AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
                                 OCTOBER 1, 2001

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 20-F

                                   (Mark One)

[   ]     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, 2001

                                       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 000-30772

                          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
                                 +91-22 262 4020
                    (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               New York Stock Exchange
   Rs.10 per share

                    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.

83,133,086 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

Certain Defined Terms..........................................................2
Currency of Presentation.......................................................2
Exchange Rates    .............................................................2
Cautionary Statement with Respect to Forward-Looking Statements ...............2

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..................................17
     Item 5.      Operating and Financial Review and Prospects................46
     Item 6.      Directors, Senior Management and Employees..................60
     Item 7.      Major Shareholders and Related Party Transactions...........65
     Item 8.      Financial Information:Consolidated Financial Information....66
     Item 9.      The Offer and Listing.......................................67
     Item 10.     Additional Information......................................71
     Item 11.     Quantitative and Qualitative Disclosures About Market Risks.93
     Item 12.     Description of Securities Other Than Equity Securities......93

Part II.......................................................................93

     Item 13.     Defaults, Dividend Arrearages and Delinquencies.............93
     Item 14.     Material Modifications to the Rights of Security Holders
                    and Use of Proceeds.......................................93
     Item 15.     Reserved....................................................93
     Item 16.     Reserved....................................................93

Part III......................................................................93

     Item 17.     Financial Statements........................................93
     Item 18.     Financial Statements........................................93
     Item 19.     Exhibits....................................................94

Signatures....................................................................95


<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  have been  transferred to Bharat Sanchar
Nigam Limited, sometimes referred to herein as "BSNL", a company wholly owned by
the Government.

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.46.85 per $1.00 on March 30, 2001 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."

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. 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.


                                       2
<PAGE>
                                     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  information  should be read in  conjunction  with and is
qualified in its entirety by reference to the audited  financial  statements  of
the Company,  including the Notes thereto,  also included in this annual report.
The information  should also be read in conjunction  with "Item 5. Operating and
Financial Review and Prospects",  included  elsewhere in this annual report. The
financial  statements  comprising  the balance sheets of the Company as of March
31, 2000 and March 31, 2001 and the related statements of income, cash flows and
shareholders' equity for the years ended March 31, 1999, 2000 and 2001 have been
audited by Deloitte Haskins & Sells, independent accountants, in accordance with
US GAAP. The data derived from these financial statements,  along with the Notes
thereto,  and included in this annual report,  are prepared in Indian Rupees and
presented in accordance  with US GAAP.  Financial  statements for the year ended
March 31, 2001, along with the Notes thereto,  also have been translated into US
Dollars for your convenience.

         Balance sheets for the Company as of March 31, 1997,  1998 and 1999 and
the related  statements of income,  cash flows and shareholders'  equity for the
years ended March 31, 1997 and 1998 were prepared under International Accounting
Standards.  It is not practicable,  without  unreasonable  effort or expense, to
convert the data for these years from International  Accounting  Standards to US
GAAP.

         The Company has no subsidiaries.


                                       3
<PAGE>

<TABLE>
<CAPTION>
                                                           Years ended March 31,
                                             --------------------------------------------------
                                                   1999             2000             2001             2001
                                             ---------------- ---------------- ---------------- ----------------
                                                                                                  millions of
                                                           millions of Rupees(1)                     US$(1)
                                             -------------------------------------------------- ----------------
<S>                                               <C>              <C>              <C>               <C>
Income Statement Data(6)
Total operating revenue                           67,938           70,377           73,076            1,560
Total cost of revenue                             49,296           50,333           50,172            1,071
Gross Margin                                      18,642           20,044           22,904              489
Total other operating costs                        2,894            4,156            4,752              102
                                                  ------           ------           ------            -----
Operating profit                                  15,748           15,888           18,152              387
Total other income (expense), net                   (746)           3,443            7,021              150
                                                  -------          ------           ------              ---
Income before income tax                          15,002           19,331           25,173              537
Income tax expense                                (6,298)          (6,156)          (9,646)            (206)
Dividend tax                                         (38)             (84)            (105)              (2)
                                                ---------         --------          -------            -----
Net income                                         8,666           13,091           15,422              329
                                                   =====           ======           ======             ====
Earnings per equity share - basic and
diluted (2)&(5)                                  Rs.30.41         Rs.45.93         Rs.54.11         US$1.15
Weighted average number of Equity Shares
  outstanding(3)                                     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        US$2.30
Dividends per share                                 Rs.4             Rs.8             Rs.8          US$0.17

Other Financial Data(6)
Net cash provided by operating activities          6,679            7,947           23,121              493
Net cash used by investing activities(4)          (6,601)          (3,898)         (41,416)            (884)
Dividends                                           (380)            (760)            (760)             (16)
Net cash used by financing activities             (1,916)            (740)            (806)             (17)


Balance Sheet Data(6)                                                  As at March 31

                                                                     2000             2001             2001
                                                                   --------         --------         ------
Total assets                                                       83,211          100,425            2,144

Trade payables                                                     13,535           11,309              242
Accrued expenses and other liabilities                              6,365           10,731              229
                                                                   ------           ------             ----
Total liabilities                                                  19,900           22,040              471

Total shareholders' equity                                         63,311           78,385            1,673
</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)  Comprise  purchases  of  property,  plant and  equipment,  capital  work in
     progress  and  expenditure  on  investments,  including net investments  in
     various satellite consortia.
(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 of record as of 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,  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. In 1996, the Ministry of Finance adopted non-binding guidelines regarding
the payment of dividends by "public sector undertakings" ("PSUs"), including the


                                       4
<PAGE>

Company.  According to such guidelines,  profit-making PSUs which are commercial
enterprises  should generally  declare a minimum dividend each fiscal year of 20
percent of the higher of paid-up  share  capital as of year-end and profit after
tax for such year. These guidelines have not been complied with by a substantial
number of PSUs,  including  the Company.  The Ministry of Finance has  requested
that PSUs that have not complied with the  guidelines  for the fiscal year ended
March 31, 1996  declare an interim  dividend for the year ending March 31, 1997,
and 1998,  which would be adjusted  against the final dividend  payable for such
year. The Company has requested the Department of  Telecommunications  to inform
the Ministry of Finance that the Company prefers to retain its earnings  instead
of  paying  substantial  dividends  in  accordance  with  such  request  or  the
guidelines, since the former serves to enhance shareholder value in the Company.

         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" or  "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 Shares issued by the Company during a particular fiscal
year,  dividends  declared  and paid  for such  fiscal  year  generally  will be
prorated  from the date of issuance to the end of such fiscal  year.  Holders of
ADRs will 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 Share for
each of the fiscal years indicated.

                                                         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)
                          -------------  ------       -------------   ------
2001                          50.00        1.04           50.00        1.04
2000                          8.00         0.17            2.67        0.06
1999                          8.00         0.18            2.67        0.06
1998                          4.50         0.09            1.33        0.03
1997                          3.50         0.10            1.16        0.33

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

(1)      Dividends are payable pro rata from the date of allotment. Based on the
         recommendation of the Board of Directors at a Shareholders meeting held
         on September 27, 2001,  the  shareholders  approved a dividend of Rs.50
         per share for fiscal year 2001,  payable  October 2001 to  shareholders
         registered as shareholders of the Company on September 16, 2001.

(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 2001, the figure in the chart is based on
         the Noon  Buying  Rate for  September  27,  2001.  However,  the actual
         dividends  paid per share will be based on the Noon  Buying Rate 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.

         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  Depositary  of any cash  dividends  paid in Indian Rupees on the
Company's Equity Shares represented by the ADSs.


                                       5
<PAGE>

         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.

FISCAL YEAR ENDED MARCH 31,      PERIOD END    AVERAGE       HIGH         LOW
---------------------------      ----------    -------       ----         ---

1996 (From January 1, 1996)       Rs.34.35    Rs.33.47   Rs.36.46     Rs.31.41
1997                                 35.88       35.70      35.95        35.00
1998                                 39.53       37.36      39.55        35.72
1999                                 42.50       42.27      42.83        39.75
2000                                 43.65       43.46      43.65        42.84
2001                                 46.85       45.88      46.90        43.70

         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.

MONTH                                HIGH                      LOW
-----                                ----                      ---
March 2001                        Rs.46.85                  Rs.46.53
April 2001                           47.07                     46.58
May 2001                             47.06                     46.83
June 2001                            47.40                     47.00
July 2001                            47.21                     47.11
August 2001                          47.19                     47.11

         CAPITALIZATION AND INDEBTEDNESS

         Not applicable.

         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 NEW  TELECOMMUNICATIONS  POLICY AND OTHER  REGULATORY  CHANGES WITH
RESPECT TO THE TELECOMMUNICATIONS  INDUSTRY COULD HAVE THE EFFECT OF EXPOSING US
TO INCREASED COMPETITION, THUS ADVERSELY AFFECTING OUR REVENUES AND MARKET SHARE
AND THE PRICE OF OUR EQUITY SHARES AND ADSS.

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


                                       6
<PAGE>

         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
states,  among  other  things,  that the opening up of  international  telephony
service to  competition  will be reviewed by the year 2004.  The  Department  of
Telecommunications  retains the right to modify the terms and  conditions of the
Company's license  (including its monopoly status) 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. However, in 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 is now scheduled to end on March 31, 2002. To offset the
likely loss to the Company due to the early  termination  of its  monopoly,  the
Government has announced the following compensation package:

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

               (a)  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)  Performance   Bank   Guarantee   of  Rs.4  billion  for  the
                    prescribed roll out will be waived;

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

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

         In an Extraordinary  General Meeting requisitioned by the Government of
India, the  shareholders  passed a resolution  accepting the above  compensation
package.  Prior to such 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. The Company has
been granted a Category "A" ISP license to provide  Internet access at locations
across the country.  However, the Company has not yet applied for the license to
provide domestic long distance  telephone services and there can be no assurance
that the  license  will be  granted.  No  payments  have  yet  been  made by the
Government  to the Company  towards the entry fee and license fee as the Company
has not yet paid such amounts towards domestic long distance services.

         In addition,  the Government  recently announced that private operators
were to be permitted to provide domestic long distance service and basic service
on all telecom  circles in the very near future.  The use of Internet  telephony
and voice messaging could cause a reduction in revenues realized by the Company.
While  Internet  service  providers  are  currently  prohibited  from  providing
Internet  telephony,  this  prohibition  may  be  removed  in  the  near  future
especially in view of the fact that  Internet  service  providers  have recently
been allowed to purchase capacity on long distance cable networks.

         Changes  implemented  as a result  of these  evolving  regulations  and
policies, as well as increased competition from foreign operators that enter the
Indian  market,  could  have the effect of  exposing  the  Company to  increased
competition and thus adversely affecting the Company's revenues and market share
and the price of the Shares and ADSs.

