the
Depositary will only do this upon the Company's legal counsel issuing an opinion
to the Depositary stating that it is legal for the Depositary to do so and that
doing so will not expose the Depositary to legal liability. If the Company does
not provide the legal opinion referred to above, the Depositary will not vote
the deposited Shares or give a proxy or power of attorney to anyone else to vote
the deposited Shares.

         TAXATION

         INDIAN TAXATION

         General. The following summary is based on the provisions of the Income
Tax Act, 1961 (the "Indian Tax Act"), including the special tax regime contained
in Section 115AC (the "Section 115AC Regime") and the 1993 Regulation. The
Indian Tax Act is amended every year by the Finance Act of the relevant year.
Some or all of the tax consequences of the Section 115 AC Regime may be amended
or changed by future amendments of the Indian Tax Act.

                                      102
<PAGE>

         The summary set forth below is not intended to constitute a complete
analysis of the individual tax consequences to non-resident holders under Indian
law for the acquisition, ownership and sale of ADSs and Equity Shares by
non-resident holders. Personal tax consequences of an investment may vary for
investors in various circumstances and 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 the law of
the jurisdiction of their residence and any tax treaty between India and their
country of residence.

         RESIDENCE

         For purposes of the Indian Tax Act, an individual is considered to be a
resident of India during any fiscal year if he or she:

         -     is in India in that year for a period or periods amounting to 182
               days or more; or

         -     is in India in that year for 60 days or more and, in case of a
               citizen of India or a person of Indian origin, who, being outside
               India, comes on a visit to India, is in India for more than 182
               days in each case within the four preceding years has been in
               India for a period or periods amounting to 365 days or more.

A company is resident in India if it is registered in India or the control and
management of its affairs is situated wholly in India.

         TAXATION OF DISTRIBUTIONS

         Pursuant to the Finance Act, 2003, withholding tax on dividends is
applied at the rate of 12.8125 percent. In case of foreign institutional
investors the applicable withholding is 20.10 percent. Henceforth, no tax is
required to be paid by the Company on dividend distributions.

         TAXATION ON SURRENDER OF ADSs

         The acquisition by a non-resident holder of Shares upon surrender of
ADSs does not constitute a taxable event for Indian income tax purposes. Such
exchange will, however, give rise to stamp duty as described below under "Stamp
Duty and Transfer Tax."

         TAXATION OF CAPITAL GAINS

         Any gain realized on the sale of ADSs or Equity Shares by a
non-resident holder to another non-resident holder outside India is not subject
to Indian capital gains tax. However, as Rights are not expressly covered by the
Indian Tax Act, it is unclear, as to whether capital gain derived from the sale
of Rights by a non-resident holder (not entitled to an exemption under a tax
treaty) to another non-resident holder outside India will be subject to Indian
capital gains tax. If such Rights are deemed by the Indian tax authorities to be
situated within India, the gains realized on the sale of such Rights will be
subject to customary Indian taxation as discussed below.

         Since the issuance of the ADSs has been approved by the Government of
India under the Section 115AC Regime, Non-resident Holders of the ADSs will have
the benefit of tax concessions available under the Section 115AC Regime. The
Section 115AC Regime provides that if the Equity Shares are sold on an Indian
Stock Exchange against payment in Indian rupees, they will no longer be eligible
for such concessional tax treatment. However, the Section 115AC Regime is
unclear, as to whether such tax treatment is available to a non-resident who
acquires Equity Shares outside India from a non-resident holder of Equity Shares
after receipt of the Equity Shares upon surrender of the ADSs. If concessional
tax treatment is not available, gains realized on the sale of such Equity Shares
will be subject to customary Indian taxations discussed below.

                                      103
<PAGE>

         Subject to any relief provided pursuant to an applicable tax treaty,
any gain realized on the sale of Equity Shares to an Indian resident or inside
India generally will be subject to Indian capital gains tax. For the purpose of
computing capital gains tax, the cost of acquisition of Equity Shares received
in exchange for ADSs will be determined on the basis of the prevailing price of
the shares on any of the Indian stock exchanges on the date that the Depositary
instructs the custodian to deliver Equity Shares in exchange for ADSs. A
non-resident holder's holding period (for purpose of determining the applicable
Indian capital gains tax rate) in respect of Equity Shares received in exchange
for ADSs commences on the date of the notice of the redemption by the Depositary
to the Custodian. The Indo-US Treaty does not provide an exemption from the
imposition of Indian capital gains tax.

         Taxable gain realized on Equity Shares (calculated in the manner set
forth in the prior paragraph) held for more than 12 months (long-term gain) is
subject to tax at the rate of 10 percent. Taxable gain realized on Equity Shares
held for 12 months for less (short-term gain) is subject to tax at variable
rates with a maximum rate of 48 percent. The actual rate of tax on short-term
gain depends on a number of factors, including the legal status of the
Non-resident and the type of income chargeable in India.

         STAMP DUTY AND TRANSFER TAX

         Upon issuance of the Equity Shares, the Company is required to pay a
stamp duty of 0.1 percent per share of the issue price of the underlying Equity
Shares. A transfer of ADSs is not subject to the Indian stamp duty. However,
upon the acquisition of Equity Shares from the Depositary in exchange for ADSs,
the holder will be liable for Indian stamp duty at the rate of 0.5 percent of
the market value of the ADSs or Equity Shares exchanged. A sale of Equity Shares
by a registered holder will also be subject to Indian stamp duty at the rate of
0.5 percent of the market value of the Equity Shares on the trade date, although
customarily such tax is borne by the transferee. However, in case of Equity
Shares held with the Depositary in electronic mode, there will not be any
incidence of stamp duty.

         GIFT AND WEALTH TAX

         ADSs held by non-resident holders and the underlying Equity Shares held
by the Depositary and the transfer of ADSs between non-resident holders and the
Depositary will be exempt from Indian gift tax and Indian wealth tax.

         ESTATE DUTY

         Under current Indian law, there is no estate duty applicable to a
non-resident holder of ADSs or Equity Shares.

         UNITED STATES FEDERAL TAXATION

         The following summary describes the material United States federal
income tax consequences of ownership of Shares and ADSs as of the date hereof.
The discussion set forth below is applicable to US Holders (as defined below).
Except where noted, it deals only with Shares and ADSs held as capital assets
and does not deal with special situations, such as those of dealers in
securities or currencies, traders in securities that elect to use a
mark-to-market method of accounting for their securities holdings, financial
institutions, tax-exempt entities, life insurance companies, persons holding
Shares or ADSs as part of a hedging, integrated, conversion or constructive sale
transaction or a straddle, corporations that accumulate earnings to avoid US
federal income tax, persons owning 10 percent or more of the voting stock of the
Company, or persons whose "functional currency" is not the United States dollar.
Furthermore, the discussion below is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and
judicial decisions there under as of the date hereof, and such authorities may
be repealed, revoked or modified so as to result in United States federal income
tax consequences different from those discussed below. In addition, this summary
is based, in part, upon representations made by the Depositary to the Company
and assumes that the Deposit Agreement, and all other related agreements, will
be performed in accordance with their terms. Persons considering the

                                      104
<PAGE>

purchase, ownership or disposition of Shares or ADSs should consult their own
tax advisors concerning the United States federal income tax consequences in
light of their particular situations as well as any consequences arising under
the laws of any other taxing jurisdiction.

         As used herein, the term "US Holder" means a beneficial holder of a
Share or ADS that is (1) a citizen or resident of the United States, (2) a
corporation created or organized in or under the laws of the United States or
any political subdivision thereof, (3) an estate the income of which is subject
to United States federal income taxation regardless of its source or (4) a trust
(X) which is subject to the supervision of a court within the United States and
the control of one or more United States persons as described in section
7701(a)(30) of the Code or (Y) that has a valid election in effect under
applicable US Treasury regulations to be treated as a United States person.

         If a partnership holds our Shares or ADSs, the tax treatment of a
partner will generally depend upon the status of the partner, and the activities
of the partnership. If you are a partner of a partnership holding our Shares or
ADSs, you should consult your tax advisor.

         OWNERSHIP OF ADSs

         In general, for United States federal income tax purposes, US holders
of ADSs will be treated as the owners of the underlying Shares that are
represented by such ADSs. Deposits or withdrawal of Shares by US Holders for
ADSs will not be subject to United States federal income tax.

         TAXATION OF DIVIDENDS

         To the extent that distributions paid by us with respect to our Shares
or ADSs do note exceed our earnings and profits, as calculated for United States
federal income tax purposes, such distributions will be taxed as dividends. If
these dividends constitute qualified dividend income ("QDI"), individual U.S.
holders of our Shares or ADSs will generally pay tax on such dividends at rates
applicable to net capital gains (see "Taxation of Capital Gains") provided that
certain holding period requirements are satisfied. Dividends paid by us will be
QDI if we are a qualified foreign corporation ("QFC") at the time the dividends
are paid. We believe that we are currently, and will continue to be, a QFC so as
to allow all dividends paid by us to be QDI for United States federal income tax
purposes. Corporate holders receiving dividends paid by us will not benefit from
the reduced tax rate on dividends available to individual holders. In addition,
dividends will not be eligible for the dividends received deduction allowed to
corporations under the Code.

         The amount of any dividend paid in Indian Rupees will equal the United
States dollar value of the Indian Rupees received calculated by reference to the
exchange rate in effect on the date the dividend is received by the US Holder,
in the case of Shares, or by the Depositary, in the case of ADSs, regardless of
whether the Indian Rupees are converted into United States dollars. If the
Indian Rupees received as a dividend are not converted into United States
dollars on the date of receipt, a US Holder will have a basis in the Indian
Rupees equal to their United States dollar value on the date of receipt. Any
gain or loss realized on a subsequent conversion or other disposition of the
Indian Rupees will be treated as ordinary income or loss.

         A US Holder will not be eligible for a foreign tax credit against its
United States federal income tax liability for Indian taxes paid by the Company
and deemed under Indian law to have been paid by the shareholders of the
Company, unless it is a US Company holding at least 10 percent of the Indian
Company paying the dividends. Dividends paid on the Shares or ADSs will be
treated as income from sources outside the United States and will generally
constitute "passive income" or, in the case of certain US Holders, "financial
services income."

         To the extent that the amount of any distribution by the Company
exceeds the Company's current and accumulated earnings and profits as determined
under United States federal income tax principles for a taxable year, the
distribution will first be treated as a tax-free return of capital, causing a
reduction in the

                                      105
<PAGE>

adjusted basis of the Shares or ADSs (thereby increasing the amount of gain, or
decreasing the amount of loss, to be recognized by the US Holder on a subsequent
disposition of the Shares or ADSs), and the balance in excess of adjusted basis
will be taxed as capital gain recognized on a sale or exchange. Consequently,
such distributions in excess of the Company's current and accumulated earnings
and profits would not give rise to foreign source income.

         Distributions of Shares or rights to subscribe for Shares that are
received as part of a pro rata distribution to all shareholders of the Company
in certain circumstances should not be subject to United States federal income
tax. The basis of the new Shares or rights so received will be determined by
allocating the US Holder's basis in the old Shares between the old Shares and
the new Shares or rights received, based on their relative fair market values on
the date of distribution. However, the basis of the rights will be zero if (1)
the fair market of the rights is less than 15 percent of the fair market value
of the old Shares at the time of distribution or (2) the rights are not
exercised and thus expire.

         PASSIVE FOREIGN INVESTMENT COMPANY

         Based on the composition of its income and valuation of its assets,
including goodwill, the Company does not expect to be passive foreign investment
company ("PFIC") for fiscal year 2003 and does not expect to become one in the
future, although there can be no assurance in this regard.

         In general, a company is considered a PFIC for any taxable year if
either:

         -     at least 75 percent of its gross income is passive income, or

         -     at least 50 percent of the value of its assets is attributable to
               assets that produce or are held for the production of passive
               income.

         The 50 percent of value test is based on the average of the value of
the Company's assets for each quarter during the taxable year. If the Company
owns at least 25 percent, by value, of another company's stock, it will be
treated, for purposes of the PFIC rules, as owning its proportionate share of
the assets and receiving its proportionate share of the income of that company.

         In determining that the Company is not a PFIC, the Company is relying
on its projected capital expenditure plans for the current year and for future
years. In addition, the determination is based on a current valuation of the
Company's assets, including goodwill. In calculating goodwill, the Company has
valued its total assets based on the market value of its Shares or ADSs, which
is subject to change. In addition, the Company has made a number of assumptions
regarding the amount of this value allocable to goodwill. The Company believes
its valuation approach is reasonable. However, it is possible that the Internal
Revenue Service ("IRS") will challenge the valuation of the Company's goodwill,
which may also result in the Company being classified as a PFIC.

         In addition, the determination of whether the Company is a PFIC is made
annually. Accordingly, it is possible that the Company may be a PFIC in the
current or any future taxable year due to changes in the Company's asset or
income composition or if the Company's projections are not accurate. Because the
Company has valued its goodwill based on the anticipated market value of its
Shares or ADSs immediately following the offering, a decrease in the price of
the Company's Shares or ADSs may also result in its becoming a PFIC.

         If the Company were a PFIC for any taxable year during which a US
Holder holds Shares or ADSs, unless such holder makes the mark-to-market
election discussed below, such holder will be subject to special tax rules with
respect to any "excess distribution" that such holder receives and any gain such
holder realizes from a sale or other disposition (including a pledge) of the
Shares or ADSs. These special tax rules generally will apply even if the Company
ceases to be a PFIC in subsequent years. Distributions a US Holder receives in a
taxable year that are greater than 125 percent of the average annual
distributions

                                      106
<PAGE>

such holder received during the shorter of the three preceding taxable years or
such holder's holding period for the Shares or ADSs will be treated as excess
distributions. Under these special tax rules:

         -     the excess distribution or gain will be allocated ratably over
               such holder's holding period for the Shares or ADSs,

         -     the amount allocated to the current taxable year, and any taxable
               year prior to the first taxable year in which the Company was a
               PFIC, will be treated as ordinary income, and

         -     the amount allocated to each other year will be subject to tax at
               the highest tax rate in effect for that year and the interest
               charge generally applicable to underpayments of tax will be
               imposed on the resulting tax attributable to each such year.

         If a US Holder holds Shares or ADSs in any year in which the Company is
a PFIC, such holder will be required to file IRS Form 8621.

         As long as the Shares or ADSs are regularly traded on a national
securities exchange, a US Holder can avoid the special PFIC rules discussed
above by making an election to mark such holder's Shares or ADSs to market. It
is intended that the ADSs will be listed on the New York Stock Exchange which is
a national securities exchange for purposes of the mark-to-market election,
although there can be no assurance that the ADSs will be "regularly traded", and
it should be noted that only the ADSs and not the Shares will be traded on the
New York Stock Exchange. The Shares will not be listed in the United States but
will continue to be listed on the Indian Stock Exchanges.