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

         Since  mid-1997,  the  economies  of a number of Asian  countries  have
experienced  significant  downturns.  Most Asian economies  currently are facing


                                       7
<PAGE>

contractions in real economic activity. For example,  several countries recorded
lower or negative Gross  Domestic  Product growth during the first six months of
2001. 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 general slowdown in regional economies and in
India has resulted in slower growth in the Company's traffic.

         Similarly,  since  approximately 39 percent of the Company's traffic is
between India and the United States,  any economic slowdown in economic activity
in the United States, particularly in the information technology-related sector,
could adversely affect the Company's business.

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 AND 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,  among  other  things,
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. During the past decade and
especially 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 which
affect all Indian companies,  including companies  controlled by the Government,
such as 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 budget and the  policies  for the fiscal year ending March 31, 2002
presented by the Government  propose the  continuation  of policies  designed to
promote economic deregulation and liberalization.

         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 and technology which
are subject to the export licensing  requirements of the US Commerce Department.
These sanctions have now been 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.

IF REGIONAL HOSTILITIES INCREASE, OUR BUSINESS COULD SUFFER AND THE PRICE OF THE
EQUITY SHARES AND THE ADSS COULD GO DOWN.

         India has from time to time  experienced  unrest  relating to religious
and political differences within India's population.  In addition,  India has in
the past been involved in hostilities  with  neighboring  countries.  There have
been  armed  conflicts  over  parts of Kashmir  involving  the  Indian  army and
infiltrators from Pakistan into Indian  territory.  India and Pakistan have been
in a heightened  state of  hostilities  with  significant  loss of life in troop
conflicts.  The hostilities  have since  substantially  abated.  The hostilities
between India and Pakistan are particularly  threatening  because both India and
Pakistan are nuclear  powers.  Although the  hostilities did not have an adverse
impact on the business of the Company, future events of this nature could affect
the Indian economy and government policy and could have an adverse effect on the
Company's operations.


                                       8
<PAGE>

FURTHER  DEVELOPMENTS  STEMMING FROM THE RECENT TERRORIST  ATTACKS IN THE UNITED
STATES COULD  ADVERSELY  AFFECT THE COMPANY'S  BUSINESS AND THE TRADING PRICE OF
THE ADSS.

         The United States  government has indicated that any military  response
to the  recent  terrorist  attacks  is  likely  to  include  military  action in
Afghanistan.  Due in part to India's  proximity to  Afghanistan,  the  Company's
business  and the  trading  price of the ADSs  could be  adversely  affected  by
military and other related activity in the region.

WE DO NOT  CONTROL  EITHER  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 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.  Growth in demand for the  Company's  international  services  will
depend,  to a significant  degree, on the development and maintenance of India's
domestic  telephone  network.  Demand for the Company's basic services also will
depend on the rates charged to end users of such  services,  which rates are not
controlled by the Company.  See "Item 4.  Information  on the Company - Industry
Overview" and "Government Regulation."

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

         The TRAI has authority,  among other things, to set the tariffs charged
by  telecommunications  service  providers  in  India,  including  the  Company.
Effective May 1999, the TRAI  implemented  the  Telecommunications  Tariff Order
1999 (the  "Tariff  Order"),  which is intended to take  account of a shift to a
more competitive environment through cost-based, transparent tariffs. The Tariff
Order  envisages  reductions  of up to 50  percent  in peak  international  call
tariffs,  phased over three years ending  March 31,  2002.  In response to these
changes,  the  Department  of  Telecommunications  has issued its tariff  orders
effective from May 1999 pursuant to which  international  long distance  tariffs
have been  reduced  by  approximately  27  percent  and  further  tariff  orders
effective from October 1, 2000. The Tariff Order implements  similar  reductions
for domestic long distance charges.  In addition,  the Tariff Order sets maximum
tariffs for other services provided by the Company,  including Internet services
and leased lines. The Company's current revenue sharing  arrangement with Bharat
Sanchar Nigam Limited will remain in force until March 31, 2002. The arrangement
beyond that date will have to be  negotiated  and  finalized.  As per the Policy
(NTP-99),   the  revised  tariff  to  become   effective  from  April  2002  for
international telephony is yet to be notified by TRAI. Effective April 2002, the
international long distance sector is scheduled to be opened up for competition.
However,  TRAI has  floated a  consultation  paper  titled  "International  Long
Distance Services" on September 3, 2001. Therefore, the Company anticipates that
the policy will be announced only after the  consultation  process is completed.
There can be no assurance that the new tariff regime or an unfavorable  revision
of the current revenue  sharing  arrangement  would not have a material  adverse
effect on the Company's results of operations and financial condition.

ANY UNFAVORABLE  REVISIONS OF THE TERMS OF OUR REVENUE SHARING  ARRANGEMENT WITH
BHARAT  SANCHAR NIGAM LIMITED COULD  ADVERSELY  AFFECT OUR RESULTS OF OPERATIONS
AND FINANCIAL  CONDITION AND THEREFORE THE PRICE OF OUR SHARES AND ADSS COULD GO
DOWN.

         Pursuant to the terms of a revenue sharing arrangement, the Company and
Bharat Sanchar Nigam Limited share revenue  received by the Company from foreign
telecommunications  administrations and carriers on incoming international calls
terminating on India's  domestic  network and revenue received by Bharat Sanchar
Nigam Limited from Indian domestic  subscribers on outgoing  international calls
initiated on such network.  Payments received by the Company from Bharat Sanchar
Nigam Limited under such revenue sharing arrangement have historically accounted
for a substantial portion of the Company's revenue.  The current revenue sharing
arrangement  between the Company and Bharat  Sanchar  Nigam  Limited  covers the
period from April 1, 1997 to March 31, 2002. The current arrangement resulted in
average  gross  profit to the  Company of Rs.9.39  per call minute in the fiscal
year ended March 31, 2001.  In the fiscal years ending March 31, 2000,  2001 and
2002, however, the Company has been and will continue to be required


                                       9
<PAGE>

under the current  arrangement to absorb an increasing portion of any decline in
the combined  international  traffic  revenue per call minute of the Company and
Bharat   Sanchar   Nigam  Limited  (net  payments  by  the  Company  to  foreign
administrations and carriers and by the Company and Bharat Sanchar Nigam Limited
to each other in respect of delivery of incoming and outgoing calls) compared to
the fiscal year ending March 31, 1997. See "Item 4. Information on the Company -
Traffic Revenue and Revenue Sharing  Arrangement--Revenue  Sharing Arrangement."
The  arrangement  beyond  that date will have to be  negotiated  and  finalized.
Effective April 2002, the international  long distance sector is scheduled to be
opened  up for  competition.  There  can be no  assurance  that  an  unfavorable
revision  of the terms of the  revenue  sharing  arrangement  or any  subsequent
arrangement  agreed  between the Company and Bharat  Sanchar  Nigam Limited upon
expiration of the current  arrangement will not be less favorable to the Company
than the current arrangement and will not adversely affect the Company's results
of operations and financial condition.

WE ARE SUBJECT TO EXTENSIVE  REGULATION  AND  SUPERVISION  BY THE GOVERNMENT AND
THIS COULD PREVENT US FROM OPERATING OUR BUSINESS OR 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
Department  of  Telecommunications  and the TRAI.  Major  policy and  management
decisions   by  the  Company   require  the  approval  of  the   Department   of
Telecommunications   or  the   Telecom   Commission   under  the   Ministry   of
Communications  of the  Government of India.  As noted above,  the TRAI sets the
tariffs for telecommunication services. In addition, so long as the Government's
shareholding in the Company equals or exceeds 51 percent,  the Company is deemed
to be an  Indian  Government  company  and is  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,  as well as
budgeting  and capital  expenditures  and the  generation  of funds  through the
issuance of  securities.  See "Item 4.  Information  on the Company - Government
Regulations."

         Under  current   Government   policy,   disputes   between   Government
enterprises (such as the Company) and Government departments must be referred to
a Committee  of  Secretaries  of the  Government  before any legal action may be
commenced.  The policy would apply, for example, to disputes between the Company
and the Department of  Telecommunications  with respect to interpretation of the
Company's license and its revenue sharing  arrangement with Bharat Sanchar Nigam
Limited.  Although  the  Company  may  bring a claim in a court of law or to the
Telecom Disputes Settlement and Appellate Tribunal (the "TDSAT"), which has been
set up to adjudicate  disputes,  disposal of appeals and to protect the interest
of  telecommunication  service providers and consumers.  If the referral to such
committee does not result in a resolution of the dispute,  it is likely that any
decision by the Company to bring such claim would require  approval of its Board
of Directors,  which,  as discussed  below,  is controlled by the  Government of
India  acting  through  the  Department  of  Telecommunications.  The  Company's
Internet license  provides that disputes  relating to the terms of the Company's
Internet  license  are  required  to be  submitted  for  compulsory  and binding
arbitration before the Government's Director General of Telecommunications.

         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.  Differences  between government  departments and/or
public sector  entities such as the  Department  of  Telecommunications,  Bharat
Sanchar  Nigam  Limited,  Mahanagar  Telephone  Nigam  Limited and the  Company,
however, will continue to be referred initially to a Committee of Secretaries of
the  Government  for  mediation  as  discussed  above,  prior to referral to the
Telecom Disputes Settlement and Appellate Tribunal . See "Item 4. Information on
the Company - Government Regulations."

REGULATORY  CLARIFICATIONS  AWAITED FROM THE DOT / TRAI MAY DELAY  COMPLETION OF
THE DISINVESTMENT PROCESS.

         The Government proposes to sell from its holding,  shares equivalent to
25 percent of the outstanding equity of the Company to a strategic partner along
with  the  right  to  management.  The  Government  proposes  to  simultaneously
disinvest  1.97 percent to the  employees of the Company.  On  completion of the
proposed  disinvestment,  certain  procedures and regulations that are currently
applicable to a Government  company will no longer be applicable.  Any delays by


                                       10
<PAGE>

DOT or TRAI in clarifying any aspect of the regulatory  regime applicable to the
Company  could  adversely  affect  the  timing for  completion  of the  proposed
disinvestment by the Government.

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

         The Company  operates  substantially  all of the  services it provides,
including basic international  telephony services to and from India, pursuant to
the License from the DOT that has been  extended  until March 31, 2004.  The DOT
retains the right,  however, to modify the terms and conditions of the Company's
License at any time if in its opinion it is  necessary  or expedient to do so in
the  interest  of  the  general  public  or  for  the  proper  operation  of the
telecommunication  sector. A change in certain significant terms of the License,
such  as  its  duration,  the  range  of  services  permitted  or the  scope  of
exclusivity,  could have a material adverse effect on the Company's business and
prospects. See "Item 4. Information on the Company - Government Regulations."