         If a US Holder makes an effective mark-to-market election, such holder
will include in income each year as ordinary income (rather than capital gain)
the excess, if any, of the fair market value of such holder's PFIC Shares or
ADSs at the end of the taxable year over the adjusted basis in the Shares or
ADSs and will be permitted an ordinary loss in respect of the excess, if any, of
the adjusted basis of such Shares or ADSs over their fair market value at the
end of the taxable year, but only to the extent of the net amount previously
included in income as a result of the mark to market election. A US Holder's
basis in the Shares or ADSs will be adjusted to reflect any such income or loss
amounts. Any gain or loss on the sale of the Shares or ADSs will be ordinary
income or loss, except that such loss will be ordinary loss only to the extent
of the previously included net mark to market gain.

         If a US Holder makes a mark-to-market election it will be effective for
the taxable year for which the election is made and all subsequent taxable years
unless the Shares or ADSs are no longer regularly traded on a national
securities exchange or the IRS consents to the revocation of the election. US
Holders are urged to consult their own tax advisors about the availability of
the mark-to-market election, and the desirability of making such an election
under their particular circumstances.

         Alternatively, a US Holder of Shares or ADSs in a PFIC can sometimes
avoid the rules described above by electing to treat the Company as a "qualified
electing fund" under section 1295 of the Code. This option is not available to
US Holders of the Shares or ADSs because the Company does not intend to comply
with the requirements necessary to permit such holders to make this election.

         Persons considering the purchase, ownership or disposition of Shares or
ADSs should consult their own tax advisors concerning the United States federal
income tax consequences of holding the Shares or ADSs if the Company were
considered a PFIC in any taxable year.

         TAXATION OF CAPITAL GAINS

         For United States federal income tax purposes, a US Holder will
recognize taxable gain or loss on the sale or exchange of a right, Share or ADS
in an amount equal to the difference between the amount realized for the right,
Share or ADS and the US Holder's tax basis in the right, Share or ADS. Such gain
or loss will be capital gain or loss. Under current law, capital gains realized
by corporate and individual

                                      107
<PAGE>

taxpayers are generally subject to United States federal income tax at the same
rate as ordinary income, except that long-term capital gains realized by
individuals are subject to federal income tax at a maximum rate of 15 percent
for taxable years beginning before January 1, 2009 (20 percent thereafter). Any
gain or loss recognized by a US holder will generally be treated as United
States source gain or loss.

         ESTATE TAXATION

         An individual shareholder who is a citizen or resident of the United
States for United States federal estate tax purposes will have the value of the
equity Shares or ADSs owned by such holder included in his or her gross estate
for United States federal estate tax purposes.

         INFORMATION REPORTING AND BACKUP WITHHOLDING

         In general, information reporting requirements will apply to dividends
in respect of the Shares or ADSs or the proceeds received on the sale, exchange,
or redemption of the Shares or ADSs paid within the United States (and in
certain cases, outside of the United States) to US Holders other than certain
exempt recipients (such as corporations), and a 28 percent backup withholding
may apply to such amounts if the US Holder fails to provide an accurate taxpayer
identification number to the Company or its payment agent or to report interest
and dividends required to be shown on its federal income tax returns. The amount
of any backup withholding from a payment to a US Holder will be allowed as a
credit against the US Holder's United States federal income tax liability.

         DOCUMENTS ON DISPLAY

         This report and other information filed or to be filed by the Company
can be inspected and copied at the public reference facilities maintained by the
Securities and Exchange Commission at:

         Judiciary Plaza
         450 Fifth Avenue  N.W.
         Room 1024
         Washington, D.C.  20529

         Northwestern Atrium Center
         500 West Madison Street
         Suite 1400
         Chicago, IL  60661-2511

         Copies of these materials can also be obtained from the Public
Reference Section of the SEC, 450th Street, N.W. , Washington, DC 20549, at
prescribed rates. The public may obtain information on the operation of the
SEC's Public Reference Room by calling the SEC in the United States at
1-800-SEC-0330.

         The SEC maintains a website at www.sec.gov that contains reports, proxy
and information statements, and other information regarding registrants that
make electronic filings with the SEC using its EDGAR system. We intend to
continue to make our future SEC filings available over the Internet.

         Additionally, documents referred to in this Form 20-F may be inspected
at our corporate offices which are located at Videsh Sanchar Bhavan, Mahatma
Gandhi Road, Mumbai 400001, India.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

         The Company does not face material interest rate, commodity price or
equity price market risks. The Company is exposed to market risk from changes in
foreign currency exchange rates because its costs and revenues are denominated
in several different currencies (primarily Rupees, SDRs and US Dollars).
Fluctuations in the exchange rate between the Rupee, SDRs, US Dollars and other
currencies affect the Rupee amount of foreign currency settlement payments
received by the Company from, and paid by the Company to, foreign
telecommunications administrations, the revenues and operating costs of the
Company and payments for imported equipment and technology. As of March 31,
2003, the Company had significant amounts of foreign currency denominated
receivables (Rs.6,302 million or US$ 132.59 million) and payables (Rs.1,354
million or US$ 28.49 million), which expose the Company to foreign exchange
risks.

         The following table sets forth the Company's operating revenues,
operating costs and gross profit for fiscal 2003 in different currencies:

<Table>
<Caption>
                                                                                      (AMOUNTS IN
                                                                                        MILLIONS)
                      ----------------------------------------------------------------------------
CURRENCY                 OPERATING REVENUES         OPERATING COSTS             GROSS PROFIT
---------------       -----------------------   -----------------------   ------------------------
                        FOREIGN                   FOREIGN                   FOREIGN
                       CURRENCY      RUPEES      CURRENCY      RUPEES      CURRENCY       RUPEES
                      ----------   ----------   ----------   ----------   ----------    ----------
<S>                   <C>          <C>          <C>          <C>          <C>           <C>

US Dollars                   277       13,382          108        5,178          169         8,204

Special Drawing
Rights ("SDRs")              237       15,079           72        4,549          165        10,530

Golden Francs*
converted to Rupees
through SDRs                   2           38            1           13            1            25

Euro                                                     0            8           (0)           (8)

Hong Kong Dollars                                        2           11           (2)          (11)
                                   ----------                ----------                 ----------
          TOTAL                        28,499                     9,759                     18,740
                                   ==========                ==========                 ==========
</Table>

         *Golden francs are a notional currency converted into either US Dollars
or SDRs at the time of settlement. Golden Francs are used in international
telecommunications payment settlements and are recognized by the International
Telecommunications Union.

         A 1% strengthening or weakening of the rupee against the foreign
currencies shown above would have had an aggregate adverse or beneficial impact
of Rs. 187 million, respectively, on our income from operations for the fiscal
year ended March 31, 2003.

         We also have significant exposure on account of trade receivables and
trade payables. The following table sets forth the Company's trade receivables
and trade payables as of March 31, 2003:


                                      108
<PAGE>

<Table>
<Caption>
                                                                                      (AMOUNTS IN
                                                                                        MILLIONS)
                      ----------------------------------------------------------------------------
CURRENCY                  TRADE RECEIVABLES          TRADE PAYABLES             NET EXPOSURE
---------------       -----------------------   -----------------------   ------------------------
                        FOREIGN                   FOREIGN                   FOREIGN
                       CURRENCY      RUPEES      CURRENCY      RUPEES      CURRENCY       RUPEES
                      ----------   ----------   ----------   ----------   ----------    ----------
<S>                   <C>          <C>          <C>          <C>          <C>           <C>


US Dollars                   41         1,923         (29)      (1,357)           12          566

SDRs                         64         4,085           0            4            64        4,089

Golden Francs
converted to INR
through SDR                  16           300           0           (1)           16          299

Hong Kong Dollar             (1)           (6)         (0)          (0)           (1)          (6)
                                   ----------                ---------                  ---------
          TOTAL                         6,302                   (1,354)                     4,948
                                   ==========                =========                  =========

</Table>


         A 1% strengthening or weakening of the rupee against the foreign
currencies shown above would have had an aggregate adverse or beneficial impact
of Rs. 49 million on our income statement, respectively, for the fiscal year
ended March 31, 2003.

          As on March 31, 2003, the Company did not use derivative instruments,
such as foreign exchange forward contracts, foreign currency options, interest
rate swaps and forward rate agreements, to manage these market risks, nor did it
hold or issue derivative or other financial instruments for trading purposes. In
the current fiscal year 2003-04, the Company has started investing in mutual
funds (primarily debt funds) which are subject to interest rate risks, and is
examining the benefits of entering into derivative contracts as a means of
mitigating its market risks. The Company does not have any loans denominated in
foreign currencies.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         Not Applicable.

                                     PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

         Not Applicable.

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

         Not Applicable.

ITEM 15. DISCLOSURE CONTROLS AND PROCEDURES

         As of the end of the period covered by this report, the Company
conducted an evaluation (under the supervision and with the participation of the
Company's management, including the chief executive officer and chief financial
officer), pursuant to Rule 13a-15 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on this
evaluation, the Company's chief executive officer and chief financial officer
concluded that as of the end of the period covered by this report such
disclosure controls and procedures were reasonably designed to ensure that
information required to be disclosed by the Company in reports it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission.

ITEM 16. RESERVED

         Not applicable.

                                     PART III

ITEM 17. FINANCIAL STATEMENTS

         The Company has elected to provide financial statements pursuant to
Item 18 of Form 20-F.

ITEM 18. FINANCIAL STATEMENTS

         The following financial statements comprising of balance sheets of the
Company as of March 31, 2001, March 31, 2002 and March 31, 2003 and the related
statements of income, cash flows and

                                      109
<PAGE>

shareholders' equity for each of the years in the three year period ended March
31, 2003 prepared in accordance with US GAAP have been audited by Deloitte
Haskins & Sells, independent auditors, in accordance with auditing standards
generally accepted in the United States ("US GAAS"). The financial statement
pages appear on pages F-1 through F-30.

ITEM 19. EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number         Description
---------      ----------------------------------------------------------------
<S>            <C>
1.1*           Certificate of Incorporation of Videsh Sanchar Nigam Limited,
               dated March 19, 1986 and as currently in effect.

1.2****        Articles of Association of Videsh Sanchar Nigam Limited, dated
               August 20, 2002 and as currently in effect.

1.3****        Memorandum of Association of Videsh Sanchar Nigam Limited, dated
               August 20, 2002 and as currently in effect.

1.4*           Certificate for Commencement of Business, dated March 21, 1986
               and as currently in effect.

1.5*           Specimen Certificate for Equity Shares of Videsh Sanchar Nigam
               Limited.

2.1*           Form of Deposit Agreement, among Videsh Sanchar Nigam Limited,
               The Bank of New York, as Depositary and owners and beneficial
               owners of American Depositary Receipts issued thereunder
               (including as an exhibit, the form of American Depositary
               Receipt).

2.2**          Amendment No. 1 to Deposit Agreement, among Videsh Sanchar Nigam
               Limited, The Bank of New York, as Depositary and owners and
               beneficial owners of American Depositary Receipts issued
               thereunder (including as an exhibit the form of American
               Depositary Receipt).

2.3***         Shareholders' Agreement among the President of India, Panatone
               Finvest Limited, Tata Sons Limited, Tata Power Company Limited,
               Tata Iron and Steel Company Limited, and Tata Industries Limited,
               dated 13 February 2002.

2.4***         Share Purchase Agreement among the Government of India, Panatone
               Finvest Limited, Tata Sons Limited, Tata Power Company Limited,
               Tata Iron and Steel Company Limited, and Tata Industries Limited
               and the Company dated 6 February 2002.

4.1+           Interconnect Agreement between Videsh Sanchar Nigam Limited and
               Bharat Sanchar Nigam Limited, dated May 8, 2003.

4.2+           Interconnect Agreement between Videsh Sanchar Nigam Limited and
               Mahanagar Telephone Nigam Limited, dated May 27, 2003.

4.3+           Memorandum of Agreement regarding Settlement Rates of
               International Telecommunication Services between Videsh Sanchar
               Nigam Limited and AT&T Corp., dated June 10, 2003.

4.4+           Memorandum of Agreement regarding Settlement Rates between Videsh
               Sanchar Nigam Limited and MCI International Inc., dated
               August 28, 2003.

4.5+           Agreement regarding Settlement Rates between Videsh Sanchar Nigam
               Limited and Emirates Telecommunication Corporation,
               dated June 24, 2003.

4.6+           Agreement regarding Settlement Rates between Videsh Sanchar Nigam
               Limited and Oman Telecommunications Company, dated June 2, 2003.

4.7+           Agreement regarding Settlement Rates between Videsh Sanchar Nigam
               Limited and Saudi Telecom , dated July 8, 2003.
</TABLE>

                                      110
<PAGE>

<TABLE>
<S>            <C>
4.8****        License Agreement for national long distance services between the
               President of India and the Company, dated February 8, 2002.

4.9****        License Agreement for Provision of Internet Service (Including
               Internet Telephony) between the President of India and the
               Company, dated May 3, 2002.

10.3*          License granted under the Indian Telegraph Act, 1885 to Videsh
               Sanchar Nigam Limited, dated January 22, 1999 by the Department
               of Telecommunications.

10.4**         Letter from the Ministry of Communications, Department of
               Telecommunications regarding termination of the monopoly granted
               to Videsh Sanchar Nigam Limited, dated September 7, 2000.

12.1           Certification of Principal Executive Officer pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002.

12.2           Certification of Principal Financial Officer pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002.

13.1           Certification pursuant to 18 U.S.C. Section 1350 as adopted
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
</TABLE>

+ Registrant has requested confidential treatment pursuant to Rule 406 for a
portion of the referenced exhibit and has separately filed such exhibit with the
Commission.

* Previously filed as an exhibit to the Company's Annual Statement on Form 20-F
(Registration Statement No. 001-15118) filed with the Commission on October 13,
2000 and incorporated herein by reference.

** Previously filed as an exhibit to the Company's Annual Statement on Form 20-F
(Registration No. 001-15118) filed with the Commission on October 1, 2001 and
incorporated herein by reference.

*** Previously filed as an exhibit to the Schedule 13D filed on February 15,
2002, by Panatone Finvest Limited and Tata Sons Limited relating to the purchase
of shares of the Company.

**** Previously filed as an exhibit to the Company's Annual Statement on Form
20-F (Registration No. 001-15118) filed with the Commission on September 27,
2002 and incorporated herein by reference.

                                      111
<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.