THE  GOVERNMENT  CONTROLS THE COMPANY AND MAY HAVE  INTERESTS THAT CONFLICT WITH
THOSE OF THE COMPANY'S  OTHER  SHAREHOLDERS  OR HOLDERS OF THE  COMPANY'S  ADSS,
INCLUDING  IN AREAS IN WHICH THE  COMPANY  MAY  COMPETE  WITH  OTHER  GOVERNMENT
COMPANIES.

         As of the date hereof,  approximately  52.97 percent of the outstanding
Shares of the Company are held by the  Government  of India.  Consequently,  the
Government,  acting  through  DOT,  controls  the  Company  and has the power to
approve the  appointment  of its  directors and to determine the outcome of most
actions  requiring the approval of the Board of Directors or shareholders of the
Company's  business  (including  in areas in which the Company may compete  with
Bharat Sanchar Nigam Limited), transactions with Bharat Sanchar Nigam Limited or
the assertion of claims against Bharat Sanchar Nigam Limited. In addition, under
the Company's Articles of Association,  the President of India, on behalf of the
Government  of India,  may issue  directives  with respect to the conduct of the
business  and affairs of the  Company,  and certain  matters with respect to the
Company's business,  including the appointment and remuneration of the Company's
Chairman and Managing  Director and the  declaration of dividends,  are reserved
for the decision of the  President of India.  The Company may not take action in
respect of any matter  reserved for the President of India without his approval.
See "Item 10. Additional Information."

SIGNIFICANT  GOVERNMENT  DISINVESTMENT  COULD  RESULT  IN A CHANGE IN THE WAY IN
WHICH WE DO  BUSINESS  AND THE PRICE OF THE EQUITY  SHARES AND THE ADSS COULD GO
DOWN.

         The  Government  currently  holds  approximately  52.97  percent of the
outstanding Shares of the Company and the Government,  therefore,  has the power
to control  the  Company.  However,  the  Government  proposes  to sell from its
holding,  shares  equivalent  to 25  percent  of the  outstanding  equity of the
Company  to a  strategic  partner  along  with  the  right  to  management.  The
Government  proposes to  simultaneously  divest 1.97 percent of the  outstanding
equity of the  Company to its  employees.  It has been  widely  reported  in the
Indian  press that the  Government  has  decided to complete  the  disinvestment
process  by the end of  fiscal  year  2002.  In the  event  that the  Government
divests,  the way in which the Company does business  could change and the price
of the  Shares and the ADSs could go down.  There can be no  assurance  that the
Company will not issue, or that the Government  will not dispose of,  additional
Shares or related securities.

IF THE  DISINVESTMENT  PROCESS IS COMPLETED,  THE COMPANY MAY BE REQUIRED TO PAY
ROYALTIES AND OTHER FEES WHICH AROSE IN PRIOR PERIODS.

         To  date,  the  Company  has  not  had to pay  the  Government  certain
royalties and other fees which arose in prior periods. There can be no assurance
that the  Company  will not be  required  to make such  payments  in the future,
particularly if the Company is no longer majority-controlled by the Government.


                                       11
<PAGE>

IF THE DISINVESTMENT PROCESS IS COMPLETED, THE COMPANY MAY BE ADVERSELY AFFECTED
BY PROBLEMS ASSOCIATED WITH A CHANGE IN MANAGEMENT CONTROL OF THE COMPANY.

         The Government has stated that the disinvestment  process is to include
a change in control of  management  of the Company  from the  Government  to the
winning  bidder.  As is the case with other  privatizations,  the  challenges of
transferring  control  to the  private  sector  may be  magnified  by  different
corporate  cultures,  different  reporting  systems and  processes and different
operating  processes.  In addition,  the Company could be adversely  affected by
labor issues and compliance  issues arising from the  privatization  process and
the obligations assumed by the winning bidder.

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 OPERATIONS.

         The Indian tax authorities  have taken the position that the Company is
not  entitled  to a tax  deduction  it took in the year ended March 31, 1995 for
license  fees paid by it to the DOT. The Indian tax  authorities  claim that the
Company owes  approximately  Rs.2.8  billion,  Rs.2.4  billion,  Rs.2.5 billion,
Rs.3.0 billion and Rs.2.6  billion in respect of taxes due (including  interest,
but excluding penalties) in connection with the license fees for the years ended
March 31, 1994, 1995, 1996, 1997 and 1998,  respectively.  Tax refunds otherwise
due to the Company for  subsequent  years,  amounting to  approximately  Rs.6.46
billion,  have been applied by the Indian income tax authorities to a portion of
this  disputed  claim.  In  addition,  the Company has paid the tax  authorities
Rs.3.6  billion  with respect to this claim.  However,  the  outstanding  amount
continues  to accrue  interest at a rate of two  percent per month.  The Company
disputed  this claim and lodged an appeal with the  Commissioner  of  Income-tax
(Appeals) - I, Mumbai for each of the relevant years.  The Company  subsequently
appealed to the Income-tax  Appellate  Tribunal,  Mumbai as the  Commissioner of
Income-tax  (Appeals) - I. Mumbai denied the Company's claim with respect to the
year ended March 31, 1995. The appeals with respect to the other years are still
pending with the Commissioner of Income-tax  (Appeals) - I, Mumbai. On September
14, 2000,  the  Income-tax  Appellate  Tribunal,  Mumbai  issued an order in the
Company's  favor and held that the license fee paid by the Company to the DOT is
an allowable tax deductible  expenditure under the Income Tax Act. Consequent to
this order,  the refund due to the Company was  adjusted  against the demand due
for the subsequent years. In addition,  the Company can request the Commissioner
of Income-tax (Appeals) - I, Mumbai to expedite the orders for the other years.

         The  Income  Tax  Department  has the right to appeal  the order of the
Income Tax Appellate Tribunal in the High Court within a period of 120 days from
the date of the order.  The Company has so far not received  any  communications
from the department/High Court on whether the department has disputed this claim
of the  Company in the High  Court.  If the  Company  loses  that case,  the tax
authorities may make the Company liable for similar claims for subsequent  years
and this could  result in an  aggregate  potential  liability  of  approximately
Rs.12.4 billion (US$264.8 million) including interest,  but excluding penalties,
thereon as of March 31, 2001 and additional amounts for the periods  thereafter.
The Company has been advised by independent Indian counsel that it believes that
the Company has a strong case with respect to this claim.

         The  Indian  tax  authorities  have also  taken the  position  that the
Company is not entitled to a tax benefit  claimed by it in the years ended March
31, 1996, 1997 and 1998 with respect to certain of its profits which the Company
claims were generated by an enterprise  engaged in  infrastructure  development.
The Indian tax  authorities  claim that the Company  owes  approximately  Rs.0.1
billion,  Rs.0.3  billion and Rs.0.5  billion in respect of taxes due (including
interest)  in  connection  with such profits for the years ended March 31, 1996,
1997 and 1998,  respectively.  The Company disputes this claim and has lodged an
appeal  with  the  Commissioner  of  Income-tax   (Appeals)  -  I,  Mumbai.  The
outstanding  amount of the claim  continues to accrue  interest at a rate of two
percent per month.  If the Company loses its case, the tax  authorities may make
similar  claims  for  subsequent  years,  resulting  in an  aggregate  potential
liability  of  approximately   Rs.5.7  billion  (US$121.66   million)  including
interest,  but excluding  penalties  thereon as of March 31, 2001 and additional
amounts for periods  thereafter.  The Company  believes that it has a reasonable
basis for its claim and that its appeal will succeed.

         Furthermore,  the Indian tax  authorities  have taken the position that
the Company has not offered for tax certain  reimbursements it received from the
Government  during the year ended  March 31,  1994.  The Indian tax  authorities
claim that the Company owes approximately Rs.1.1 billion in respect of taxes due
in connection  with such  reimbursements  for the year ended March 31, 1994. The


                                       12
<PAGE>

Company  disputes this claim and has lodged an appeal with the  Commissioner  of
Income Tax (Appeals) - I, Mumbai.  The outstanding amount of the claim continues
to accrue  interest at the rate of two percent per month.  If the Company  loses
its case, the Company's  aggregate  potential  liability would be  approximately
Rs.2.7 billion  (US$57.63million)  including interest,  but excluding penalties,
thereon as of March 31,  2001.  The Company  believes  that it has a  reasonable
basis for its claim and that its appeal will succeed.

         Consequently,  the Company  has not made  provision  for the  potential
liability arising from these claims.

WE INTEND TO MAKE  SUBSTANTIAL  CAPITAL  INVESTMENTS  IN NEW  TELECOMMUNICATIONS
PROJECTS WHICH MAY BE SUBJECT TO EXECUTION RISK AND, IF NOT OFFSET BY ADDITIONAL
REVENUE, WILL ADVERSELY AFFECT OUR OPERATING RESULTS.

         The Company intends to make substantial  additional  investments in new
telecommunications projects, which require significant capital expenditures. See
"Item 5. Operating and Financial  Review and  Prospects."  Such projects  entail
engineering, construction 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,  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.  See "Item 5.
Operating  and  Financial  Review  and  Prospects  -  Financial  and  Management
Accounting and Reporting Systems." Although approval in principle for certain of
these  projects has been  received from the  Department  of  Telecommunications,
certain  technical  studies remain to be completed and actual terms have not yet
been finalized. Most of the specific projects contemplated by the Company remain
subject to further review and approval by the Board of Directors of the Company.
In addition,  some of such projects may not be possible without further approval
by the Department of Telecommunications and other agencies of the Government and
further  liberalization of or other changes to the regulatory regime.  There can
be no assurance that such approvals  will be issued or such  regulatory  changes
will be made or that such projects  will be  implemented  as currently  planned.
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.

DELAYS IN REACHING FINAL  AGREEMENT WITH OTHER MAJOR  CARRIERS  REGARDING  RATES
COULD CAUSE A  SIGNIFICANT  INCREASE IN OUR WORKING  CAPITAL 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, which continues to increase, resulting
in larger  net  settlement  payments  being  made to the  Company  from  foreign
administrations and carriers. The amounts of the settlement payments required to
be made are  determined by the accounting  rates under the Company's  agreements
with the foreign  administrations  and  carriers,  which are subject to periodic
renegotiation.

         In recent years, international  organizations such as the International
Telecommunications  Union and the OECD 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 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." Any such reduction in the accounting
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,  under  the  current  revenue  sharing
arrangement  agreed between the Company and the DOT, any such  reductions in net
settlement  payments  received  by the  Company  will  result  in  substantially
corresponding  reductions in net payments made by the Company to Bharat  Sanchar


                                       13
<PAGE>

Nigam  Limited,  although the Company has been required  indirectly to absorb an
increasing  portion of such  reductions  after the fiscal year ending  March 31,
1999.  See "Item 4.  Information  on the  Company--Traffic  Revenue  and Revenue
Sharing  Arrangement--Revenue  Sharing Arrangement." 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. There can be no
assurance that the FCC, acting pursuant to the Order,  will not seek to force US
carriers  to agree to the  benchmark  rates,  which are lower  than the rates in
effect between the Company and its correspondent US carriers.

         Substantial  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  (net of cash)  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.  See
"Item 5. Operating and Financial Review and Prospects."

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.  The
Company,  which remained wholly owned by the Government until 1992, continues 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. See
"Item  4.   Information   on  the   Company--Government   Regulations--General."
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, due to weaknesses in its financial and
management  accounting and reporting systems and procedures,  it has experienced
in the past and continues to 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 remedy the  deficiencies in its
current systems and procedures.  See "Item 5. Operating and Financial Review and
Prospects--Financial and Management Accounting and Reporting Systems."

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.


                                       14
<PAGE>

THERE IS A LIMITED MARKET FOR THE ADSS.

         Even though we have listed the ADSs on the New York Stock Exchange,  we
cannot be sure that any trading market for the ADSs will be sustained.

YOU ARE UNABLE TO WITHDRAW AND REDEPOSIT SHARES IN THE DEPOSITARY FACILITY.

         Because of certain Indian legal restrictions, the supply of ADSs may be
limited.  The only way to add to the  supply of ADSs  will be  through a primary
issuance  because the  depositary  will not be permitted  to accept  deposits of
outstanding Equity Shares and issue ADSs representing such shares. Therefore, an
investor in ADSs who  surrenders an ADS and withdraws  Equity Shares will not be
permitted  to  redeposit  his  Equity  Shares  in the  depositary  facility.  In
addition,  an investor who has purchased Equity Shares on the Indian market will
not be able to deposit  them in the ADS program.  The  inability of investors to
withdraw from and re-enter the depositary  facility  increases the risk that the
market price of the ADSs will be below that of the Shares.

         On September  24, 2001,  the last  reported sale price of the Company's
ADSs was US$7.55 per ADS on the New York Stock Exchange.

         The Shares are listed on the BSE and the other Indian stock  exchanges.
As  settlement  on such  stock  exchanges  may be  subject  to delays in certain
circumstances,  a holder of Shares  received  upon  surrender of ADSs may not be
able to settle trades on such stock exchanges in a timely manner. In addition, a
holder seeking to sell in India any Shares  received upon surrender of ADSs will
be required  to obtain  approval  from the  Reserve  Bank of India for each such
transaction. There can be no assurance that any such approval will be obtainable
in a timely  manner  or at all.  Due to  possible  delays  in  settlement  or in
obtaining  requisite  approvals,  holders of Shares  represented  by ADSs may be
prevented  from  realizing  gains with respect to such Shares during  periods of
price  increases  or from  limiting  losses with  respect to such Shares  during
periods of price declines.

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 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 of  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.


                                       15
<PAGE>

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  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.

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.

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 Indian Code of Civil Procedure 1908 (the "Code"),  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  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, 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  Regulation Act of 1973 (now 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.


                                       16
<PAGE>

ITEM 4.  INFORMATION ON THE COMPANY.

         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 through the issuance of global depositary  receipts.
Currently,  approximately  47 percent  of the  Shares of the  Company is held by
various  institutions and other private  shareholders.  The divested shares were
initially  traded on The Stock  Exchange,  Mumbai  (formerly  the  Bombay  Stock
Exchange, the "BSE") in December 1992.

         In January 2001,  the  Government  announced its intention to sell from
its holding,  shares  equivalent to 25 percent of the outstanding  equity of the
Company  to a  strategic  partner  along  with  the  right  to  management.  The
Government  proposes to  simultaneously  divest 1.97 percent of the  outstanding
equity of the  Company to its  employees.  It has been  widely  reported  in the
Indian  press that the  Government  has  decided to complete  the  disinvestment
process by the end of fiscal year 2002.

         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  (+91-22-262-4020).  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.

         The Company has no subsidiaries as of the date hereof.

         BUSINESS OVERVIEW

         The  Company  is  the  exclusive   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, 2001 operated  eight  international  switching and  transmission
facilities  ("gateways")  in  Mumbai,   Kolkata,   Delhi,  Chennai,   Ernakulam,
Gandhinagar,  Jalandhar and Kanpur which route international traffic to and from
the domestic  telecommunications  network using a  combination  of satellite and
undersea  cable  links.  The  Company  is  the  only  entity  authorized  by the
Government to provide basic international  telephony services to and from India.
The Department of  Telecommunications  retains the right, however, to modify the
terms and conditions of the Company's license (including its monopoly status) 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. In 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 is now scheduled to end on March 31,
2002. To offset the likely loss to the Company due to the early  termination  of
monopoly, the Government has announced the following compensation package:

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

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


                                       17
<PAGE>

               (b)  Performance   Bank   Guarantee   of  Rs.4  billion  for  the
                    prescribed roll out will be waived;

         (2)   The Company will be granted a Category `A' ISP license which will
               enable it to  provide  Internet  access at  locations  across the
               country; and

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

         On May 2, 2001, in an  Extraordinary  General Meeting  requisitioned by
the  Government,  the  shareholders  passed a  resolution  accepting  the  above
compensation package.  Prior to such 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.
The Company  has been  granted a Category  "A" ISP  license to provide  Internet
access at locations across the country. However, the Company has not yet applied
for the license to provide domestic long distance  telephony  services and there
can be no  assurance  that the licenwe will be granted  under this  compensation
package. No payments have yet been made by the Government to the Company towards
the entry  fee and  license  fee as the  Company  has not yet paid such  amounts
towards domestic long distance services.

         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 Bharat Sanchar Nigam Limited
for the delivery of international  calls abroad.  The Company and Bharat Sanchar
Nigam   Limited   share   revenue   received   by  the  Company   from   foreign
telecommunications  administrations and carriers on incoming international calls
terminating on India's  domestic  network and revenue received by Bharat Sanchar
Nigam Limited from Indian domestic  subscribers on outgoing  international calls
initiated  on  such  network,  pursuant  to  the  terms  of  a  revenue  sharing
arrangement  between the Company and Bharat  Sanchar Nigam Limited  covering the
period  from  April 1,  1997 to March 31,  2002.  With the  formation  of Bharat
Sanchar Nigam Limited, the revenue sharing arrangement continues. See "--Traffic
Revenue and Revenue Sharing  Arrangement." In January,  1999 the DOT stated that
no change to the current revenue sharing arrangements is presently contemplated.

         The Company's  services  have grown rapidly in recent years  reflecting
both the overall economic growth of India and the increasing  emphasis placed by
the Government on improving the domestic  telecommunications  network. The total
volume of telephone  traffic  transmitted  over the Company's  network has risen
from 1,148  million  paid  minutes  for the year ended  March 31,  1996 to 2,688
million paid minutes for the year ended March 31, 2001, a compound annual growth
rate of  approximately  17  percent.  The total  number of  effective  telephone
circuits  operated  by the  Company  increased  from 12,873 at March 31, 1996 to
20,495 circuits at March 31, 2001. 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 reported in The Hindu Business Line,
as  of  September  2001  the   penetration  of  telephone  lines  in  India  was
approximately  3.7 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 12 cities, Internet leased lines
access   throughout  India,   transmission  of  standard  business   information
("electronic data interchange"), provision of connection 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 KBP equivalent)
capacity has grown from 298 as of March 31, 1996, to 4,898 as of March 31, 2001.
The Company's subscriber base for Internet access has increased from 4,151 as of
March 31, 1996 (the  fiscal  year in which the service was first  offered by the
Company) to 630,970 as of March 31, 2001. 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.


                                       18
<PAGE>

         Seasonality does not materially affect the Company's business.

         BUSINESS STRATEGY

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

         o     meets the demand of users for such services,

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

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

         The Company intends to implement this strategy as follows:

         IMPROVING    THE   CAPACITY   AND   QUALITY   OF   ITS    INTERNATIONAL
TELECOMMUNICATION  SERVICES AND FACILITIES. In addition to increasing the number
of  international  circuits to meet  increasing  demand,  the  Company  seeks to
improve the efficient use of its  international  telecommunication  services and
capacity by increasing its capacity to connect digital  circuits to a switch and
by improving transmission capacity through the use of advanced technologies. For
example,  the Company  continues  to invest in undersea  fiber optic  cables and
satellite  transmission  capacity to enhance  its ability to handle  efficiently
increased  voice and data  traffic.  The Company  has  embarked on a program for
enhancing its connectivity to corporate  customers and software  exporters.  See
"--Property, Plants and Equipment--Description of Property." 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--Investment  Program--Ninth Five Year Plan Projects--Expansion of
Transmission Capacity" and "--Expansion of Number of Switches."

         LEVERAGING   EXISTING   INFRASTRUCTURE   TO  PROVIDE   SPECIALIZED  AND
VALUE-ADDED   SERVICES.   The  Company  has  introduced  several   international
specialized and  value-added  services in recent years and seeks to increase the
portion of its revenues  derived from such services.  These  services  typically
involve  the  transmission  of data  rather  than only  voice  traffic.  To meet
increasing  demand, the Company is expanding and upgrading its infrastructure so
as to be in a position  to provide  bandwidth  for such  services.  The  Company
currently provides Internet dial-up access in 12 cities and Internet leased line
access  throughout  India.  The Company also provides other  services  including
Inmarsat  satellite  mobile  telecommunications,  electronic  data  interchange,
managed data network services,  video  conferencing,  transmission of television
signals,  packet switched data transmission and E-mail services. See "--Services
of the  Company--Specialized and Value-Added Services." In addition, the Company
is considering spinning off certain of its specialized and value-added services,
such as the  Internet  access it is  licensed  to  provide  nationwide,  E-mail,
electronic data  interchange and video  conferencing  services,  into a proposed
subsidiary,  VSNL Seamless  Services  Private  Limited.  VSNL Seamless  Services
Private  Limited is expected to develop and maintain a retail  customer  base to
position the Company for continued  growth of its  specialized  and  value-added
services. The Company is also pursuing opportunities to participate in consortia
developing  satellite-based  telecommunication  services. See "Item 5. Operating
and Financial  Review and  Prospects--Investment  Program--Ninth  Five Year Plan
Projects--Capital  Contributions  to Intelsat and Inmarsat  and  Acquisition  of
Indefeasible Rights of Use."

         ENHANCING INTERNET  OPPORTUNITIES.  The Company is the leading Internet
service  provider in India with market share of  approximately 43 percent of the
country's  current  Internet  subscriber  base,  according to IT Space  Research
Telecom  programs  January  2001.  The  Company  has  taken  the  initiative  in


                                       19
<PAGE>

developing  the Internet  market in India and will  continue to strive to be the
market leader in promoting and facilitating growth of the Internet in India. The
Company believes that its strategy of focusing on market  leadership in Internet
access will position it to lead the development and introduction of higher-value
Internet services for its consumers and corporate customers.