September 29, 2003

                                            VIDESH SANCHAR NIGAM LIMITED

                                            By: /s/ Shailendra Kumar Gupta
                                            ------------------------------------
                                            Name: Shailendra Kumar Gupta
                                            Title: Managing Director

                                            By /s/ Amitabh Khanna
                                            ------------------------------------
                                            Name: Amitabh Khanna
                                            Title: Chief Financial Officer

                                      112
<PAGE>

                          VIDESH SANCHAR NIGAM LIMITED

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                                             <C>
INDEPENDENT AUDITORS' REPORT...............................................................................     F-2

Balance Sheets as of March 31, 2002 and 2003...............................................................     F-3
Statements of Income for the years ended March 31, 2001, 2002 and 2003.....................................     F-4
Statement of Shareholders' Equity for the years ended March 31, 2001, 2002 and 2003........................     F-5
Statement of Cash Flows for the years ended March 31, 2001, 2002 and 2003..................................     F-6
Notes to Financial Statements..............................................................................     F-7
</TABLE>

                                       F-1

<PAGE>

2.       INDEPENDENT AUDITORS' REPORT

To
The Board of Directors
Videsh Sanchar Nigam Limited.

We have audited the accompanying balance sheets of Videsh Sanchar Nigam Limited
(the "Company") as of March 31, 2002 and 2003, and the related statements of
income, cash flows and shareholders' equity for each of the years in the three
year period ended March 31, 2003. These consolidated 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 in accordance with auditing standards generally accepted
in the United States of America. 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Videsh Sanchar Nigam Limited as of March 31,
2002 and 2003, and the results of its operations and cash flows for each of the
years in the three year period ended until March 31, 2003, in conformity with
accounting principles generally accepted in the United States of America.

As described in Note 2(a) to the financial statements, these financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America, which differ in certain material
respects from accounting principles generally accepted in India, which form the
basis of the Company's general purpose financial statements.

Deloitte Haskins & Sells
Mumbai, India
May 29, 2003

                                       F-2

<PAGE>

                          VIDESH SANCHAR NIGAM LIMITED
                                 BALANCE SHEETS
                          AS OF MARCH 31, 2002 AND 2003

<TABLE>
<CAPTION>
                                                                                    AS OF MARCH 31,
                                                                        --------------------------------------
                                                                           2002          2003          2003
                                                                        ----------    ----------    ----------
                                                                       (IN MILLIONS, EXCEPT PAR VALUE AND NUMBER
                                                                                       OF SHARES)
<S>                                                                     <C>           <C>           <C>
ASSETS:
  Cash and cash equivalents                                             Rs.  7,881    Rs.    272    US$      6
  Short term investments                                                    17,469        23,314           490
  Trade and other receivables, net of allowances of Rs.1,654 million        16,217         8,591           181
  and Rs.1,740 million (US$37 million), respectively

  Investments                                                                3,985         3,674            77
  Investments in Affiliates/Joint Venture                                        -         2,870            60
  Property, plant and equipment                                             18,058        20,653           435
  Capital work-in-progress                                                   2,943         1,120            24
  Other assets                                                               8,293        12,803           269
                                                                        ----------    ----------    ----------
      TOTAL ASSETS                                                      Rs. 74,846    Rs. 73,297    US$  1,542
                                                                        ==========    ==========    ==========

LIABILITIES AND SHAREHOLDERS' EQUITY:

LIABILITIES
  Short-term borrowings                                                 Rs.  5,751    Rs.  3,540    US$     74
  Trade payables                                                             5,728         2,422            51
  Accrued expenses and other liabilities                                     7,962         8,118           171
  Deferred taxation                                                          2,363         2,472            52
                                                                        ----------    ----------    ----------
TOTAL LIABILITIES                                                           21,804        16,552           348
                                                                        ----------    ----------    ----------

COMMITMENTS AND CONTINGENCIES (SEE NOTE 23)                                      -             -             -
                                                                        ----------    ----------    ----------

SHAREHOLDERS' EQUITY:

  Equity shares: par value - Rs. 10 each;

  authorized: 300,000,000 shares; issued and outstanding:
  285,000,000 shares                                                         2,850         2,850            60

  Additional paid in capital                                                15,377        15,377           323
  Retained earnings                                                         34,554        38,435           809
  Accumulated other comprehensive income                                       261            83             2
                                                                        ----------    ----------    ----------
      TOTAL SHAREHOLDERS' EQUITY                                            53,042        56,745         1,194
                                                                        ----------    ----------    ----------
            TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                  Rs. 74,846    Rs. 73,297    US$  1,542
                                                                        ==========    ==========    ==========
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                       F-3

<PAGE>

                          VIDESH SANCHAR NIGAM LIMITED
                              STATEMENTS OF INCOME
            FOR EACH OF THE YEARS ENDED MARCH 31, 2001, 2002 AND 2003

<TABLE>
<CAPTION>
                                                                                    YEARS ENDED MARCH 31,
                                                            --------------------------------------------------------------------
                                                                 2001              2002              2003              2003
                                                            --------------    --------------    --------------    --------------
                                                                    (IN MILLIONS, EXCEPT SHARE, ADS AND PER SHARE AND PER
                                                                                        ADS AMOUNTS)
<S>                                                         <C>               <C>               <C>               <C>
OPERATING REVENUE:
  Traffic revenues                                          Rs.     71,916    Rs.     65,050    Rs.     45,341    US$        954

  Income from satellite consortia                                    1,160                 -                 -                 -
                                                            --------------    --------------    --------------    --------------
TOTAL OPERATING REVENUE                                             73,076            65,050            45,341               954
                                                            --------------    --------------    --------------    --------------

COST OF REVENUE:
  Network and transmission costs                                    45,150            39,577            26,044               548
  License fee paid to DoT                                            5,022             5,393             4,037                85
                                                            --------------    --------------    --------------    --------------
    TOTAL COST OF REVENUE                                           50,172            44,970            30,081               633
                                                            --------------    --------------    --------------    --------------
       GROSS PROFIT                                                 22,904            20,080            15,260               321
                                                            --------------    --------------    --------------    --------------
OTHER OPERATING COSTS
  Depreciation and amortization                                      1,729             1,898             2,086                44
  Other operating costs                                              3,023             4,803             3,990                84
                                                            --------------    --------------    --------------    --------------
TOTAL OTHER OPERATING COSTS                                          4,752             6,701             6,076               128
                                                            --------------    --------------    --------------    --------------
       OPERATING INCOME                                             18,152            13,379             9,184               193
                                                            --------------    --------------    --------------    --------------

OTHER INCOME (EXPENSE), NET:
  Non-operating income                                               3,058             1,371               425                 9
  Interest income                                                    3,964             4,607             2,401                51
  Interest expense                                                      (1)             (227)              (33)               (1)
  Share in loss of affiliates                                            -                 -              (143)               (3)
                                                            --------------    --------------    --------------    --------------
TOTAL OTHER INCOME (EXPENSE), NET                                    7,021             5,751             2,650                56
                                                            --------------    --------------    --------------    --------------
       INCOME BEFORE INCOME TAX                                     25,173            19,130            11,834               249
Income tax expense                                                  (9,646)           (5,959)           (4,390)              (92)
Dividend tax                                                          (105)           (3,634)                -                 -
                                                            --------------    --------------    --------------    --------------
       NET INCOME                                           Rs.     15,422    Rs.      9,537    Rs.      7,444    US$        157
                                                            --------------    --------------    --------------    --------------

PER SHARE INFORMATION:
  Earnings per equity share - basic and diluted             Rs.      54.11    Rs.      33.46    Rs.      26.12    US$       0.55
  Weighted number of equity shares outstanding                 285,000,000       285,000,000       285,000,000       285,000,000
  Earnings per ADS - basic and diluted (where each ADS
  represents two equity shares)                             Rs.     108.22    Rs.      66.92    Rs.      52.24    US$       1.10
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                       F-4

<PAGE>

                          VIDESH SANCHAR NIGAM LIMITED
                       STATEMENTS OF SHAREHOLDERS' EQUITY
            FOR EACH OF THE YEARS ENDED MARCH 31, 2001, 2002 AND 2003

<TABLE>
<CAPTION>
                                                                                  ACCUMULATED
                                             EQUITY    ADDITIONAL                    OTHER          TOTAL
                              NUMBER OF      SHARE      PAID IN      RETAINED    COMPREHENSIVE   SHAREHOLDERS'   COMPREHENSIVE
                            EQUITY SHARES   CAPITAL     CAPITAL      EARNINGS       INCOME          EQUITY           INCOME
                            -------------   --------   ----------   ----------   -------------   -------------   -------------
                                                        (IN MILLIONS, EXCEPT NUMBER OF EQUITY SHARES)
<S>                         <C>             <C>        <C>          <C>          <C>             <C>             <C>
BALANCE AT APRIL 1, 2000       95,000,000   RS.  950   RS. 14,481   RS. 47,880               -   RS.    63,311
Issue of stock dividends      190,000,000      1,900                    (1,900)                              -
Net income                                                              15,422                          15,422          15,422
Dividends                                                                 (760)                           (760)
Unrealized gain on
available for sale
securities, net                                                              -             412             412             412
COMPREHENSIVE INCOME
                            -------------   --------   ----------   ----------   -------------   -------------   -------------
BALANCE AT
MARCH 31, 2001                285,000,000      2,850       14,481       60,642             412          78,385          15,834

Stock based
compensation expense
(See Note 20)                                                 896                                          896
Net income                                                               9,537                           9,537           9,537
Dividends                                                              (35,625)                        (35,625)
Unrealized loss on
available for sale
securities, net                                                                           (151)           (151)           (151)
                                                                                                                 -------------
COMPREHENSIVE INCOME                                                                                             RS.     9,386
                                                                                                                 -------------

                            -------------   --------   ----------   ----------   -------------   -------------
BALANCE AT
MARCH 31, 2002                285,000,000   RS.2,850   RS. 15,377   RS. 34,554   RS.       261   RS.    53,042
Net income                                                               7,444                           7,444           7,444
Dividends                                                               (3,563)                         (3,563)
Unrealized loss on
available for sale
securities, net                                                                           (184)           (184)           (184)
Foreign exchange reserve
on translation of
investment in  joint
venture                                                                                      6               6               6
                                                                                                                 -------------
COMPREHENSIVE INCOME                                                                                             RS.     7,266
                                                                                                                 =============
COMPREHENSIVE
INCOME                                                                                                           US$       153
                            -------------   --------   ----------   ----------   -------------   -------------   =============
BALANCE AT
MARCH 31, 2003                285,000,000   RS.2,850   RS. 15,377   RS. 38,435   RS.        83   RS.    56,745
                            =============   ========   ==========   ==========   =============   =============
BALANCE AT
MARCH 31, 2003                285,000,000   US$   60   US$    323   US$    809   US$        2    US$      1194
                            =============   ========   ==========   ==========   =============   =============
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                       F-5

<PAGE>

                          VIDESH SANCHAR NIGAM LIMITED
                            STATEMENTS OF CASH FLOWS
           FOR EACH OF THE YEARS ENDED MARCH 31, 2001, 2002 AND 2003

<TABLE>
<CAPTION>
                                                                            YEARS ENDED MARCH 31,
                                                              --------------------------------------------------
                                                                2001          2002          2003          2003
                                                              ---------     ---------     ---------     --------
                                                                                (IN MILLIONS)
<S>                                                          <C>           <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  NET INCOME                                                 Rs. 15,422    Rs.  9,537    Rs.  7,444     US$  157
  Adjustment to reconcile net income to net cash
      provided by operating activities:
  Depreciation and amortization                                   1,729         1,898         2,086           44
  Stock based compensation                                            -           896             -            -
  Impairment of property, plant and equipment                         -            30           129            3
  Allowance for doubtful debts                                      112           675            86            2
      Deferred income tax expense / (benefit)                     1,759          (702)          214            5
      Unrealized exchange gain                                     (526)         (206)           (1)           -
  (Profit)/loss on sale of fixed assets                               5             2            (1)           -
  Share of loss from affiliate/joint venture                          -             -           143            3
  Investments written off                                             -             -             2            -
  Net change in:
  Trade and other receivables                                     5,865         3,067         7,540          159
  Other assets                                                   (1,400)         (515)       (4,510)         (95)
  Trade payables                                                 (2,225)       (5,611)       (3,306)         (70)
  Accrued expenses and other liabilities                          2,334           414            35           (1)
                                                             ----------    ----------    ----------     --------
     NET CASH PROVIDED BY OPERATING ACTIVITIES                   23,075         9,485         9,861          207
                                                             ----------    ----------    ----------     --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property, plant and equipment                      (4,238)       (2,509)       (2,868)         (60)
  (Purchase)/sale of investments                                     92            (7)            -            -
  Purchase of investments in affiliate/joint venture                  -             -        (2,987)         (63)
  Short-term investments in term deposits                       (37,272)       28,581        (5,845)        (123)
  Proceeds from sales of property, plant and equipment                2             3             3            -
                                                             ----------    ----------    ----------     --------
     NET CASH (USED)/PROVIDED BY INVESTING ACTIVITIES           (41,416)       26,068       (11,697)        (246)
                                                             ----------    ----------    ----------     --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds/(Repayment) of  short-term borrowings (net)                -         5,751        (2,211)         (46)
  Dividends paid                                                   (760)      (35,625)       (3,563)         (75)
                                                             ----------    ----------    ----------     --------
     NET CASH USED BY FINANCING ACTIVITIES                         (760)      (29,874)       (5,774)        (121)
                                                             ----------    ----------    ----------     --------

Unrealized exchange gain on cash and cash equivalents               455             2             1            -
                                                             ----------    ----------    ----------     --------
NET CHANGE IN CASH FLOWS                                        (18,646)        5,681        (7,609)        (160)
Cash and cash equivalents, beginning of year                 Rs. 20,846    Rs.  2,200    Rs.  7,881     US$  166
                                                             ----------    ----------    ----------     --------
CASH AND CASH EQUIVALENTS, END OF YEAR                       Rs.  2,200    Rs.  7,881    Rs.    272     US$    6
                                                             ==========    ==========    ==========     ========

SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid                                                Rs.      1    Rs.    227    Rs.     43     US$    1
Interest received                                            Rs.  2,121    Rs.  5,034    Rs.  2,320     US$   49
Income taxes paid                                            Rs.  9,597    Rs. 10,594    Rs.  9,169     US$  193
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                       F-6

<PAGE>

                          VIDESH SANCHAR NIGAM LIMITED
                         NOTES TO FINANCIAL STATEMENTS

1. BACKGROUND

         a. THE COMPANY

                  Videsh Sanchar Nigam Limited ("VSNL" or "the Company") is
         incorporated in India as a limited liability company under the Indian
         Companies Act, 1956, with its registered office at Videsh Sanchar
         Bhavan, M.G. Road, Mumbai 400001, India. The Company is listed on major
         stock exchanges in India and on the New York Stock Exchange. During the
         year ended March 31, 2002, the Government of India ("GoI") disinvested
         a portion of its holding to Panatone Finvest Limited ("Panatone"), a
         subsidiary of Tata Sons Limited ("Tata Sons"), the parent company of
         the selected strategic partner, the Tata Group (See Note 1(b) below).

                  The Tata Group operates in a variety of industries and has
         significant telecommunications operations in India. The Tata Group
         includes amongst other companies Panatone, Tata Sons, The Tata Power
         Company Limited ("Tata Power"), The Tata Iron and Steel Company Limited
         ("Tata Steel") and Tata Industries Limited ("Tata Industries").

                  As part of the disinvestment process, GoI and Panatone and its
         shareholders entered into a shareholders' agreement on February 13,
         2002. Pursuant to this agreement, Panatone and GoI have the right to
         appoint directors of the Company. As of March 31, 2003 the board of
         directors consisted of 12 members, of which eight are nominated by
         Panatone and four by GoI.

                  Following disinvestment by GoI and the Tender Offer (See Note
         1(b) below), the major shareholders of the Company are Panatone/Tata
         Sons, who own 46.31% and GoI, who own 26.12%.

                  VSNL operates from its corporate office at Mumbai and through
         its other offices at Mumbai, New Delhi, Kolkata, Chennai, Arvi,
         Bangalore, Bhubaneshwar, Dehradun, Ernakulam, Gandhinagar, Goa,
         Guwahati, Hyderabad, Indore, Jalandhar, Kanpur and Pune.

                  The Company is the largest provider of international
         telecommunications services in India, directly and indirectly linking
         the domestic Indian telecommunications network to 237 territories
         worldwide. The Company has been licensed to provide national long
         distance services with effect from February 8, 2002.

                  VSNL offers basic and specialized services. Basic services
         include telephony, telex and telegraph. Specialized services include
         gateway packet data transmission, electronic data interchange, e-mail,
         internet, international maritime satellite mobile services, leased
         channels, transmission of signals for international television
         broadcasts and video conferencing.

         b. DISINVESTMENT

                  Prior to disinvestments by GoI, the Company was a public
         sector undertaking ("PSU") with GoI holding approximately 52.97% in the
         paid-up equity capital in the Company. As part of the its disinvestment
         program, GoI disinvested its shareholding in the Company to Panatone,
         together with management control, through the sale of 71,250,000 equity
         shares representing 25% of the voting capital of the Company at a price
         of Rs.202 per share ("GoI Shares") for an aggregate purchase price of
         Rs.14,393 million in cash.

                  The Share Purchase Agreement ("SPA") giving effect to the
         above arrangement was entered into between GoI and Panatone on February
         6, 2002. Panatone's shareholders Tata Sons, Tata Power, Tata

                                       F-7

<PAGE>

         Steel and Tata Industries, are also signatories to the SPA though they
         did not directly purchase any of GoI's shareholding in the Company. The
         Company is also a party to the SPA.

                  In connection with the purchase of GoI Shares, Panatone was
         required by India's Takeover Code to make a tender offer to acquire an
         additional 20% of the equity shares from public shareholders of the
         Company. Accordingly, Panatone offered to purchase up to 57,000,000
         equity shares (including equity shares underlying the American
         Depositary Shares), representing 20% of the paid-up and voting equity
         share capital of the Company at a price of Rs.202 (US$4.15) per share
         payable in cash.

                  At the close of the tender offer on May 9, 2002, approximately
         87,600,000 equity shares were tendered for sale, of which Panatone
         accepted 57,000,000 equity shares on a pro rata basis. Upon acceptance
         of the tendered shares, Panatone now holds 45% of the paid-up equity
         capital of the Company.

                  Under the terms of the SPA and the shareholders' agreement,
         Panatone is required to take measures to separate out surplus land at
         Pune, Kolkata, New Delhi and Chennai, as identified in the SPA (the
         "Surplus Land"), from the Company and also to subject the use of the
         Surplus Land to special conditions as stated in the tender offer.
         Panatone is required to facilitate the transfer of the Surplus Land to
         a new realty undertaking in the Company. Panatone, with GoI, will cause
         the demerger of the realty undertaking in to a separate company ("the
         Resulting Company"). On the issue of new shares of the Resulting
         Company, Panatone is required to transfer to GoI, without
         consideration, a minimum of 25% of the Resulting Company's issued
         shares, or such higher number of shares of the Resulting Company, which
         may be on account of any further sale of equity shares by GoI to
         Panatone prior to the demerger. If for any reason, the Company cannot
         transfer the Surplus Land into the Resulting Company, then at any time
         when the Company sells, transfers or develops the land, Panatone shall
         compensate GoI with an amount equivalent of 25% of the benefit accruing
         to the Company subject to local tax laws prevailing in India.

         c. MONOPOLY STATUS

                  The Company had an exclusive license to provide international
         long distance ("ILD") services up to March 2004. However, GoI decided
         to terminate the Company's monopoly two years ahead of schedule and
         accordingly opened up this service to private operators from April 1,
         2002. GoI had however agreed to compensate the Company for this early
         termination with the following package (See Note 18):

            1.    A license to operate national long distance ("NLD") services.

            2.    Re-imbursement by GoI of entry fees and revenue sharing fees,
                  net of taxes, that the Company may have to pay with respect to
                  the NLD license, for five years with effect from April 1,
                  2001.

            3.    A category `A' Internet Service Provider ("ISP") license,
                  which will allow the Company to expand internet access
                  services to the entire country.

                  The Company had accepted GoI's decision to terminate the
         Company's monopoly before the year 2004. The shareholders of the
         Company approved the compensation package at the meeting held in May
         2001.

         d. REVENUE SHARING ARRANGEMENT

                  The Company operates its business pursuant to a license from
         Department of Telecommunications ("DoT"), GoI. In pursuance of the New
         Telecom Policy 1999, GoI decided to corporatize the service provision
         functions of the DoT. Accordingly, GoI transferred the business of
         providing telecom services in the country to a newly formed company,
         Bharat Sanchar Nigam Limited ("BSNL") with effect from October 1, 2000.
         Further, existing contracts, agreements and MoUs, except for license
         fees payable for the usage of circuits, including the revenue sharing
         agreement entered into by DoT for the supply of services, were
         transferred and assigned to BSNL with effect from October 1, 2000.

                                       F-8

<PAGE>

                  The license is periodically renewed by DoT subject to certain
         conditions and is currently valid up to March 31, 2004. With the
         opening of the telecommunications sector to private operators from
         April 1, 2003 the Company is in the process of negotiating a fresh ILD
         license agreement with DoT.

                  The Company derives substantially all its revenue from
         payments from foreign telecommunication administrations and private
         carriers for the delivery of international calls to India and from
         payments from BSNL and MTNL for the delivery of international calls
         abroad. Consequently, the Company and BSNL/MTNL share revenues received
         by each entity from international calls pursuant to a revenue sharing
         arrangement between them.

                  Under the revenue sharing arrangement, the Company pays to
         BSNL/MTNL a charge per minute equal to the weighted average incoming
         settlement rate, minus Rs.10.00 on all incoming international calls and
         BSNL pays to the Company, a charge per minute equal to the weighted
         average outgoing settlement rate plus Rs.10.00 on all outgoing
         international calls. The weighted average incoming settlement rate and
         weighted average outgoing settlement rate for any financial year is the
         average of the various settlement rates in effect as of the beginning
         of the financial year between the Company and the foreign
         administrations and carriers (converted to Indian rupees at the
         exchange rate prevailing as of the beginning of the financial year),
         weighted to reflect the volume of total incoming traffic and the
         outgoing traffic respectively, of the immediately preceding financial
         year.

                  With effect from April 1, 1999, the revenue sharing
         arrangement provides for a comparison of the combined international
         traffic revenue per call minute of the Company and BSNL/MTNL (net of
         payments by the Company to foreign administrations and carriers and by
         the Company and BSNL/MTNL to each other in respect of incoming and
         outgoing calls) for each fiscal year, compared to the corresponding
         amount in the base fiscal year ended March 31, 1997. Increases or
         decreases are shared between the Company and BSNL/MTNL according to the
         following percentages:

<TABLE>
<CAPTION>
                            INCREASE/DECREASE
                  -------------------------------------
YEARS ENDED
 MARCH 31,        COMPANY'S SHARE       BSNL/MTNL SHARE
-------------------------------------------------------
<S>               <C>                   <C>
   2001                 20%                    80%
   2002                 25%                    75%
</TABLE>

                  In computing the international traffic revenue of BSNL/MTNL
         for purposes of calculating the combined international traffic revenue
         per call minute of the Company and BSNL/MTNL, the tariff charged by
         BSNL/MTNL to subscribers for outgoing international calls is assumed to
         remain constant at Rs.62.35 per minute, which was the weighted average
         tariff rate for the year ended March 31, 1997. It is therefore intended
         that the Company's average gross profit per call minute under the
         current revenue sharing arrangement will not be affected directly by
         any decrease or increase in the actual tariffs charged by BSNL/MTNL
         from its subscribers for outgoing international calls.

                  Effective April 1, 2002, the international long distance
         telephony market in India was liberalized with GoI permitting the entry
         of private operators.

                  The Company negotiated terms with various telecommunication
         operators including BSNL and MTNL. In accordance with the terms of
         agreement with BSNL and MTNL, for the period from April 1, 2002 to July
         31, 2002, the prior Revenue Sharing Agreement that expired on March 31,
         2002 was extended up to July 31, 2002.

                  With effect from August 1, 2002, BSNL and MTNL would pay VSNL
         amounts ranging from Rs.6.00 - Rs.14.00 per minute depending upon which
         region the traffic was terminated. In the case of incoming calls, VSNL
         is required to pay BSNL and MTNL amounts ranging from Rs.4.40 -
         Rs.13.00 per minute depending upon which distance slab the incoming
         traffic is being terminated. Discounts are allowable in respect of
         incoming calls depending upon a committed volume of traffic.

                                       F-9

<PAGE>

                  For the years ended March 31, 2001, 2002 and 2003 the
         effective net retention per call minute was Rs.9.39, Rs.8.39 and Rs.
         5.69, respectively.

                  The Company has also negotiated the terms of agreement with
         BSNL, MTNL and various other telecommunication operators for fiscal
         2004. Based on the agreements effective April 1, 2003 to March 31,
         2004, BSNL and MTNL would pay VSNL amounts ranging from Rs. 6.00 -
         Rs.14.00 per minute for outgoing traffic depending upon the region to
         which the traffic would be terminated. In the case of incoming calls,
         VSNL is required to pay BSNL and MTNL amounts ranging from Rs. 5.70 -
         Rs. 6.60 per minute depending on the distance slab to which the
         incoming traffic is being terminated. Discounts are allowable in
         respect of incoming calls depending upon a committed volume of traffic.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         a. BASIS OF PRESENTATION

                  These financial statements have been prepared in accordance
         with accounting principles generally accepted in the United States of
         America ("US GAAP"). US GAAP differs in certain material respects from
         accounting principles generally accepted in India and the requirements
         of India's Companies Act, 1956, which form the basis of the statutory
         general purpose financial statements of the Company in India. Principal
         differences in so far as they relate to the Company include valuation
         of investments, accounting for property, plant and equipment and
         depreciation thereon, deferred income taxes, retirement benefits, stock
         based compensation and the presentation and format of the financial
         statements and related notes.

                  The Company has a wholly owned subsidiary. Consolidated
         financial statements have not been presented as the financial position
         and results of the subsidiary are immaterial for the purposes of
         consolidation (See Note 6).

                  Entities where the Company exercises significant influence,
         generally where the Company controls between 20% to 50% of the voting
         stock of the investee company, are considered affiliates and are
         accounted for using the equity method.

         b. USE OF ESTIMATES

                  The preparation of financial statements in conformity with US
         GAAP requires management to make estimates and assumptions that affect
         the reported amounts of assets and liabilities and disclosures of
         contingent liabilities at the date of these financial statements and
         the reported amounts of revenues and expenses for the years presented.
         Actual results could differ from these estimates. Material estimates
         included in these financial statements that are susceptible to change
         include traffic revenue, allowances for trade and other receivables and
         the valuation of unlisted investments.

         c. CASH AND CASH EQUIVALENTS

                  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.
         The carrying value of cash equivalents approximates fair value.

         d. TRADE AND OTHER RECEIVABLES

                  Trade and other receivables are stated at their expected
         realizable values, net of an allowance for doubtful debts. Amounts
         payable to and receivable from the same administration and BSNL/MTNL
         are shown on a net basis where a legal right of set-off exists. These
         payables and receivables are generally settled on a net basis.

                                      F-10

<PAGE>

         e. INVESTMENTS

                  The Company accounts for its investments in securities of
         telecommunication satellite companies for which readily determinable
         fair values are available in accordance with Statement of Financial
         Accounting Standards ("SFAS") No. 115, Accounting for Certain
         Investments in Debt and Equity Securities. SFAS No.115 requires that
         investments that are not classified as held to maturity or trading are
         classified as available for sale and recorded at fair value. Unrealized
         gains and losses on such securities, net of applicable taxes, are
         reported in other comprehensive income, a separate component of
         shareholders' equity.

                  Investments in telecommunication satellite companies which are
         not freely transferable and for which fair values are not readily
         obtainable are accounted for in accordance with APB Opinion No. 18, The
         Equity Method of Accounting for Investments in Common Stock. These
         investments are reflected at cost less permanent impairment, if any.
         Declines in the value of investments that are other than temporary are
         reflected in earnings as realized losses, based on management's best
         estimate of the value of the investment.

                  Entities where the Company controls between 20% and 50% of the
         working stock of the investee company are considered as
         affiliates/joint ventures and are accounted using the equity method.

         f. PROPERTY, PLANT AND EQUIPMENT

                  Property, plant and equipment are stated at cost, net of
         accumulated depreciation. All costs relating to the acquisition and
         installation of property, plant and equipment are capitalized.

                  Depreciation is charged on property, plant and equipment on a
         straight-line basis from the time they are available for use, so as to
         make an economic allocation of the cost at which the assets are
         acquired less their estimated residual values, over their remaining
         estimated economic lives. Depreciation on freehold land is not
         provided. The estimated useful lives of various assets are shown below:

<TABLE>
<CAPTION>
                                                     YEARS
<S>                                                  <C>
Buildings                                                61
Plant and machinery:
Earth stations                                           12
Cables                                                10-25
Exchanges                                                12
Other network equipment                                   8
Office equipment                                         20
Computers                                                 6
Furniture, fittings and motor vehicles                10-15
</TABLE>

                  Land acquired on lease is amortized over the period of the
         lease.

                  Assets gifted by unrelated parties have been accounted for in
         accordance with SFAS No. 116, Accounting for Contributions Received and
         Contributions Made at fair value and recognized as revenue and an asset
         in the period received. Such assets are depreciated over their
         remaining useful economic lives.