         POSITIONING FOR NEW INTERNATIONAL  OPPORTUNITIES.  The Company seeks to
enter into  joint  ventures  with  domestic  and  foreign  companies  to develop
telecommunications  projects both inside and outside India.  The Company,  along
with  Telecommunication   Consultants  of  India  Limited  ("TCIL"),   Mahanagar
Telephone Nijam Limited  ("MTNL"),  and Nepal Ventures  Private Limited signed a
memorandum of  understanding  for joining  together to provide basic services in
Nepal  through  the  use  of  wireless  local  loop  technology.  The  Company's
participation  in these  ventures  will be  designed  to permit  the  Company to
utilize its  existing  expertise  and to enable the  Company to gain  additional
experience  with  potential  strategic  partners.  For example,  the Company has
entered into bilateral arrangements with foreign telecommunications carriers for
the provision of private data transmission  services. See "Item 5. Operating and
Financial  Review  and  Prospects-Services  of  the   Company--Specialized   and
Value-Added Services."

         POSITIONING FOR OPPORTUNITIES IN A LIBERALIZED ENVIRONMENT.  As part of
the  multilateral  agreement on basic  telecommunication  services  agreed to by
member  governments  of the World  Trade  Organization  in  February  1997,  the
Government of India agreed to review the possibility of allowing  competition in
the area of domestic long distance telephone  services.  The Government of India
recently  opened this area for competition . The Company aims to position itself
to provide domestic long distance  services  through the continued  upgrading of
its  transmission  and  switching  capabilities.  See  "Item  5.  Operating  and
Financial  Review  and  Prospects--Investment   Program--Ninth  Five  Year  Plan
Projects--Provision for Other Projects and Investments."

         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 12 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.



                                       20
<PAGE>

         The following  table sets forth certain  operating data with respect to
the  Company's  international  services  as of the  dates  and for  the  periods
indicated.
<TABLE>
<CAPTION>

                                                                      YEAR ENDED MARCH 31,
                                              --------------------------------------------
                                                 1997         1998          1999          2000          2001
                                               --------     --------      --------      --------      ------
<S>                                               <C>           <C>           <C>           <C>           <C>
BASIC SERVICES
TELEPHONE(1)
Incoming paid minutes(2) (millions).........    1,000         1,257         1,499         1,773         2,161
Outgoing paid minutes (millions)............      385           428           436           473           527
Total paid minutes (millions)...............    1,385         1,685         1,935         2,246         2,688
Change from previous period (%).............     20.6          21.7         14.84         16.07         19.68
Ratio of incoming to outgoing...............     2.60x         2.94x         3.44x         3.75x         4.10x
Effective circuits (as of period end).......   14,184        15,431        17,922        19,722        20,495
Change from previous period end (%).........     10.2           8.8         16.14         10.04          3.92

TELEX
Paid minutes (millions).....................       17            14            11            10             9
Change from previous period (%).............    (15.0)        (17.6)        (21.0)        (10.58)       (8.80)
Effective circuits (as of period end).......    1,081         1,012           787           682           658
Change from previous period end (%).........     (4.2)         (6.4)        22.23        (13.34)        (3.52)

TELEGRAPH
Paid words (millions).......................       19             16           15             9             7
Change from previous period (%).............    (10.8)       (15.79)       (6.67)        (40.00)       (22.22)
Effective circuits (as of period end).......       35             35           34            25            24
Change from previous period end (%).........     (7.9)          0.0         (2.86)       (26.47)           (4)

SPECIALIZED AND VALUE-ADDED SERVICES
LEASED LINES (CAPACITY)
Number of lines (as of period end)..........      564           913         1,098         1,654         4,913
Change from previous period (%).............    40.65         61.88         20.26         50.64         197.04

PACKET SWITCHED DATA TRANSMISSION
Segments (millions)(3)......................      521           613           469           267           194
Change from previous period (%).............     (7.5)         17.7        (23.49)       (43.07)       (27.34)

INTERNET ACCESS(4)
Subscribers (as of period end)(in thousands)    28.04         90.04        213.05        366.43        630.97
Change from previous period (%).............    575.5         221.1        136.61         72.00         72.19
</TABLE>

(1)  Telephone  paid  minutes  comprise  voice,  facsimile  and public  switched
     telephone network (PSTN) data traffic sent through the telephone network.
(2)  Includes  calls  placed in India but  billed in  another  country,  such as
     operator-assisted collect and home-country direct calls.
(3)  One segment equals 64 characters,  with each character  representing  eight
     bits of data.
(4)  Internet access services were first offered in August 1995.

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 Bharat
Sanchar  Nigam  Limited  (formerly  the  Department  of  Telecommunications)  or
Mahanagar  Telephone Nigam Limited,  (in Mumbai and Delhi),  or by private fixed
line or cellular network  operators,  and is transferred to one of the Company's
gateways  through  Mahanagar  Telephone Nigam Limited's and Bharat Sanchar Nigam
Limited's domestic  networks.  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." This process is illustrated in the following chart:


                                       21
<PAGE>



[GRAPHIC OMITTED]

         INTERNATIONAL  TELEPHONE  SERVICES.  The Company  provides public basic
international  switched telephone services,  including voice, facsimile and data
transmission  services.  Approximately  92.40,  91.23 and 90.41  percent  of the
traffic revenue of the Company for the years ended March 31, 1999, 2000 and 2001
respectively was attributable to international telephone services. The volume of
international  telephone  traffic to and from India, and the Company's  revenues
from such calls, have grown rapidly in recent years. These increases reflect the
growth  in the  number of  private  and  public  telephone  lines in  India,  an
improvement in the quality of the domestic telephone network (which has resulted
in a higher  percentage  of completed  calls) and an increase in the quality and
capacity of the Company's facilities.

         The Company offers International Direct Dialing and Home Country Direct
Services and also provides operator assisted international calls.  International
Direct  Dialing  permits  telephone  subscribers  to  dial  international  calls
directly without operator  assistance.  Rates for  International  Direct Dialing
calls are lower than for  operator-assisted  calls and are charged  based on the
duration of the call. The availability  and use of International  Direct Dialing
in India has  increased  steadily.  As of January,  2001,  International  Direct
Dialing was available from approximately 25,679 cities and towns within India to
approximately  240  territories  worldwide.  For the year ended March 31,  2001,
approximately  99  percent  of  international  calls  from India were made using
International Direct Dialing.

         Home  country  direct  services,  which  permit  a  caller  to reach an
operator in his home country  directly  and place a collect or charge call,  was
available  to 32  countries  as of March 31,  2001.  These  calls are treated as
incoming  calls,  as they are billed in the country being  called.  Home country
direct  services permit a user to speak in his native language to an operator in
his own country and  facilitates  payment for the call since it is billed to the
user at home in his own currency.

         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  20,000  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 transmission  (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 1,000 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.


                                       22
<PAGE>

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 50 bits per second
("bps") to 2 megabits per second  ("mbps"),  are provided  through the Company's
international  gateways,  earth stations and cable stations. The Company's earth
stations/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 564 circuits as of March 31, 1996 to
4,913 as of March 31,  2001.  In  connection  with  providing  high speed leased
lines, the Company makes all  arrangements,  in coordination with Bharat Sanchar
Nigam   Limited   or   Mahanagar    Telephone    Nigam   Limited   and   foreign
telecommunications  administrations  or carriers,  for  connecting  the customer
through Bharat Sanchar Nigam Limited or Mahanagar  Telephone Nigam Limited lines
and one of the Company's  international  gateways to the foreign destination via
satellite or undersea cable.

         As part of its international  leased line services,  the Company offers
the Intermediate Data Rates Service and the Intelsat Business Service, which are
dedicated  satellite-based  services that provide high speed,  high quality data
circuits on a point-to-point basis through earth stations  strategically located
near the customer's premises. These services utilized a total of 1,284 satellite
circuits as of March 31, 2001 leased by  subscribers  such as software and other
high technology companies in Bangalore,  Hyderabad,  Pune and other major cities
in India.

         INMARSAT MOBILE  SERVICES.  The Company  commenced  offering  satellite
mobile  telecommunication  services  via the  Inmarsat A system  (which  carries
telephone,  telex,  Duplex High Speed Data on a channel  that carries 64 kbps of
data,  and facsimile  traffic)  through a land earth station  located near Pune,
which was  commissioned  in May 1992.  This earth station  currently  handles on
average  approximately  1,800 call  minutes of  Inmarsat A traffic  per day.  In
November  1993,  the  Company  introduced  Inmarsat  C  service,  which  permits
transmission  of messages via small  portable  terminals.  In November 1995, the
Company also introduced Inmarsat B services for voice and data transmissions and
Inmarsat  M  services  for voice  transmissions,  both in  digital  format.  The
Company's latest Inmarsat service,  Inmarsat Mini M, was introduced in May 1997.
The Company's land earth station located near Pune currently  handles on average
approximately 1,300, 270 and 5,600 holding time (in minutes) per day of Inmarsat
B, M and Mini M traffic, respectively, and approximately 109.56 kilobits per day
of Inmarsat C traffic.

         GATEWAY  INTERNET  ACCESS  SERVICES.  The Company  commenced  providing
Internet  access  services in August 1995.  The Company is the leading  Internet
service  provider in India with market share of  approximately 43 percent of the
country's  current  Internet  subscriber  base,  according to IT Space  Research
Telecom  programs  January 2001.  Private  Internet  service  providers were not
permitted  until  November 1998 after which they were also  permitted to provide
such services with the liberalization of the Government's Internet policies. See
"--Industry  Overview--Recent  Developments."  Demand for the Company's Internet
services has increased rapidly with the number of subscribers growing from about
200 as of September 30, 1995 to 630,970 as of March 31, 2001. The Company's main
access nodes for the Internet are situated in 12 cities, including Mumbai, Pune,
Kolkata,  Delhi,  Bangalore  and  Chennai.  In  addition,  the Company  provides
connectivity to remote access nodes  throughout India in conjunction with Bharat
Sanchar Nigam Limited, each of which is connected to one of the Company's access
nodes.  A host computer to which  subscribers  have dial-up access is located at
each  access  node.  Access to these  services  is also  available  through  the
Company's packet switched data transmission  services. In addition,  the Company
currently provides Internet backbone access services to approximately 90 private
Internet  service  providers and leased line access to its corporate  customers.
The Company  has also  opened  state-of-the-art  data  centers  for  co-location
services in 6 cities.


                                       23
<PAGE>

         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 - British Telecommunications,  Cable
&  Wireless,   EQUANT,   Global  One,  IBM  Global  Services,   and  Tele  Media
International.  The Company's managed data network services utilize global frame
relay and X.25 access protocols and data  transmission  speeds of up to 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  clearinghouse  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.  The  Company
currently has approximately 35 corporate subscribers for these services.