                  Property, plant and equipment includes intangible assets in
         the nature of indefeasible rights of use ("IRU's") for international
         telecommunication circuits in submarine cables, which the Company
         acquires from time to time. These rights extend over specific time
         periods. The amounts paid according to the terms of these transactions
         are recorded as additions to property, plant and equipment,
         respectively, and amortized over the contracted period of use. The
         Company's current amortization policy complies with SFAS No. 142,
         Goodwill and Other Intangible Assets, which is applicable from fiscal
         years beginning after December 15, 2002.

                                      F-11

<PAGE>

                  The Company has not and does not trade in IRU's or bandwidth
         or enter into any swap or other similar agreements relating to IRU's or
         bandwidth.

         g. IMPAIRMENT AND DISPOSAL OF LONG LIVED ASSETS

                  The Company evaluates the carrying value of its long-lived
         tangible assets whenever events or circumstances indicate the carrying
         value of such assets may exceed their recoverable amounts. An
         impairment loss is recognized when the estimated future cash flows
         (undiscounted and without interest) expected to result from the use or
         disposition of an asset are less than the carrying amount of the asset.
         Measurement of an impairment loss is based on the lower of the fair
         value and the net realizable value of the asset.

                  In October 2001, the FASB issued SFAS No. 144, Accounting for
         the Impairment or Disposal of Long-Lived Assets, which supercedes SFAS
         No. 121, Accounting for the Impairment of Long-Lived Assets and for
         Long-Lived Assets to Be Disposed Of. SFAS No. 144 applies to all
         long-lived assets, including discontinued operations, and consequently
         amends APB opinion No. 30, Reporting the Results of
         Operations-Reporting the Effects of Disposal of a Segment of a
         Business, and Extraordinary, Unusual and Infrequently Occurring Events
         and Transactions. SFAS No. 144 develops one accounting model for
         long-lived assets that are to be disposed of by sale, as well as
         addresses the principal implementation issues. SFAS No. 144 requires
         that long-lived assets that are to be disposed off by sale be measured
         at the lower of book value or fair value less cost to sell.
         Additionally, SFAS No. 144 expands the scope of discontinued operations
         to include all components of an entity with operations that: (1) can be
         distinguished from the rest of the entity, and, (2) will be eliminated
         from the ongoing operations of the entity in a disposal transaction.
         SFAS No. 144 also amends Accounting Research Bulletin (ARB) No. 51,
         Consolidated Financial Statements to eliminate the exception to
         consolidation for a subsidiary for which control is likely to be
         temporary.

                  The Company adopted SFAS No. 144 with effect from April 1,
         2002, with no material impact on its results of operations, financial
         position or cash flows.

         h. OPERATING LEASES

                  Costs in respect of operating leases are expensed on a
         straight-line basis over the lease term.

         i. RETIREMENT BENEFITS

                           GRATUITY

                  In accordance with Indian law, the Company provides for
         gratuity, a defined benefit retirement plan covering all eligible
         employees. The plan provides for lump sum payments to vested employees
         at retirement, death while in employment or on termination of
         employment in an amount equivalent to 15 days salary payable for each
         completed year of service or part thereof in excess of six months
         subject to a maximum of Rs.350,000. Vesting occurs upon completion of
         five years of service. The Company makes annual contributions to a fund
         administered by trustees, based on an external actuarial valuation
         carried out annually. The Company accounts for its liability for future
         gratuity benefits in accordance with SFAS No. 87, Employers' Accounting
         for Pensions.

                           LEAVE ENCASHMENT

                  Leave encashment, a defined benefit plan, comprises of
         encashment of vacation entitlement carried forward by employees. These
         balances are encashable during the tenure of employment, on the
         employee leaving the Company or on retirement. The Company makes a
         provision towards leave encashment liability based on the total
         unavailed leave credited to each employee's account and his respective
         salary as at the end of each reporting date.

                                      F-12

<PAGE>

                           PENSION

                  Pension contributions are charged to the statement of income
         based on actuarial valuation. Pension contributions mainly comprise the
         Company's share of contribution relating to OCS employees who were
         transferred to VSNL in the financial year ended March 31, 1990.

                           PROVIDENT FUND

                  In addition to the above benefits, all eligible employees
         receive benefits from a provident fund, a defined contribution plan.
         The employee and employer each make monthly contributions to the plan
         equal to 12% of the employee's salary (basic and dearness allowance).
         The contributions are made to the provident fund trust established by
         the Company. The Company is obligated to make good any shortfall in the
         statutorily assured rate of return on the assets of the trust, which
         has remained constant at 9.5% during the years ended March 31, 2002 and
         2003. Currently, the Company has no further obligation under the
         provided fund beyond its contribution, which is expensed when incurred.

         j. REVENUE RECOGNITION

                  Revenues for long distance telephone services are recognized
         at the end of each month based upon minutes of incoming or outgoing
         traffic completed in such month. Revenues from leased circuits are
         recognized based upon contracted fee schedules. Revenues from Internet
         services are recognized based on usage by subscribers. The majority of
         revenues are derived from payments by the BSNL/MTNL for completing
         outgoing calls made from India and from payments by foreign
         administrations for incoming calls that originate outside India.

                  Income from Intelsat Ltd. is accounted as dividend income and
         included as part of non-operating income.

         k. OPERATING AND OTHER EXPENSES

                  The principal components of the Company's operating and other
         expenses are network and transmission costs, license fees paid to the
         DoT, light and power expenses and repairs to plant and machinery.

                  Network and transmission costs include payments to BSNL/MTNL
         for incoming traffic and to foreign administrations and carriers for
         outgoing traffic, as well as the cost of leasing transmission
         facilities, including lines from BSNL and other domestic operators and
         satellite circuits from satellite companies. As discussed in Note 1(d),
         the Company must pay a proportion of the amounts received from domestic
         operators to transit and destination foreign administrations.
         Similarly, a portion of the payments from the foreign administrations
         is paid to domestic operators for completing calls within India.

                  Other operating costs include general and administrative
         expenses other than network and transmission costs and license fees.

         l. FOREIGN CURRENCY TRANSACTIONS

                  The Company's functional currency is the Indian rupee. Foreign
         currency transactions are normally recorded at the exchange rates
         prevailing on the first working day of the month in which the
         transaction falls. In the case of traffic revenue and charges for the
         use of transmission facilities, foreign currency transactions are
         recorded at the exchange rate prevailing on the last day of the prior
         month. Foreign currency denominated monetary assets and liabilities are
         converted into Indian rupees using exchange rates prevailing on the
         balance sheet dates. Gains and losses arising on conversion of foreign
         currency denominated monetary assets and liabilities and on settlement
         of foreign currency transactions are included in the determination of
         net income.

                                      F-13

<PAGE>

         m. INCOME TAX

                  Income tax comprises current income tax and the net change in
         the deferred tax asset or liability in the year. Deferred income taxes
         are accounted for using the asset and liability method for the future
         tax consequences of temporary differences between the tax basis and the
         carrying value of assets and liabilities.

                  Deferred tax benefits are recognized on assets to the extent
         that it is more likely than not that future taxable profits will be
         available against which the asset can be utilized. Deferred tax assets
         and liabilities are measured using enacted tax rates expected to apply
         to taxable income in the years in which the temporary differences are
         expected to be received or settled. The effect on deferred tax assets
         and liabilities of a change in tax rates is recognized in the income
         statement in the period of enactment of the change.

         n. DIVIDENDS

                  Any dividends declared by the Company are based on the profit
         available for distribution as reported in the statutory financial
         statements of the Company prepared in accordance with Indian GAAP.
         Accordingly, in certain years, the net income reported in these
         financial statements may not be fully distributable. As of March 31,
         2002 and 2003, the amounts available for distribution are Rs. 8,338
         million and Rs.7,786 million, respectively. Dividends declared for the
         years ended March 31, 2001, 2002 and 2003 were Rs.50, Rs.87.50 and
         Rs.8.50 per equity share. For the year 2003, the dividend proposed by
         the Board of Directors which is pending approval of the shareholders in
         the Annual General Meeting is Rs. 8.50 per equity share. The Company
         paid dividends of Rs.760 million, Rs.35,625 million (including Rs.
         21,375 million as special dividend) and Rs.3,563 million during the
         years ended March 31, 2001, 2002 and 2003 respectively.

         o. EARNINGS PER SHARE

                  The Company reports basic and diluted earnings per equity
         share in accordance with SFAS No. 128, Earnings Per Share. Basic
         earnings per equity share has been computed by dividing net income by
         the weighted average number of equity shares outstanding for the
         period. For the purposes of earnings per share, stock dividends
         declared by the Company have been given retroactive effect for all the
         years presented.

         p. COMPREHENSIVE INCOME

                  The Company reports comprehensive income in accordance with
         SFAS No.130, Reporting Comprehensive Income. Accounting principles
         generally require that recognized revenues, expenses, gains and losses
         be included in net income. Unrealized gains and losses on available for
         sale securities, exchange differences on translation of foreign
         affiliates/joint ventures along with net income are components of
         comprehensive income.

         q. SEGMENT INFORMATION

                  The Company identifies International telephony, Internet and
         Leased line services as its operating segments. Operating segments
         other than the international telephony segment do not meet the
         quantitative thresholds specified by SFAS No. 131, Disclosures about
         Segments of an Enterprise and Related Information, and do not qualify
         as reportable segments. Segment-wise information has been provided in
         Note 25.

                                      F-14

<PAGE>

         r. NEW ACCOUNTING PRONOUNCEMENTS

                  SFAS NO. 143

                  In June 2001, the FASB issued SFAS No. 143, Accounting for
         Asset Retirement Obligations. SFAS No. 143 addresses financial
         accounting and reporting for obligations associated with the retirement
         of tangible long-lived assets and the associated asset retirement
         costs, 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 capitalized as part of the
         carrying amount of the long-lived asset. SFAS No. 143 will become
         applicable to the Company for its fiscal year beginning on April 1,
         2003, and when adopted, is not expected to have any impact on the
         results of operations, financial position or cash flows.

                  SFAS NO. 146

                  In July 2002, the FASB issued SFAS No. 146, Accounting for
         Costs Associated with Exit or Disposal Activities. SFAS No. 146
         addresses financial accounting and reporting for costs associated with
         exit or disposal activities and nullifies the EITF Issue No. 94-3,
         "Liability Recognition for Certain Employee Termination Benefits and
         Other Costs to Exit an Activity including Certain Costs Incurred in a
         Restructuring". The principal difference between SFAS No. 146 and Issue
         94-3 relates to SFAS No. 146's requirements for recognition of a
         liability for a cost associated with an exit or disposal activity. SFAS
         No. 146 requires that a liability for a cost associated with an exit or
         disposal activity be recognized when the liability is incurred. Under
         Issue 94-3, a liability for an exit cost was recognized at the date of
         an entity's commitment to an exit plan. A fundamental conclusion
         reached by the FASB in this Statement is that an entity's commitment to
         a plan, by itself, does not create an obligation that meets the
         definition of a liability. Therefore, this Statement eliminates the
         definition and requirements for recognition of exit costs in Issue
         94-3. This Statement also establishes that fair value is the objective
         for initial measurement of the liability. SFAS No. 146 is effective for
         exit or disposal activities that are initiated after December 31, 2002.
         The Company believes that the adoption of SFAS No. 146 will not have a
         material impact on its financial position or results of operations.

                  SFAS NO. 148

                  In December 2002, the FASB issued SFAS No. 148, Accounting for
         Stock-Based Compensation. This Statement amends FASB Statement No. 123,
         Accounting for Stock-Based Compensation, to provide alternative methods
         of transition for a voluntary change to the fair value based method of
         accounting for stock-based employee compensation. In addition, this
         Statement amends the disclosure requirements of Statement 123 to
         require prominent disclosures in both annual and interim financial
         statements about the method of accounting for stock-based employee
         compensation and the effect of the method used on reported results.
         Statement 123 required prospective application of the fair value
         recognition provisions to new awards granted after the beginning of the
         period of adoption. When Statement 123 was issued in 1995, the Board
         recognized the potential for misleading implications caused by the
         "ramp-up" effect on reported compensation cost from prospective
         application of the fair value based method of accounting for
         stock-based employee compensation to only new grants after the date of
         adoption. However, the Board was concerned that retroactive application
         would be excessively burdensome to financial statement preparers
         because the historical assumptions required to determine the fair value
         of awards of stock-based compensation for periods prior to the issuance
         of Statement 123 were not readily available. This Statement permits two
         additional transition methods for entities that adopt the preferable
         method of accounting for stock-based employee compensation. Both of
         those methods avoid the ramp-up effect arising from prospective
         application of the fair value based method. In addition, to address
         concerns raised by some constituents about the lack of comparability
         caused by multiple transition methods, this Statement does not permit
         the use of the original Statement 123 prospective method of transition
         for changes to the fair value based method made in fiscal years
         beginning after December 15, 2003.

                                      F-15

<PAGE>

                  SFAS NO. 149

                  In February 2003, the FASB issued SFAS No. 149, Amendments of
         Statement No. 133 on Derivative Instruments and Hedging Activities.
         This Statement amends and clarifies financial accounting and reporting
         for derivative instruments, including certain derivative instruments
         embedded in other contracts (collectively referred to as derivatives)
         and for hedging activities under FASB Statement No. 133, Accounting for
         Derivative Instruments and Hedging Activities. This Statement amends
         Statement 133 for decisions made (1) as part of the Derivatives
         Implementation Group process that effectively required amendments to
         Statement 133, (2) in connection with other Board projects dealing with
         financial instruments, and (3) in connection with implementation issues
         raised in relation to the application of the definition of a
         derivative, in particular, the meaning of an initial net investment
         that is smaller than would be required for other types of contracts
         that would be expected to have a similar response to changes in market
         factors, the meaning of underlying, and the characteristics of a
         derivative that contains financing components. This Statement is
         effective for contracts entered into or modified after June 30, 2003.
         All provisions of this Statement should be applied prospectively.