         VIDEO  CONFERENCING,  TRANSMISSION  OF  TELEVISION  SIGNALS  AND  OTHER
SERVICES.  The Company  introduced  a video  conferencing  service in 1993 (both
domestic  and   international)   through   studios   located  at  the  Company's
international  gateways at Mumbai,  Delhi, Kolkata and Chennai. 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.  The  Company
transmitted  approximately  185,000  minutes of  television  traffic to and from
India during the year ended March 31, 2001, including principally  broadcasts of
news,  sports and  entertainment  events.  News media  services  provided by the
Company include sending and receiving radio photos to and from locations outside
India and direct transmission of recorded and live programming abroad, including
the transmission of newscasts by Indian national news agencies.

         TELEVISION   UPLINKING.   The  Company  started  providing   television
uplinking  facilities in October 1998. The Company provides uplinking facilities
to, among others, SunTV (Tamil), Surya (Malayalam),  Udaya TV (Kannada),  Eenadu
TV (Telugu), Gemini TV (Telugu) and Asianet (Malyalam).  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.  Primary
packet switching exchanges and access points are located at Mumbai,  Kolkata and
Delhi,  which are connected with  international  networks and with each other by
high speed (64 kbps) data  lines.  The  primary  exchanges  are linked to packet
switching  access points of the Company  located at six other sites within India
and to approximately 45 additional such access points operated by Bharat Sanchar
Nigam Limited via dedicated domestic long-distance lines. Subscribers may access
this service via dial-up lines or dedicated lines to any of the access points at
transmission  speeds up to 9,600 bps or 64 kbps,  respectively.  This service is
also linked to Indian  domestic  packet  switched  data networks and carries all
international  traffic  generated by these networks.  The Company  currently has
approximately 235 subscribers for this service and handled  approximately  194.4
million  segments  of data in the year  ended  March 31,  2001,  a decline of 27
percent  over the period  ended  March 31,  2000.  No growth in this  service is
anticipated as its advantages have eroded due to increased Internet access.

         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
4,951  subscribers  as of March  31,  2001.  No  growth  in  E-mail  service  is
anticipated as its advantages have eroded due to increased Internet access.


                                       24
<PAGE>

         TRAFFIC REVENUE AND REVENUE SHARING ARRANGEMENT

         The Company's  principal  source of revenue is traffic revenue from its
public  international  telecommunication  services (telephone and telex),  which
accounted  for 92.40  percent,  91.23 percent and 90.41 percent of the Company's
traffic  revenues for the fiscal years ended March 31, 1999,  March 31, 2000 and
March 31, 2001,  respectively.  The Company's  traffic  revenue has two sources:
foreign  telecommunications  carriers, and the Bharat Sanchar Nigam Limited. The
Company does not receive any payments  directly from the end users of its public
international  telecommunication  services  and has no  control  over the  rates
charged by the Bharat  Sanchar  Nigam  Limited  or  foreign  administrations  or
carriers for such calls.  For the fiscal  years ended March 31, 1999,  March 31,
2000 and March 31,  2001,  approximately  65  percent of the  Company's  traffic
revenue was derived  from  payments by foreign  administrations  or carriers for
incoming calls and  approximately 26 percent of such traffic revenue was derived
from amounts payable by the Bharat Sanchar Nigam Limited under a revenue sharing
arrangement for calls originating in India.

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 244
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.  Among other factors,  the rates negotiated take into account the
technical and operating costs for providing such telecommunication  services and
the volume of incoming and outgoing  telecommunications  traffic. Such operating
arrangements  are generally  reviewed every year, and any resulting  revision of
accounting  rates or  change in  settlement  arrangements  also is  agreed  upon
through bilateral negotiations.

         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, which represents each carrier's
portion  of the  accounting  rate.  The  accounting  rates  under the  Company's
agreements  vary but are  generally  divided  into  equal  settlement  rates for
incoming and outgoing calls from or to a particular country.  The Company has in
the recent past sought to rationalize  its accounting  rates by moving towards a
system of three basic  rates.  The three  basic  rates cover the United  States,
countries  of the South  Asian  Association  for  Regional  Cooperation  (SAARC)
(comprising India,  Pakistan,  Sri Lanka, Bhutan,  Bangladesh,  the Maldives and
Nepal),  and Europe and the rest of the world.  The three basic accounting rates
are currently in effect for approximately 150 of the 244 foreign administrations
and carriers with which the Company has operating  arrangements.  The settlement
rates applicable to the Company  currently range from  approximately  US$0.32 to
US$2.47 per minute.

         Accounting rates are negotiated annually,  and negotiations may in some
cases  take  several  months  to  conclude.  During  the  negotiations,  foreign
administrations and carriers may reduce their payments to the Company to a level
at or near the rates  they  expect to  achieve.  In other  cases,  new rates are
applied  retroactively from the date on which they are agreed, which in the case
of a reduction in rates requires the Company to make a payment  representing the
difference  between  the prior rate and the newly  negotiated  accounting  rate,
calculated at the applicable settlement rate.

         The Company's  largest  correspondent  carriers are those in the United
States,  the  United  Arab  Emirates  and the  United  Kingdom,  which  together
represented  approximately 58.29 percent, 61.35 percent and 64.47 percent of the
Company's  paid telephone  minutes during the years ended March 31, 1999,  March
31, 2000 and March 31, 2001 respectively. The Company believes that the level of
traffic  with a  particular  country  is  determined  primarily  by the level of
international  business  between such country and India and the number of Indian
expatriates living in such country. In addition, the relative levels of incoming
call volume from  different  countries  is affected by the practice of "refile."


                                       25
<PAGE>

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.  Refile has
contributed  in  particular  to the  significant  increase  in  recent  years in
incoming traffic from the United States.

         The  following   table  sets  forth  the  number  of  paid  minutes  of
international  telephone  calls for the Company for  certain  countries  for the
periods indicated.
<TABLE>
<CAPTION>

                                                                       YEARS ENDED MARCH 31,
                                                                       ---------------------
                                              1999                             2000                           2001
                                              ----                             ----                           ----
                                  INCOMING  OUTGOING   DIFFERENCE   INCOMING OUTGOING  DIFFERENCE  INCOMING  OUTGOING  DIFFERENCE
                                  --------  --------   ----------   -----------------  ----------  --------  --------  ----------

                                                                      (MINUTES IN MILLIONS)
<S>                                 <C>         <C>     <C>          <C>        <C>      <C>        <C>          <C>    <C>
United States.................      663         52      611          907        60       847        1,182        75     1,107
United Arab Emirates..........      266         35      231          233        42       191          286        48       238
United Kingdom................       76         36       40           94        42        52           94        48        46
Saudi Arabia..................      122         91       31          127        91        36          173        90        83
Canada........................       37         10       27           14         9         5           22        11        11
Singapore.....................       31         18       13           42        21        21           42        24        18
Germany.......................       23         13       10           14        14         0           40        14        26
Hong Kong.....................        6          8      (2)            5         8       (3)           15        11         4
Bahrain.......................       25          3       22           26         4        22           26         6        20
Oman..........................       29         15       14           31        16        15           34        17        17
Others........................      221        155       66          280       166       114          247       183        64
                                  -----        ---    -----        -----       ---     -----        -----       ---     -----
              Total...........    1,499        436    1,063        1,773       473     1,300        2,161       527     1,634
                                  =====        ===    =====        =====       ===     =====        =====       ===     =====
</TABLE>

         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 foreign  administrations
and carriers.  The Company expects this situation to continue.  In 1994, various
unlicensed private agencies in India commenced offering  "call-back" services as
a low-cost alternative for making international calls from India. A caller using
this service is provided with access to an international  dial tone in a foreign
country,  usually in the  United  States,  from  which the caller 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 appears to
have grown and has  contributed to the increase in recent years in the Company's
ratio of incoming to outgoing calls, particularly in the case of traffic between
India and the United States.

         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
already  represented  a 10.5 percent  decrease of the  settlement  rate from the
prior calendar  year,  needs to be reduced to no more than US$0.23 per minute by
2002.  If  such  reduction  is  not  agreed  to  in  bilateral  settlement  rate
negotiations, the FCC may require US carriers to make settlement payments to the
Company at a rate no higher than such benchmark rate.


                                       26
<PAGE>

Item 3.  Key Information

         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.  There can be no assurance that the FCC,
acting pursuant to the Order, will not seek to force US carriers to agree to the
benchmark  rates,  which are lower than the rates in effect  between the Company
and  its  correspondent  US  carriers.   See  "Item  3.  Key   Information--Risk
Factors--Payments  to and from Foreign  Telecommunications  Administrations  and
Carriers."

         The  Company was unable to conclude  its annual  negotiations  with its
four  correspondent  US carriers as to  accounting  rates for calendar year 1998
until early January 1999. The calendar year 1998 accounting rate with one of its
four US carriers  was  approved by the FCC in late  November  1998,  and shortly
thereafter the three  remaining US carriers agreed to the same rate. The Company
has concluded  since then  accounting  rates  agreements for fiscal 2000 with US
carriers and other major foreign correspondent carriers and administrations with
a  gradual  reduction  of  settlement  rates.  Moving  towards  FCC's  benchmark
settlement  rate, the Company has also concluded  settlement  rate agreements of
US$0.54 per minute,  US$0.425 per minute and US$0.34 per minute for fiscal 2000,
2001 and 2002, respectively, with US carriers.

REVENUE SHARING ARRANGEMENT

         The  Company  had a revenue  sharing  arrangement  with the DOT for the
fiscal  period  1997-2002.  Pursuant  to  the  corporatization  of  the  service
provision  functions of the DOT, to the newly  formed  company,  Bharat  Sanchar
Nigam  Limited,  the revenue  sharing  agreements  entered  into by the DOT were
transferred and assigned to Bharat Sanchar Nigam Limited with effective  October
1, 2000.  License  fees shall  continue  to be paid to the DOT under the revenue
sharing agreement.

         Although the Company provides  international  gateway access out of and
into India,  all calls must  either  initiate or  terminate  on or pass  through
Mahanagar  Telephone Nigam Limited's and Bharat Sanchar Nigam Limited's domestic
network. The Company and Bharat Sanchar Nigam Limited share revenues received by
each entity from international  calls pursuant to a revenue sharing  arrangement
between the two entities. Through the year ended March 31, 1997, the Company and
Bharat Sanchar Nigam Limited shared revenues under a revenue sharing arrangement
(the "previous  revenue  sharing  arrangement")  which was agreed to in February
1994, took effect  retroactively  beginning April 1, 1993 and remained effective
until March 31, 1997.  In February  1997,  the Company and the DOT agreed to the
current revenue sharing  arrangement,  which took effect on April 1, 1997 and is
to remain in effect until March 31, 2002.