                  FIN 45

                  In November 2002, the FASB issued FIN 45, Guarantor's
         Accounting and Disclosure Requirements for Guarantees, Including
         Indirect Guarantees of Indebtedness of Others, an interpretation of
         FASB No 5, 57 and 107 and rescission of FASB interpretation No. 34.
         This Interpretation elaborates on the disclosures to be made by a
         guarantor in its interim and annual financial statements about its
         obligations under certain guarantees that it has issued. It also
         clarifies that a guarantor is required to recognize, at the inception
         of a guarantee, a liability for the fair value of the obligation
         undertaken in issuing the guarantee. This Interpretation does not
         prescribe a specific approach for subsequently measuring the
         guarantor's recognized liability over the term of the related
         guarantee. This Interpretation also incorporates, without change, the
         guidance in FASB Interpretation No. 34, Disclosure of Indirect
         Guarantees of Indebtedness of Others, which is being superseded. The
         initial recognition and initial measurement provisions of this
         Interpretation are applicable on a prospective basis to guarantees
         issued or modified after December 31, 2002, irrespective of the
         guarantor's fiscal year-end. The disclosure requirements in this
         Interpretation are effective for financial statements of interim or
         annual periods ending after December 15, 2002. The interpretive
         guidance incorporated without change from Interpretation 34 continues
         to be required for financial statements for fiscal years ending after
         June 15, 1981--the effective date of Interpretation 34.

         s. CONVENIENCE TRANSLATION

                  The accompanying financial statements have been expressed in
         Indian rupees ("Rs."), the Company's functional currency. For the
         convenience of the reader, the financial statements as at and for the
         year ended March 31, 2003 have been translated into US dollars at
         US$1.00 = Rs.47.53 based on the noon buying rate for cable transfers on
         March 31, 2003 as certified for customs purposes by the Federal Reserve
         Bank of New York. Such convenience translation should not be construed
         as a representation that the Indian rupee amounts referred to in these
         financial statements have been, or could be converted into US dollars
         at this or at any other rate of exchange, or at all.

                                      F-16

<PAGE>

3. CASH AND CASH EQUIVALENTS

                  Cash and cash equivalents include the following:

<TABLE>
<CAPTION>
                                                              AS OF MARCH 31,
                                                 ----------------------------------------
                                                    2002          2003              2003
                                                 -----------     ----------     ---------
                                                              (IN MILLIONS)
<S>                                              <C>             <C>            <C>
Cash in hand                                     Rs.       4     Rs.      1     US$     -
Bank balances:
  Current accounts                                     1,707            271             6
  Time Deposits                                        6,170              -             -
                                                 -----------     ----------     ---------
TOTAL                                            Rs.   7,881     Rs.    272     US$     6
                                                 ===========     ==========     =========
</TABLE>

4. SHORT-TERM INVESTMENTS

                  Short-term investments include the following:

<TABLE>
<CAPTION>
                                                             AS OF MARCH 31,
                                                 ----------------------------------------
                                                    2002            2003          2003
                                                 -----------     ----------     ---------
                                                              (IN MILLIONS)
<S>                                              <C>             <C>            <C>
Term Deposits                                    Rs.   7,108     Rs.  6,262     US$   132
Term deposits with maturity exceeding 90 days         10,361         17,052           358
                                                 -----------     ----------     ---------
TOTAL                                            Rs.  17,469     Rs. 23,314     US$   490
                                                 ===========     ==========     =========
</TABLE>

                  Term Deposits include Rs.7,099 million and Rs.6,258 million as
         of March 31, 2002 and 2003, respectively the use of which is restricted
         to the import of capital equipment.

                  Interest rates on term deposits during the year ended March
         31, 2003, ranged from approximately 5.60% to 8.75%.

                  Term deposits with maturity exceeding 90 days include Rs.3,605
         million pledged against short-term borrowings of the Company.

5. TRADE AND OTHER RECEIVABLES

                  Trade and other receivables include the following:

<TABLE>
<CAPTION>
                                                             AS OF MARCH 31,
                                                 ----------------------------------------
                                                    2002            2003          2003
                                                 -----------     ----------     ---------
                                                              (IN MILLIONS)
<S>                                              <C>             <C>            <C>
Trade accounts receivables:
Amount due from foreign
administrations                                  Rs.  14,380     Rs.  6,302     US$   133
Domestic trade debtors                                   528          1,575            33
                                                 -----------     ----------     ---------
Total trade account receivables                       14,908          7,877           166
Interest receivable on bank deposits                     700            225             5
Other sundry deposits                                     63             60             1
Other receivables                                        546            429             9
                                                 -----------     ----------     ---------
 TOTAL                                           Rs.  16,217     Rs.  8,591     US$   181
                                                 ===========     ==========     =========
</TABLE>

                  Amounts due from BSNL/MTNL for traffic settlement are netted
         against amounts due to BSNL/MTNL for traffic settlement and are
         reported in trade payables. The Company has the legal right of set-off.

                                      F-17

<PAGE>

6. INVESTMENTS

                  The portfolio of investments as of March 31, 2002 and 2003 is
         as follows:

<TABLE>
<CAPTION>
                                       AS OF MARCH 31, 2002                   AS OF MARCH 31, 2003
                               -----------------------------------    -----------------------------------
                                             GROSS                                  GROSS
                               ORIGINAL    UNREALIZED    CARRYING     ORIGINAL    UNREALIZED    CARRYING
                                 COST        GAINS        VALUE         COST        GAINS        VALUE
                               --------    ----------    ---------    --------    ----------    ---------
                                                                      (IN MILLIONS)
<S>                            <C>         <C>           <C>          <C>         <C>           <C>
Investment carried at fair
 value:
  Satellite company            Rs.  562    Rs.    412    Rs.   974    Rs.  562    Rs.    120    Rs.   682
                               ======================                 ======================

Investment carried at cost:
  Telecommunication                                          8,481                                  2,992
    companies
  Less: Permanent                                           (5,470)                                     -
    impairment
                                                         ---------                              ---------
  TOTAL                                                  Rs. 3,985                              Rs. 3,674
                                                         =========                              =========
  TOTAL                                                                                         US$    77
                                                                                                =========
</TABLE>

                  VSNL SEAMLESS SERVICES LIMITED

                  During the year the Company acquired a wholly owned subsidiary
         VSNL Seamless Services Limited ("VSSL"), incorporated in India, for a
         cash consideration of Rs. 1,000. Subsequent to the acquisition, the
         Company subscribed to equity shares of Rs. 500,000 issued by VSSL. The
         intended principal activity of VSSL was provision of value-added
         services. Subsequent to the year-end, the Board of Directors of the
         Company, proposed liquidation of the subsidiary. VSSL has not commenced
         operations.

                  INTELSAT, LTD.

                  Intelsat, Ltd., originally formed as an Inter Governmental
         Organization in 1964, owns and operates satellite communication
         systems. It offers telephony, corporate network, video and Internet
         solutions to customers in over 200 countries through its network of 26
         geosynchronous satellites. Intelsat was converted into a private
         company incorporated in Bermuda effective July 18, 2001. Consequent to
         its privatization the Company was allotted 27,045,940 ordinary shares
         of US$1 each representing 5.4% of the paid up capital of Intelsat,
         Ltd.. On June 4, 2002 Intelsat amended its bye-laws consolidating its
         shares, whereby every three ordinary shares of $ 1.00 each were
         consolidated into one ordinary share of $ 3.00 each. Consequently, the
         company now holds 9,015,314 ordinary shares with a par value of $ 3 per
         share.

                  Post corporatization, the Company's investment in Intelsat,
         Ltd. has been accounted for in accordance with APB Opinion No. 18, The
         Equity Method of Accounting for Investments in Common Stock at cost
         since the fair value of equity shares is not readily obtainable.

                  On March 8, 2002, Intelsat, Ltd. announced its intention to
         conduct an initial public offering (IPO) of its ordinary shares in an
         amount of approximately US$500 million. In addition, it is anticipated
         that Intelsat Ltd.'s existing shareholders will be offered the
         opportunity to sell ordinary shares in the offering. The Open-Market
         Reorganization for the Betterment of International Telecommunications
         Act (ORBIT Act) has extended the deadline for conducting the IPO to
         December 31, 2003.

                  NEW SKIES SATELLITE NV ("NSS")

                  During 1998-99, as part of its restructuring process Intelsat
         incorporated NSS as a corporation with limited liability under the laws
         of Netherlands and transferred certain assets and liabilities to NSS
         and accounted for the transaction at historic book values. In return,
         NSS issued 10,000,000 shares of common stock of Dutch Guilder 1 to
         Intelsat. Intelsat distributed 9,000,000 shares of NSS in the year
         1998-99, and 1,000,000 shares of NSS in 1999-2000 in proportion to the
         investment shares of its members at the time of distribution.
         Consequently, the Company acquired 301,215 shares in 1998-99 and 43,000
         shares in 1999-2000, which were recorded as a reduction in the
         investment in Intelsat and a new investment in NSS at face values.


                                      F-18

<PAGE>

                  NSS announced a 10:1 stock split prior to its initial public
         offering ("IPO") in October 2000 and redesignated its shares from
         Guilders to Euros. Thus, the Company's total holding in NSS as of March
         31, 2003 stands at 3,442,150 ordinary shares of 0.05 Euros each. The
         market value per share as of March 31, 2003 was US $ 4.17 per share.

                  INMARSAT VENTURE PLC.

                  International Mobile Satellite Organization (Inmarsat) was an
         IGO with membership from 88 countries providing satellite mobile
         communications in air, on land and at sea. It was converted into a
         national law company incorporated in the United Kingdom effective April
         15, 1999. The Company's investment in the holding company, Inmarsat
         Ventures Plc is 202,219 shares representing approximately 2.0% of the
         paid up capital. Further, there had been a 10:1 stock split in March
         2001. Consequently, the Company now holds 2,022,190 shares of 10 pence
         each in Inmarsat Ventures Plc.

                  Due to poor stock market conditions, Inmarsat has postponed
         its IPO during the fiscal year 2002. It is anticipated that Inmarsat's
         existing shareholders will be offered the opportunity to sell their
         holdings in the offering when it occurs. The ORBIT Act has extended the
         deadline for conducting the IPO to June 30, 2004.

                  TELSTRA VISHESH COMMUNICATIONS LIMITED ("TVCL")

                  TVCL is a joint venture between the Company, Telstra-Australia
         and Infrastructure Leasing & Financial Services Ltd.("ILFS"), initially
         formed with an investment equity in the ratio of 40:40:20. Currently,
         the Company holds Rs.92 million out of the total paid up capital of
         Rs.314 million. TVCL has invested in a hybrid VSAT project and has
         diversified into consulting, facility management services and turnkey
         VSAT projects for large organizations. The shares of TVCL are recorded
         at face value and consequently the Company has applied the provision
         for diminution in value of investments and written off these
         investments to their current fair value in the year ended March 31,
         2000.

                  As per the proposed restructuring plan undertaken by TVCL,
         Essel Shyam Communications Ltd. ("ESCL"), a company incorporated in
         India, has been identified as the strategic partner. Further,
         Telstra-Australia will exit the joint venture and the shareholders of
         TVCL comprising the remaining joint venture partners, namely the
         Company and IL&FS and the Employee Welfare Trust will get 15% in the
         aggregate of the equity share capital of ESCL in exchange for their
         holding in TVCL. In addition, ESCL will pay a cash compensation of
         Rs.20 million to the Company and IL&FS in the aggregate.

7. INVESTMENT IN AFFILIATES/JOINT VENTURE

                  UNITED TELECOM LIMITED ("UTL")

                  UTL is a joint venture between the Company, Mahanagar
         Telephone Nigam Limited ("MTNL"), Telecommunications Consultants India
         Limited ("TCIL") and Nepal Ventures Private Limited ("NVPL"), with an
         investment equity in the ratio of 26.6:26.8:26.6:20. MTNL and TCIL are
         companies incorporated in India and NVPL is a company incorporated in
         Nepal. UTL has been formed for bidding for license to operate and
         invest in basic telephony services in Nepal based on Wireless-in-Local
         Loop technology. As of date, UTL is yet to commence commercial
         operations. Investment in UTL has been equity accounted in

                                      F-19

<PAGE>

         accordance with APB Opinion No. 18, The Equity Method of Accounting for
         Investments in Common Stock.

                  TATA TELESERVICES LIMITED ("TTSL")

                  The company has an equity interest of 19.9% in Tata
         Teleservices Limited ("TTSL"). The Company has the right to appoint two
         directors in TTSL. TTSL and its subsidiaries provide basic telephony
         and Internet services in Andhra Pradesh and Maharashtra. Investment in
         TTSL has been equity accounted in accordance with APB Opinion No. 18,
         The Equity Method of Accounting for Investments in Common Stock.

8. PROPERTY, PLANT AND EQUIPMENT

                  Property, plant and equipment by asset category is as follows:

<TABLE>
<CAPTION>
                                                             AS OF MARCH 31,
                                                 ----------------------------------------
                                                    2002            2003          2003
                                                 -----------     ----------     ---------
                                                              (IN MILLIONS)
<S>                                              <C>             <C>            <C>
Land                                             Rs.     773     Rs.    782     US$    16
Buildings                                              2,210          2,434            51
Plant and machinery                                   25,117         29,751           626
Computers                                                587            738            16
Motor vehicles                                            16             15             -
Furniture and fixtures                                   184            212             5
                                                 -----------     ----------     ---------
   Property, plant and equipment, at cost             28,887         33,932           714
Less: Accumulated depreciation                       (10,829)       (13,279)         (279)
                                                 -----------     ----------     ---------
   PROPERTY, PLANT AND EQUIPMENT, NET            Rs.  18,058     Rs. 20,653     US$   435
                                                 ===========     ==========     =========
</TABLE>

                  The Company is in the process of reviewing the estimated
         useful lives of property, plant and equipment. Pending completion of
         such review, depreciation has been computed based on estimated useful
         lives stated in Note 2(f).

                  During the year 1998-99 the Company had spent Rs.496 million
         towards gateway equipment for Iridium India Telecom Limited ("IITL"),
         Pune, which was capitalized and was being depreciated. IITL stopped
         operational activities in April 2000 and since then these assets have
         not been used by IITL. An impairment charge of Rs.30 million was
         recognized in the year ended March 31, 2002 to reflect their estimated
         realizable value.

                  Property, plant and equipment include Rs.1,486 million and Rs.
         1,426 million for indefeasible rights of use as of March 31, 2002 and
         2003 respectively.

9. CAPITAL WORK-IN-PROGRESS

                  Capital work-in-progress includes the following:

<TABLE>
<CAPTION>
                                                             AS OF MARCH 31,
                                                 ----------------------------------------
                                                    2002            2003          2003
                                                 -----------     ----------     ---------
                                                              (IN MILLIONS)
<S>                                              <C>             <C>            <C>
Buildings                                        Rs.     315     Rs.    182     US$     4
Plant and machinery                                    2,583            110             2
Other assets                                              45            828            18
                                                 -----------     ----------     ---------
                 TOTAL                           Rs.   2,943     Rs.  1,120     US$    24
                                                 ===========     ==========     =========
</TABLE>

                                      F-20

<PAGE>

10. OTHER ASSETS

                  Other assets includes the following:

<TABLE>
<CAPTION>
                                                             AS OF MARCH 31,
                                                 ----------------------------------------
                                                    2002            2003          2003
                                                 -----------     ----------     ---------
                                                              (IN MILLIONS)
<S>                                              <C>             <C>            <C>
Advance tax (net)                                Rs.   7,752     Rs. 12,141     US$   256
Advances paid for capital goods                            6             23             -
Prepaid expenses                                         530            632            13
Inventories                                                5              7             -
                                                 -----------     ----------     ---------
                 TOTAL                           Rs.   8,293     Rs. 12,803     US$   269
                                                 ===========     ==========     =========
</TABLE>

11. SHORT-TERM BORROWINGS

                  As of March 31, 2002 and 2003, the Company had short-term
         borrowings of Rs. 5,751 million and Rs. 3,540 million, respectively.
         The short-term borrowings carry interest at 6.25% and are repayable by
         April 2003. Term deposits amounting to Rs. 3,605 million are secured
         against short-term borrowings.