         PREVIOUS  REVENUE  SHARING  ARRANGEMENT.  Under  the  previous  revenue
sharing  arrangement  the Company paid the DOT a terminal charge of Rs.21.60 per
minute  for use of the DOT's  domestic  network  on all  incoming  international
calls.  In turn,  the DOT paid the  Company a carrying  charge of  Rs.41.60  per
minute for all  outgoing  international  calls.  The  previous  revenue  sharing
arrangement  was intended to result in average gross earnings per call minute of
Rs.10 for the Company,  based on the following  parameters  and base values:  an
average  settlement  rate  between the  Company  and foreign  telecommunications
administrations and carriers of US$1.00 per minute, a Rupee/Dollar exchange rate
of Rs.31.60  per US$1.00  and a ratio of  incoming to outgoing  call  minutes of
1.4x.

         The  following  chart  illustrates  payment  flows  under the  previous
revenue sharing arrangement assuming the base value for these parameters.


                                       27
<PAGE>

[GRAPHIC OMITTED]

         For the years ended March 31, 1999,  March 31, 2000 and March 31, 2001,
the Company's  actual average gross earnings per telephone minute were Rs.10.63,
Rs.9.43 and Rs.9.39 (US$0.20), respectively.

         Under the previous revenue sharing  arrangement,  the Company also paid
to the DOT a license fee of Rs.3 million (US$0.07  million) for each one million
paid minutes (or portion  thereof) of the Company's  total annual  international
traffic.  In addition,  the Company paid to the DOT a surcharge of 15 percent on
charges  for  lines  leased  from  the DOT as an  additional  charge  for  using
Department of Telecommunication's domestic network.

         CURRENT REVENUE SHARING ARRANGEMENT.  In February 1997, the Company and
Bharat Sanchar Nigam Limited  (formerly,  the Department of  Telecommunications)
agreed to the current revenue sharing arrangement, which took effect on April 1,
1997 and is to remain in effect until March 31, 2002.  Under the current revenue
sharing  arrangement,  the Company pays to Bharat Sanchar Nigam Limited a charge
per minute equal to the "weighted average incoming  settlement rate" minus Rs.10
on all incoming  international  calls,  and Bharat Sanchar Nigam Limited in turn
pays 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 is 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  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. The
current  arrangement  is  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 remain constant during the year). In
the years ended March 31, 2000 and March 31, 2001 the Company's  actual  average
gross profit per telephone minute were Rs.9.43 and Rs.9.39, respectively.

         Under the current revenue sharing arrangement, any increase or decrease
in the combined international traffic revenue per call minute of the Company and
Bharat  Sanchar  Nigam  Limited  (net of  payments  by the  Company  to  foreign
administrations and carriers and by the Company and Bharat Sanchar Nigam Limited
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,  will be shared
between the Company and Bharat Sanchar Nigam Limited  according to the following
percentages:


                                       28
<PAGE>

        YEAR ENDING                                           BHARAT SANCHAR
         MARCH 31                COMPANY'S SHARE           NIGAM LIMITED'S SHARE
        -----------              ---------------           ---------------------
           1999                        0%                          100%
           2000                        15%                          85%
           2001                        20%                          80%
           2002                        25%                          75%


         In computing the international  traffic revenue of Bharat Sanchar Nigam
Limited for purposes of calculating the combined  international  traffic revenue
per call minute of the  Company and Bharat  Sanchar  Nigam  Limited,  the tariff
charged  by  Bharat   Sanchar   Nigam  Limited  to   subscribers   for  outgoing
international  calls is assumed to remain  constant  at Rs.62.35  (US$1.33)  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 Bharat
Sanchar Nigam Limited for outgoing international calls.

         The following chart illustrates payment flows under the revenue sharing
arrangement.

[GRAPHIC OMITTED]

--------------
* Subject to review, as described below.


         The current revenue sharing  arrangement is subject to review (with the
objective of correcting the imbalance caused) in the event that the Rupee/Dollar
exchange rate fluctuates by more than ten percent from the rate at the base year
(January 4, 1997),  or the  Company's  actual  average  gross  earnings per call
minute is less than Rs.9 or more than Rs.11,  in any fiscal year  covered by the
arrangement.  No such  review has  occurred  since the current  revenue  sharing
arrangement came into effect.

         Under the current revenue sharing arrangement,  the Company is required
to pay to Department of  Telecommunications  an annual  license fee based on the
number  of  its  commissioned  circuits,   instead  of  on  the  volume  of  its
international  traffic. The license fee amounts to Rs.250,000  (US$5,336.18) per
commissioned  circuit, and the number of circuits is 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, 2000 and March 31, 2001, the Company
paid annual license fees of approximately  Rs.4,712 million and Rs.5,022 million
(US$107.19 million), respectively.


                                       29
<PAGE>

         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, 2001.
<TABLE>
<CAPTION>

                                                                   YEAR ENDED MARCH 31,
                                          -------------------------------------------------------------------
                                                1999              2000              2001              2001
                                              --------          --------          --------           -------
                                                                       (IN MILLIONS)
<S>                                                <C>               <C>               <C>                 <C>
Revenues from incoming traffic
Telephone                                    Rs.43,834         Rs.45,161         Rs.46,674            US$996
Telex                                              186               128               112                 2
Revenues from outgoing traffic
Telephone                                       18,243            18,375            18,345               392
Telex                                              173               175               112                 2
Leased circuits                                  2,499             2,986             3,140                67
Internet access services                         1,733             2,095             2,980                64
Television relay                                    78                72               184                 4
Telegraph                                           50                37                29                 1
Other revenue                                      385               611               340                 7

Total revenue                                   67,181            69,640            71,916             1,535
                                                ======            ======            ======             =====
</TABLE>

         Since the Company only provides services in India there is no breakdown
of the Company's revenues by geographical market.

         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  following   table  sets  forth  certain  basic   measures  of  the
development of the Indian  domestic  telecommunications  network as of the dates
and for the periods indicated.
<TABLE>
<CAPTION>

                                                                          AS OF MARCH 31,

                                                    1997         1998         1999        2000         2001
                                                  --------     --------     --------    --------     ------

<S>                                             <C>           <C>          <C>          <C>         <C>
Telephones in service (thousands).............     15,399       18,620       22,467      27,390          N/A
Telephones per 100 inhabitants................       1.61         1.91         2.29        2.74          N/A
New lines installed (thousands)...............      2,564        3,259        3,791       4,917        7,652
Lines in service (thousands)..................     14,543       17,802       21,593      28,431       36,083
Lines in service per 100 inhabitants..........       1.53         1.72         2.20        2.85         3.56
Long-distance route kilometers................    179,955      219,781      288,271     340,451      416,831
Number of village public telephones...........    267,832      303,582      340,640     334,605      408,922
Local calls pulses (billions).................       96.1        115.1          N/A       162.6          N/A
Registered waiting list for telephones              2,894        2,706        1,983       3,680        2,916
(thousands)...................................
Cellular subscribers (thousands)..............        369          882        1,073       1,793        3,577
</TABLE>

----------------
Source:  Department of Telecommunications.

         The Indian  domestic  telecommunications  network has grown  rapidly in
recent years. As of March 31, 2001, the Indian  telephone system comprised 36.08
million lines in service,  having grown at a compound  annual rate of 24 percent
since 1994.  In the fiscal  year ended  March 31,  2001,  Bharat  Sanchar  Nigam
Limited  installed  approximately  7.65 million new local lines and 7.15 million
switching   terminations,   increases  of  26.91  percent  and  21.81   percent,
respectively,  over the levels as of March 31, 2000. All subscribers have access
to international telecommunication services. Subscribers in approximately 25,679
cities and towns in India had direct dial access as of March 31, 2001.


                                       30
<PAGE>

         Despite this growth,  the registered  waiting list for telephone  lines
has remained high. For example,  in the fiscal year ended March 31, 2001,  while
approximately 7.65 million new lines were added, the registered waiting list for
new lines  decreased  from 3.68 million to 2.916  million.  Bharat Sanchar Nigam
Limited and the Company  believe that the  registered  waiting list  understates
actual  demand  because a potential  subscriber  must deposit at least  Rs.3,000
(US$64 ) with Bharat Sanchar Nigam Limited or Mahanagar  Telephone Nigam Limited
in order to be placed on the waiting  list and,  depending  on the  subscriber's
location,  may then have to wait up to three years before  receiving a telephone
line.  Moreover,  the penetration of India's domestic  telephone network of 3.56
lines in service per 100 inhabitants as of March 31, 2001 remained significantly
lower than in OECD countries and many other developing countries.  The following
table presents, for selected countries, lines in service as of December 31, 2000
(the latest date for which such  information  is currently  available) and gross
domestic product per capita for the year then ended.
<TABLE>
<CAPTION>

                                           LINES IN SERVICE PER
                                           100 INHABITANTS AS OF                  2000 GROSS DOMESTIC
                                             DECEMBER 31, 2000              PRODUCT PER CAPITA (IN DOLLARS)
                                             -----------------              -------------------------------
<S>                                                  <C>                                     <C>
India(1)..........................                   3.6                                     468
Pakistan..........................                   2.2                                     458
Indonesia.........................                   3.1                                     763
China.............................                  11.6                                     840
Philippines.......................                   4.0                                     988
Thailand..........................                   9.6                                   2,260
Turkey............................                  27.8                                   2,849
Malaysia..........................                  23.5                                   3,970
Mexico............................                  12.5                                   4,966
South Korea.......................                  47.0                                   9,890
United Kingdom....................                  56.7                                  33,750
United States.....................                  67.3                                  34,102
Japan.............................                  49.3                                  36,300
</TABLE>

----------------
SOURCES: The Department of Telecommunications;  International Telecommunications
Union; International Monetary Fund; INTERNATIONAL FINANCIAL STATISTICS, DECEMBER
1998. (1) As of March 31, 2001, lines in service for India.

         The existing lines in service in India are  concentrated in large urban
areas.  Of all lines in  service,  approximately  23.76  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 31, 2001, there were  approximately 3.58
million cellular subscribers,  representing a compound annual growth rate of 115
percent  since  March 31,  1996  when the  number of  cellular  subscribers  was
approximately 77,000.

         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, 2001,  the average  answer to seizure  ratio for incoming and outgoing
international  calls  in all of India  was  35.80  percent  and  43.62  percent,
respectively,  compared to 27.63 percent and 43.99 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 two countries  with well  developed and high quality
domestic  telecommunications  networks, which would be at least 60 percent to 65
percent.


                                       31
<PAGE>

CURRENT STRUCTURE

         The following chart  illustrates the current  operational  structure of
India's telecommunication services industry.

[GRAPHIC OMITTED]

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 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.
Mahanagar  Telephone  Nigam Limited 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.   Bharat   Sanchar   Nigam   Limited   retained
responsibility  for providing all other  telecommunication  services  throughout


                                       32
<PAGE>

India. The Department of  Telecommunications  also assumed regulatory  authority
over the Company,  Mahanagar  Telephone  Nigam  Limited 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.