12. TRADE PAYABLES

                  Trade payables include the following:

<TABLE>
<CAPTION>
                                                             AS OF MARCH 31,
                                                 ----------------------------------------
                                                    2002            2003          2003
                                                 -----------     ----------     ---------
                                                              (IN MILLIONS)
<S>                                              <C>             <C>            <C>
Accounts payable-trade:
Amounts due to foreign administrations           Rs.   1,420     Rs.    586     US$    12

Amounts due to Domestic Operators                      4,308          1,836            39

                                                 -----------     ----------     ---------
                 TOTAL                           Rs.   5,728     Rs.  2,422     US$    51
                                                 ===========     ==========     =========
</TABLE>

13. ACCRUED EXPENSES AND OTHER LIABILITIES

                  Accrued expenses and other liabilities include the following:

<TABLE>
<CAPTION>
                                                             AS OF MARCH 31,
                                                 ----------------------------------------
                                                    2002            2003          2003
                                                 -----------     ----------     ---------
                                                              (IN MILLIONS)
<S>                                              <C>             <C>            <C>
Unearned income                                  Rs.   1,762     Rs.  3,039     US$    64
Interest accrued but not due                              11              1             -
Other payables and accrued expenses                    6,189          5,078           107
                                                 -----------     ----------     ---------
                 TOTAL                           Rs.   7,962     Rs.  8,118     US$   171
                                                 ===========     ==========     =========
</TABLE>

                                      F-21

<PAGE>

14. INCOME TAX

                  The income tax expense comprises the following:

<TABLE>
<CAPTION>
                                                                 YEARS ENDED MARCH 31,
                                                 ------------------------------------------------------
                                                    2001            2002           2003         2003
                                                 -----------     ----------     ---------     ---------
                                                                       (IN MILLIONS)
<S>                                              <C>             <C>            <C>           <C>
Current income tax expense                       Rs.   7,887     Rs.  6,661     Rs. 4,176     US$    88
Deferred income tax expense
  (benefit)                                            1,759           (702)          214             4
                                                 -----------     ----------     ---------     ---------
        INCOME TAX EXPENSE                       Rs.   9,646     Rs.  5,959     Rs. 4,390     US$    92
                                                 ===========     ==========     =========     =========
</TABLE>

                  The following is the reconciliation of estimated income taxes
         at the Indian statutory income tax rate to income tax expense as
         reported:

<TABLE>
<CAPTION>
                                                                 YEARS ENDED MARCH 31,
                                                 ------------------------------------------------------
                                                    2001            2002           2003         2003
                                                 -----------     ----------     ---------     ---------
                                                                       (IN MILLIONS)
<S>                                              <C>             <C>            <C>           <C>
Net income before taxes                          Rs.  25,173     Rs. 19,130     Rs. 11,834    US$   249
Effective statutory income tax rate                    39.55%         35.70%         36.75%       36.75%
Expected income tax expense                            9,956          6,829          4,349           91

Adjustments to reconcile expected
income tax expense to actual tax
expense:
Permanent differences:
Income exempt under tax holiday                       (1,209)          (957)             -            -
Provision for diminution in value of
investment not allowed for tax                           153             24                           -
Stock based compensation cost                              -            320              -            -
Exchange gain on GDR deposits treated
as capital receipt for income tax
purposes                                                 (60)            59              -            -

Share of loss of affiliates                                -              -             52            1
Others, net                                              775           (110)            42            1
Effect of change in statutory
 tax rate                                                 31           (206)           (53)          (1)
                                                 -----------     ----------     ----------    ---------
INCOME TAX EXPENSE                               Rs.   9,646     Rs.  5,959     Rs.  4,390    US$    92
                                                 ===========     ==========     ==========    =========
</TABLE>

                                      F-22

<PAGE>

                  The tax effects of significant temporary differences are as
         follows:

<TABLE>
<CAPTION>
                                                             AS OF MARCH 31,
                                                 ----------------------------------------
                                                    2002            2003          2003
                                                 -----------     ----------     ---------
                                                              (IN MILLIONS)
<S>                                              <C>             <C>            <C>
TAX EFFECT OF:

DEDUCTIBLE TEMPORARY DIFFERENCES:
Allowances for trade receivables                 Rs.     608     Rs.    624     US$    13
Other                                                    126            132             3
                                                 -----------     ----------     ---------
DEFERRED TAX ASSET                               Rs.     734     Rs.    756     US$    16
                                                 -----------     ----------     ---------

TAXABLE TEMPORARY DIFFERENCES:
Property, plant and equipment                    Rs.   2,946          3,182     US$    67
Unrealized gain on securities available for
Sale                                                     151             46             1
                                                 -----------     ----------     ---------
DEFERRED TAX LIABILITY                           Rs.   3,097     Rs.  3,228     US$    68
                                                 -----------     ----------     ---------
NET DEFERRED TAX LIABILITY                       Rs.   2,363     Rs.  2,472     US$    52
                                                 ===========     ==========     =========
</TABLE>

15. TRAFFIC REVENUES

                  Traffic revenues comprise the following:

<TABLE>
<CAPTION>
                                                                 YEARS ENDED MARCH 31,
                                                 ------------------------------------------------------
                                                    2001            2002           2003         2003
                                                 -----------     ----------     ---------     ---------
                                                                       (IN MILLIONS)
<S>                                              <C>             <C>            <C>           <C>
Revenues from foreign
   Administrations:

Telephone                                        Rs.  46,674     Rs. 41,503     Rs. 27,143    US$   571
Others                                                   112             70             36            1
Revenues from domestic operators:
Telephone                                             18,345         16,153          9,656          203
Leased circuits                                        3,140          3,584          4,231           89
Telegraph, television and others                       3,645          3,740          4,275           90
                                                 -----------     ----------     ----------    ---------
        TOTAL                                    Rs.  71,916     Rs. 65,050     Rs. 45,341    US$   954
                                                 ===========     ==========     ==========    =========
</TABLE>

16. NETWORK COSTS

                  Network and transmission costs comprise the following:

<TABLE>
<CAPTION>
                                                                 YEARS ENDED MARCH 31,
                                                 ------------------------------------------------------
                                                    2001            2002           2003         2003
                                                 -----------     ----------     ---------     ---------
                                                                       (IN MILLIONS)
<S>                                              <C>             <C>            <C>           <C>
Payment for traffic costs to:
Domestic operators                               Rs.  27,341     Rs. 23,050     Rs. 13,528    US$   284
Foreign administrations                               13,866         10,721          6,741          142
Rent of land lines                                     1,037          2,914          3,319           70
Other transmission facilities                          2,906          2,892          2,456           52
                                                 -----------     ----------     ----------    ---------
        TOTAL                                    Rs.  45,150     Rs. 39,577     Rs. 26,044    US$   548
                                                 ===========     ==========     ==========    =========
</TABLE>

                                      F-23

<PAGE>

17. OTHER OPERATING COSTS

                  Other operating costs comprise the following:

<TABLE>
<CAPTION>
                                                                 YEARS ENDED MARCH 31,
                                                 ------------------------------------------------------
                                                    2001            2002           2003         2003
                                                 -----------     ----------     ---------     ---------
                                                                       (IN MILLIONS)
<S>                                              <C>             <C>            <C>           <C>
Staff costs:
Salaries and wages                               Rs.   1,400     Rs.  2,134     Rs.  1,302    US$    27
Social security contributions                            132            391            264            6
Energy costs                                             271            286            302            6
Advertising                                              116             35             89            2
Repairs, maintenance, marketing and other
costs                                                  1,104          1,957          2,033           43
                                                 -----------     ----------     ---------     ---------
        TOTAL                                    Rs.   3,023     Rs.  4,803     Rs.  3,990    US$    84
                                                 ===========     ==========     ==========    =========
</TABLE>

18. NON-OPERATING INCOME

                  Non-operating income comprise the following:

<TABLE>
<CAPTION>
                                                                 YEARS ENDED MARCH 31,
                                                 ------------------------------------------------------
                                                    2001            2002           2003         2003
                                                 -----------     ----------     ---------     ---------
                                                                       (IN MILLIONS)
<S>                                              <C>             <C>            <C>           <C>
Foreign exchange gains, net                      Rs.   2,878     Rs.    939     Rs.    167    US$     4
Profit/(loss) on sale of fixed assets                     (5)            (2)             1            -
Reimbursement by GoI of entry fees
(See Note 1(c))                                            -            279              -            -

Miscellaneous income                                     185            155            257            5
                                                 -----------     ----------     ----------    ---------
        TOTAL                                    Rs.   3,058     Rs.  1,371     Rs.    425    US$     9
                                                 ===========     ==========     ==========    =========
</TABLE>

19. INTEREST INCOME

                  Included under interest income is an amount of Rs. 535 million
         relating to interest on income tax refunds. Consequent to the favorable
         outcome of appeals before the Commissioner of Income Tax (Appeals)
         relating to the allowability of license fee, income tax refunds,
         including interest aggregating to Rs. 963 million were received during
         the year. Interest on tax refunds aggregating to Rs. 428 million which
         were recognized in previous years, have been debited to the Statement
         of Income for the year ended March 31, 2003 on receipt of adverse
         assessment orders.

20. EMPLOYEE STOCK PURCHASE SCHEME ("ESPS")

                  As part of the process of disinvestment, GoI on various dates
         transferred 5,661,546 equity shares to employees of the Company at a
         price significantly lower than the fair value on the date of transfer.
         The transfer of such equity shares has been accounted for as a charge
         to compensation cost of Rs.896 million and an accretion to additional
         paid in capital in the year ended March 31, 2002.

                  Had compensation cost for the Company's ESPS been determined
         based on the fair value at the grant dates, consistent with the method
         prescribed by SFAS No. 123, the Company's net income and earnings per
         share for the year ended March 31, 2002 would have been as per the pro
         forma amounts indicated below:

                                      F-24

<PAGE>

<TABLE>
<CAPTION>
                                                          YEAR ENDED MARCH 31, 2002
                                                   ---------------------------------------
                                                   (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S>                                                       <C>            <C>
NET INCOME:
As reported                                               Rs.  9,537     US$    195
Pro forma                                                      9,776     US$    200

BASIC AND DILUTED EARNINGS PER SHARE
As reported                                               Rs.  33.46     US$   0.69
Pro forma                                                      34.30     US$   0.70
</TABLE>

                  The fair value of options used to compute pro forma net income
         and basic earnings per equity share has been estimated on the dates of
         grant using the Black-Scholes option pricing model with the following
         assumptions:

<TABLE>
<CAPTION>
                                                 YEAR ENDED MARCH 31, 2002
                                                 --------------------------
<S>                                              <C>
Dividend yield                                               1%
Expected volatility                                         88%
Risk-free interest rate                                      9%
Lock-in period                                          1 year
</TABLE>

21. RETIREMENT BENEFITS

         GRATUITY

         The following table sets out the funded status of the gratuity plan and
         the amounts recognized in the Company's financial statements as of
         March 31, 2002 and 2003.

<TABLE>
<CAPTION>
                                                                             AS OF MARCH 31,
                                                                 --------------------------------------
                                                                    2002           2003         2003
                                                                 ----------     ----------    ---------
                                                                               (IN MILLIONS)
<S>                                                              <C>            <C>           <C>
CHANGE IN BENEFIT OBLIGATION:

Projected benefit obligation, beginning of the year              Rs.    232     Rs.    288    US$     6
Service cost                                                             16             21            -
Interest cost                                                            23             27            1
Actuarial loss                                                           39             33            1
Benefits paid                                                           (22)           (12)           -
                                                                 ----------     ----------    ---------
         PROJECTED BENEFIT OBLIGATION, END OF THE YEAR                  288            357            8
                                                                 ----------     ----------    ---------

CHANGE IN PLAN ASSETS:

Fair value of plan assets, beginning of the year                        127            288            6
Actual return on plan assets                                             11             28            1
Employer contributions                                                    -             52            1
Benefits paid                                                           (22)           (12)           -
Gain on plan assets                                                       -              1            -
                                                                 ----------     ----------    ---------
         FAIR VALUE OF PLAN ASSETS, END OF THE YEAR                     116            357            8
                                                                 ----------     ----------    ---------

Excess of obligation over plan assets                                  (172)             -            -
Unrecognized actuarial loss                                             102              -            -
   Unrecognized transitional obligation                                   9              -            -
                                                                 ----------     ----------    ---------
         ACCRUED BENEFIT                                         Rs.    (61)             -    US$     -
                                                                 ==========     ==========    =========
</TABLE>

                                      F-25

<PAGE>

                  Net gratuity cost for the years ended March 31, 2001, 2002 and
         2003 comprises the following components:

<TABLE>
<CAPTION>
                                                                 YEARS ENDED MARCH 31,
                                                 ------------------------------------------------------
                                                    2001            2002           2003         2003
                                                 -----------     ----------     ---------     ---------
                                                                       (IN MILLIONS)
<S>                                              <C>             <C>            <C>           <C>
Service cost                                     Rs.       8     Rs.     16     Rs.     21    US$     -
Interest cost                                             16             23             27            1
Net transitional liability recognized                      -             13              -            -
Net actuarial loss recognized                              -            105             31            1
Amortization of unrecognized transitional                  5              -              -            -
obligation

Actual investment return                                 (10)           (11)           (27)          (1)
                                                 -----------     ----------     ----------    ---------
NET GRATUITY COST                                Rs.      19     Rs.    146     Rs.     52    US$     1
                                                 ===========     ==========     ==========    =========
</TABLE>

                  The assumptions used in accounting for the gratuity plan for
         the years ended March 31, 2001, 2002 and 2003 are set out below:

<TABLE>
<CAPTION>
                                                                          YEARS ENDED MARCH 31,
                                                                 --------------------------------------
                                                                    2001           2002         2003
                                                                 ----------     ----------    ---------
                                                                                   (%)
<S>                                                              <C>            <C>           <C>
Discount rate                                                          10.5           10.0          9.5
Rate of increase in compensation levels of covered employees            6.0            6.0          5.0
Rate of return on plan assets                                           9.5            9.5          9.5
</TABLE>

         LEAVE ENCASHMENT

                  The Company provided Rs.28 million, Rs.120 million and Rs. 110
         million for leave encashment for the years ended March 31, 2001, 2002
         and 2003, respectively.

         PENSION

                  Pension contributions comprise the Company' share of
         contribution relating to the OCS employees who were transferred to VSNL
         in the financial year ended March 31. 1990. The gross pension
         obligation as at March 1, 2003 is Rs. 290 million of which the
         Company's share amounted to Rs. 45 million.

         PROVIDENT FUND

                  The Company contributed Rs.75 million, Rs.69 million and Rs.70
         Million to the provident fund for the years ended March 31, 2001, 2002
         and 2003, respectively.

22. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

                  The carrying amounts for cash, cash equivalents, short-term
         investments, investments available for sale, accounts receivable, short
         term borrowings, trade payables and other liabilities approximate their
         fair values due to the short maturity period of these instruments.

23. COMMITMENTS AND CONTINGENCIES

                  Commitments and contingencies are as follows:

                                      F-26

<PAGE>

         CAPITAL COMMITMENTS

                  Capital commitments represent expenditure, principally
         relating to the construction of new buildings, submarine cables and
         expansion of transmission equipment, which had been committed under
         contractual arrangements with the majority of payments due within a
         one-year period. The amount of these commitments totalled Rs.2,133
         million as of March 31, 2003. In accordance with the shareholders'
         agreement with Tata Teleservices Limited, an affiliate, the Company has
         an obligation to contribute additional capital of Rs.5,554 million by
         March 31, 2009. In accordance with the shareholders' agreement of
         United Telecom Limited, an affiliate, the Company has an obligation to
         contribute additional capital of Rs.133 million.

         CONTINGENCIES

                  INCOME TAX MATTERS

                  Significant claims by the revenue authorities in respect of
         income tax matters are in respect of:

     (a) expenditure on license fees for the Assessment Year 1995-96 disallowed
     by the revenue authorities. The Company's appeal was allowed at the
     Tribunal stage, and the matter is now pending before the High Court. An
     appeal on similar grounds for the Assessment Year 1994-95 is pending before
     the Commissioner of Income Tax (Appeals). The Company has obtained
     favorable decisions in other assessment years, which have not been
     contested by the revenue authorities, and the Company is of the view that
     the claims will eventually be decided in its favor. Tax expense and
     interest on the license fee disallowed amounts to Rs. 3,680 million.

     (b) deductions claimed under Section 80 IA of the Income Tax Act from
     Assessment years 1996-97 onwards have been disallowed by the revenue
     authorities. The Company has contested the disallowance and has preferred
     appeals. Tax expense and interest on disallowance of the deduction amounts
     to Rs. 2,950 million.

     (c) reimbursement by DoT of income tax paid by the Company on the DoT levy
     during 1994-95, that was taxed by the revenue authorities. The Company is
     in appeal. Tax expense and interest on the re-imbursement amounts to Rs.
     2,250 million.

                  OTHER CONTINGENCIES

                  The Company is involved in lawsuits, claims, investigations
         and proceedings, which arise in the normal course of business. There
         are no such matters pending that the Company expects to be material in
         relation to the business.

24. RELATED PARTY TRANSACTIONS

                  The Company's principal related parties consist of its
         principal shareholders, government departments, government owned or
         controlled companies and affiliates of the Company. The Company
         routinely enters into transactions with its related parties, such as
         providing telecommunication services, paying license fees and
         subletting premises. Transactions with DoT and BSNL/MTNL are subject to
         the revenue sharing agreement discussed in Note 1(d).

                  Other related party transactions and balances are immaterial
         individually and in the aggregate.

                  The Company grants loans to employees for acquiring assets
         such as computers and vehicles and for purchase of equity shares of the
         Company. The annual rate of interest at which the loans have been made
         to employees is at 4%. The loans are secured by assets acquired by the
         employees. As of March 31, 2002 and 2003, amounts receivable from
         employees aggregated to Rs.301 million and Rs. 260 million,
         respectively, are included in trade and other receivables. Interest
         free short term advances made to employees aggregated to Rs.8 million
         and Rs.11 million as of March 31, 2002 and 2003, respectively.

                                      F-27

<PAGE>

                  The Company also grants interest subsidy in excess of 4% of
         the interest rate for loans taken by the employees for purchase of
         property. The cost of interest subsidy of Rs.9 million, Rs.11 million
         and Rs.20 million for the years ended March 31, 2001, 2002 and 2003,
         respectively, is included in staff costs.

25. SEGMENT INFORMATION

                  The Company has three operating segments, comprising
         international telephony, Internet and leased line services. Operating
         segments other than the international telephony segment do not meet the
         quantitative thresholds specified by SFAS No. 131, Disclosures about
         Segments of an Enterprise and Related Information, and do not qualify
         as reportable segments. Information about these segments has been
         aggregated and reported in the "Others" category.

                  The Company's chief operating decision maker utilizes revenue
         information in assessing performance and making overall operating
         decisions and resource allocation. Communication services are provided
         utilizing the Company's assets, which generally do not make a
         distinction between the types of services. As a result, the Company
         cannot, and does not, allocate expenses relating to assets or asset
         costs by segment.

                  Summarized segment information for the years ended March 31,
         2001, 2002 and 2003 is as follows:

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                        ---------------------------------------------------------------------------------------------------------
                                    2001                         2002                                 2003
                        --------------------------   --------------------------   -----------------------------------------------
                        INTERNATIONAL                INTERNATIONAL                INTERNATIONAL
                          TELEPHONY       OTHERS       TELEPHONY       OTHERS       TELEPHONY                 OTHERS
                        -------------   ----------   -------------   ----------   -------------   --------   ---------   --------
                                                                  (IN MILLIONS)
<S>                     <C>             <C>          <C>             <C>          <C>             <C>        <C>         <C>
Traffic revenues        Rs.    65,019   Rs.  6,897   Rs.    57,656   Rs.  7,394   Rs.    36,799   US$  774   Rs. 8,542   US$  180
Income from satellite
consortia                           -        1,160               -            -               -                      -
                        -------------   ----------   -------------   ----------   -------------   --------   ---------   --------
OPERATING REVENUE              65,019        8,057          57,656        7,394          36,799        774       8,542        180
Network and
transmission costs             41,861        3,289          33,858        5,719          24,200        509       1,844         39
License fee                     5,022            -           5,393            -           2,707         60         850         18
                        -------------   ----------   -------------   ----------   -------------   --------   ---------   --------
SEGMENT OPERATING
PROFIT                         18,136        4,768          18,405        1,675           9,892        208       5,848        123
                        =============   ==========   =============   ==========   =============   ========   =========   ========

TOTAL SEGMENT
OPERATING PROFIT                            22,904                       20,080                                 15,740        331
Less: Unallocable
operating costs                              4,752                        6,701                                  6,556        138
OPERATING PROFIT, AS
REPORTED                                Rs. 18,152                   Rs. 13,379                              Rs. 9,184   US$  193
</TABLE>

                  Unallocable operating costs include staff cost, energy cost,
         depreciation and other general administrative overheads, which are not
         allocable and have not been allocated segment-wise.

                  The Company renders international telephony and value added
         services and derives its revenue from administrations in the following
         geographical locations:

                                      F-28

<PAGE>

<TABLE>
<CAPTION>
                                                         YEARS ENDED MARCH 31,
                                    2001            2002           2003          2003         2003
                                 -----------     ----------     ---------      --------     --------
                                                   (IN MILLIONS, EXCEPT PERCENTAGES)
<S>                              <C>             <C>            <C>            <C>          <C>
India                            Rs.  18,346     Rs. 23,527     Rs. 16,912     US$  356           37%
United States of America              23,297         19,436         10,774          227           24

United Arab Emirates                   7,222          6,720          5,468          115           12
Saudi Arabia                           4,185          3,802          3,199           67            7
Rest of the world                     18,866         11,565          8,988          189           20
                                 -----------     ----------     ----------     --------     --------
TOTAL                            Rs.  71,916     Rs. 65,050     Rs. 45,341     US$  954          100%
                                 ===========     ==========     ==========     ========     ========
</TABLE>

Revenues from major customers are as follows:

<TABLE>
<CAPTION>
                                                         YEARS ENDED MARCH 31,
                                 -------------------------------------------------------------------
                                    2001            2002           2003          2003         2003
                                 -----------     ----------     ---------      --------     --------
                                                   (IN MILLIONS, EXCEPT PERCENTAGES)
<S>                              <C>             <C>            <C>            <C>          <C>
Domestic Carriers                Rs.  18,346     Rs. 23,527         11,504          242           25%
MCI WorldCom                          10,916          9,513          5,588          118           13
Concert AT&T                           9,639          6,987          3,854           81            8
Etisalat                               7,222          6,720          5,599          118           12
Others                                25,793         18,303         18,796          395           42
                                 -----------     ----------     ----------     --------     --------
TOTAL                            Rs.  71,916     Rs. 65,050     Rs. 45,341     US$  954        100.0%
                                 ===========     ==========     ==========     ========     ========
</TABLE>

                  Concentrations of credit risk exist when changes in economic,
         industry or geographic factors similarly affect groups of counter
         parties whose aggregate credit exposure is material in relation to the
         Company's total credit exposure.

                  The balances due from major customers are as follows:

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                    2002           2003          2003         2003
                                                 ----------     ----------     --------     --------
                                                            (IN MILLIONS, EXCEPT PERCENTAGES)
<S>                                              <C>            <C>            <C>          <C>
MCI WorldCom                                     Rs.  5,612            493           10            6%
Concert AT&T                                          1,668            740           16            9
United Arab Emirates                                  2,366          1,015           21           13
Saudi Arabia                                          1,659          1,444           30           19
Others                                                3,603          4,185           88           53
                                                 ----------     ----------     --------     --------
TOTAL                                            Rs. 14,908     Rs.  7,877     US$  165          100%
                                                 ==========     ==========     ========     ========
</TABLE>

                  All revenues earned by the Company are from its operations in
         India. Substantially all of the Company's property, plant and equipment
         are located in India.

26. POST BALANCE SHEET EVENTS

         a) Interest Income

                  In April 2003, further income tax refunds have been received
         including interest amounting to Rs.490 million.

                                      F-29

<PAGE>

         b) Dividends

                  On May 29, 2003, the board of directors of the Company
         declared dividend of Rs.8.50 per equity share aggregating to Rs.2,423
         million which is subject to approval by the shareholders at the ensuing
         annual general meeting. Dividend tax amounting to Rs. 310 million would
         be payable on the dividend distributed and charged to the statement of
         income for the year ending March 31, 2004.


                                      F-30
<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number                               Description
--------------------------------------------------------------------------------
<S>      <C>
1.1*     Certificate of Incorporation of Videsh Sanchar Nigam Limited, dated
         March 19, 1986 and as currently in effect.

1.2****  Articles of Association of Videsh Sanchar Nigam Limited, dated August
         20, 2002 and as currently in effect.

1.3****  Memorandum of Association of Videsh Sanchar Nigam Limited, dated August
         20, 2002 and as currently in effect.

1.4*     Certificate for Commencement of Business, dated March 21, 1986 and as
         currently in effect.

1.5*     Specimen Certificate for Equity Shares of Videsh Sanchar Nigam Limited.

2.1*     Form of Deposit Agreement, among Videsh Sanchar Nigam Limited, The Bank
         of New York, as Depositary and owners and beneficial owners of American
         Depositary Receipts issued thereunder (including as an exhibit, the
         form of American Depositary Receipt).

2.2**    Amendment No. 1 to Deposit Agreement, among Videsh Sanchar Nigam
         Limited, The Bank of New York, as Depositary and owners and beneficial
         owners of American Depositary Receipts issued thereunder (including as
         an exhibit the form of American Depositary Receipt).

2.3***   Shareholders' Agreement among the President of India, Panatone Finvest
         Limited, Tata Sons Limited, Tata Power Company Limited, Tata Iron and
         Steel Company Limited, and Tata Industries Limited, dated 13 February
         2002.

2.4***   Share Purchase Agreement among the Government of India, Panatone
         Finvest Limited, Tata Sons Limited, Tata Power Company Limited, Tata
         Iron and Steel Company Limited, and Tata Industries Limited and the
         Company dated 6 February 2002.

4.1+     Interconnect Agreement between Videsh Sanchar Nigam Limited and Bharat
         Sanchar Nigam Limited, dated May 8, 2003.

4.2+     Interconnect Agreement between Videsh Sanchar Nigam Limited and
         Mahanagar Telephone Nigam Limited, dated May 27, 2003.

4.3+     Memorandum of Agreement regarding Settlement Rates of International
         Telecommunication Services between Videsh Sanchar Nigam Limited and
         AT&T Corp., dated June 10, 2003.

4.4+     Memorandum of Agreement regarding Settlement Rates between Videsh
         Sanchar Nigam Limited and MCI International Inc., dated August 28,
         2003.

4.5+     Agreement regarding Settlement Rates between Videsh Sanchar Nigam
         Limited and Emirates Telecommunication Corporation, dated June 24,
         2003.

4.6+     Agreement regarding Settlement Rates between Videsh Sanchar Nigam
         Limited and Oman Telecommunications Company, dated June 2, 2003.

4.7+     Agreement regarding Settlement Rates between Videsh Sanchar Nigam
         Limited and Saudi Telecom, dated July 8, 2003.

4.8****  License Agreement for national long distance services between the
         President of India and the Company, dated February 8, 2002.

4.9****  License Agreement for Provision of Internet Service (Including Internet
         Telephony) between the President of India and the Company, dated May 3,
         2002.
</TABLE>

<PAGE>

<TABLE>
<S>      <C>
10.3*    License granted under the Indian Telegraph Act, 1885 to Videsh Sanchar
         Nigam Limited, dated January 22, 1999 by the Department of
         Telecommunications.

10.4**   Letter from the Ministry of Communications, Department of
         Telecommunications regarding termination of the monopoly granted to
         Videsh Sanchar Nigam Limited, dated September 7, 2000.

12.1     Certification of Principal Executive Officer pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002.

12.2     Certification of Principal Financial Officer pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002.

13.1     Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
         Section 906 of the Sarbanes-Oxley Act of 2002.
</TABLE>

+ Registrant has requested confidential treatment pursuant to Rule 406 for a
portion of the referenced exhibit and has separately filed such exhibit with the
Commission.

* Previously filed as an exhibit to the Company's Annual Statement on Form 20-F
(Registration Statement No. 001-15118) filed with the Commission on October 13,
2000 and incorporated herein by reference.

** Previously filed as an exhibit to the Company's Annual Statement on Form 20-F
(Registration No. 001-15118) filed with the Commission on October 1, 2001 and
incorporated herein by reference.

*** Previously filed as an exhibit to the Schedule 13D filed on February 15,
2002, by Panatone Finvest Limited and Tata Sons Limited relating to the purchase
of shares of the Company.

**** Previously filed as an exhibit to the Company's Annual Statement on Form
20-F (Registration No. 001-15118) filed with the Commission on September 27,
2002 and incorporated herein by reference.