         In 1991 and 1992, as part of its general  policy of gradually  reducing
its mutual  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 approximately  47.03 percent of
the  Shares  is  currently   held  by  such   institutions   and  other  private
shareholders.  The divested Shares were initially  traded on the BSE in December
1992.

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  provision  of local  fixed  line
services  to  one  new   licensee  (a  "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 will compete with Bharat Sanchar
Nigam Limited (or Mahanagar Telephone Nigam Limited, 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. Recently, another 20 licenses have been
issued.

         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. The 13 successful bidders referred to above
have in the aggregate committed to provide over 3.9 million new lines by the end
of the third year following the issue of their licenses. 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.

         The New  Licensees  will  have  access to the  Company's  international
network only through Bharat Sanchar Nigam Limited. Under the tariff specified in
the tender conditions, the New Licensees will pay an international access charge
of Rs.0.70  per unit  measured  call at the point of  interconnection  to Bharat
Sanchar  Nigam Limited for all outgoing  international  traffic  originating  on
their networks. No corresponding access charge will be payable by Bharat Sanchar
Nigam  Limited  to the New  Licensees  for any  incoming  international  traffic
delivered  on their  networks.  Only  two of the New  Licensees  have  commenced
services.

         CELLULAR    SERVICES.    In   December    1991,   the   Department   of
Telecommunications  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.  There are eight cellular  licensees in Mumbai,  Chennai,
New Delhi and Kolkata and 14 cellular  licensees in 18 state circles.  Mahanagar


                                       33
<PAGE>

Telephone Nigam Limited has also announced plans to install  wireless local loop
telecommunications  equipment  and provide  cellular  mobile  service using code
division multiple access technology  (CDMA) in Mumbai.  Cellular  licensees have
access to the Company's  international network only through Bharat Sanchar Nigam
Limited.

         Numerous  private  sector  cellular  licensees  other  than  the  metro
licenses  of Mumbai,  Delhi,  Kolkata  and Chennai  have faced  difficulties  in
attaining financial closure for their projects. Consequently, network completion
has been  significantly  delayed,  resulting in less than  anticipated  cellular
traffic.  The Government has recently  agreed to extend the period of license of
the non-metro licensees from 10 to 15 years.

         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 review the possibility of allowing competition in the area of
domestic long-distance telephone services and international telephone services.

         INTERNATIONAL LONG DISTANCE SERVICES. On September 7, 2000, the Company
received a letter from the  Ministry of  Communications,  Department  of Telecom
Services stating that the Government has decided that the Company's  monopoly on
international  long distance  services shall  terminate on March 31, 2002 rather
than on March 31,  2004.  This  letter  states that the  Government  proposes to
compensate  the Company for the early  withdrawal of its monopoly  status in the
field of  international  telephony with the following  package:  (1) the Company
will be granted a license to provide national long distance telephony  services;
(2) the Company  shall be  reimbursed  by the  Government  for all license fees,
entry fees and  revenue  sharing  fees (net of taxes) that may be payable by the
Company with respect to such  license for a period of five years  commencing  on
April 2001; (3) the Government will not insist upon a performance bank guarantee
with  respect to such  license as long as the  Company  remains a public  sector
undertaking and (4) the Company will be granted a Category - A, Internet service
provider license which will enable it to provide Internet  services  nationally.
In addition, the Government recently announced that private operators were to be
permitted to provide  domestic long distance  service and basic  services in all
telecom circles in the very near future.

         Effective  April  2002,  the  international  long  distance  sector  is
scheduled  to be  opened  up  for  competition.  However,  TRAI  has  floated  a
consultation paper titled "International Long Distance Services" on September 3,
2001. The Company  anticipates  that the policy will therefore be announced only
after the consultation process is completed.

         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% in STD and ISD charges
over the three year period  ending  March 31,  2002.  In  conformance  with this
notification  Department of Telecommunications  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.


                                       34
<PAGE>

         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, 2001, there were
approximately  441 licensed  Internet  service  providers  who were  licensed to
provide Internet services throughout India.

         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."

FUTURE DEVELOPMENT OF THE DOMESTIC NETWORK

         The Department of  Telecommunications,  in conjunction with the Company
and other  telecommunication  service  providers  regulated by the Department of
Telecommunications,  has prepared a  telecommunications  investment  program for
India's Ninth Five Year Plan (the "Ninth Plan"),  covering the period from April
1997 to  March  2002.  Total  investment  expected  under  the plan  amounts  to
approximately  Rs.832.5 billion (US$19.07 billion).  The principal objectives of
the Ninth Plan include the addition of approximately  23.5 million lines, with a
view to (1) making  telephone lines available on demand,  (2) providing at least
one long-distance public telephone in each of India's villages by the year 2002,
(3)  increasing  the number of working  telephones  in  villages  where only one
working telephone is available,  to support  increased rural economic  activity,
(4) providing at least one public  telephone for every 500  individuals in urban
areas and (5) providing at least one subscriber  trunk dialing public  telephone
for  every  ten   kilometers   on   national   highways.   The   Department   of
Telecommunications  has received commitments from prospective New Licensees with
respect to targets for the  build-out  of new local fixed line  networks.  Other
objectives  of the Ninth Plan  include the  modernization  and  upgrading of the
domestic  telephone  network,  including the  replacement of analog systems with
digital systems and the introduction of fiber optic cables, and the expansion of
existing (and the  introduction  of new)  value-added  services such as Internet
access   services,   satellite  mobile   communication   services  and  personal
communications services. In this connection,  the plan envisages the granting of
additional  licenses  on a  non-exclusive  basis to private  and  public  sector
entities for the provision of certain value-added  services in India,  including
cellular  mobile  telephone,  radio paging,  Internet  access,  E-mail and video
conferencing services.

         A significant  factor affecting Bharat Sanchar Nigam Limited's  ability
to meet its  objectives  has  been the  availability  of  sufficient  financing.
Historically,   financing   for  the   development   of  the   Indian   domestic
telecommunications  network has come from a combination  of Bharat Sanchar Nigam
Limited's  internal  resources  (predominantly  revenues  from  subscribers  and
payments  from the Company and Mahanagar  Telephone  Nigam  Limited),  budgetary
support from the central  Government  and market  borrowings  through  Mahanagar
Telephone  Nigam  Limited  (the  amount  of  which  is  limited  by the  central
government).  In recent years,  however,  the Government's  contribution through
budgetary  support  has  declined  steadily  to the point  that no  support  was
extended  for India's  Eighth Five Year Plan (the  "Eighth  Plan,"  covering the
period from April 1992 to March  1997).  The  Ministry of Finance has  indicated
that the telecommunications sector is expected to remain self-financing.  Bharat
Sanchar Nigam  Limited has funded its  expenditures  in  connection  with Bharat
Sanchar Nigam  Limited's  telecommunications  investment  program for the Eighth
Plan and the Ninth Plan, and intends to continue to fund its expenditures  under
the Ninth Plan  (including  those in  connection  with the Ninth  Plan),  solely
through   internally   generated   resources,   market  borrowings  and  leasing
arrangements,  while placing increasing emphasis on private sector participation
in funding the development of the domestic telecommunications network.


                                       35
<PAGE>

         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 license 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,    including   those   reserved   to   the   Department   of
Telecommunications   under  the  Company's  license,  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.

         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.

         So long as the  Government's  shareholding  in the  Company  equals  or
exceeds 51 percent, the Company is deemed to be an Indian Government company and
is  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, as well as 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  must first be recommended by the
Public  Enterprises  Selection Board.  Disputes between  Government  enterprises
(such as the Company) and Government departments generally must be referred to a
Committee of Secretaries of the Government for mediation before either party may
bring a claim in a court of law or tribunal.  See "Item 3. Key Information--Risk
Factors--Regulation;  Dispute  Resolution."  A  single  Government  ministry  or
department  is  designated  as the  primary  supervisor  of each  public  sector
enterprise:  the Department of Telecommunications has been so designated for the
Company.  The  Company's  activities  also are  subject to  scrutiny  by India's
Parliament,  and the  Department  of  Telecommunications  must  submit an annual
report to Parliament regarding the Company's activities.

         The Government has granted  "Navratna" status to selected public sector
enterprises.  Videsh  Sanchar Nigam  Limited is one of such selected  "Navratna"
public  sector  enterprises.  "Navratna"  status gives 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).  In  addition,   the  Company  has  achieved  an
"Excellent"  rating  for the eighth  successive  year  ending in 2001,  based on
certain targets agreed upon with the Government of India for the relevant fiscal
year.


                                       36
<PAGE>

SUPERVISION

         Major  policy  and   management   decisions  by  the  Company   require
consultation with, and/or approval of, Department of  Telecommunications  or the
Telecom  Commission.  The  Department  of  Telecommunications  and  the  Telecom
Commission  approve  the  Company's  Five Year  Plans and the  Company's  annual
budget,  which must be  prepared  in  accordance  with the  Indian  Government's
current Five Year Plan.  Since the fiscal year ended March 31, 1992, the Company
and the  Department  of  Telecommunications  have entered  into a Memorandum  of
Understanding each year setting targets for the Company's performance during the
upcoming year.

         The Department of  Telecommunications,  in addition to supervising  the
Company as its primary  regulator,  also acts as representative of the Company's
majority   shareholder,   the  Government.   As  a  result,  the  Department  of
Telecommunications controls the Company and has the power to elect its Directors
to determine the outcome of actions requiring approval of the Company's Board of
Directors or  shareholders.  The Department of  Telecommunications  also has the
authority to exercise the special powers granted to the President of India under
the Company's  Articles of  Association.  These include the right to appoint the
Company's Chairman and Managing Director and to issue directives with respect to
the Company's  business.  See "Item 10.  Additional  Information--Powers  of the
President of India."

         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 licences to
service providers;  (3) revocation of licences for non-compliance with the terms
and  conditions  of the licence;  (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 register of interconnect  agreements
and of all such other  matters as may be provided in the  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 licences 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.


                                       37
<PAGE>

         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.

LICENSE

         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  operates  substantially  all of the  services it provides
under a single license (the  "License")  initially  granted by the Department of
Telecommunications  to the Company upon its  establishment  in 1986. The 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.  The License  initially granted to the Company was effective
for a  five-year  period  ended  March 31,  1991.  The term of the  License  was
subsequently  extended four times,  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 is the only entity
authorized  by  Government  of India to provide  basic  international  telephony
services  to and  from  India  until  2004.  However,  in  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 will now end on March 31, 2002. To offset the likely loss to
the  Company  due to the early  termination  of  monopoly,  the  Government  has
announced the following compensation package:

         (1)   Grant of a license to offer Domestic Long Distance  services with
               the following terms:

               (a)  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)  Performance   Bank   Guarantee   of  Rs.4  billion  for  the
                    prescribed roll out will be waived;

         (2)   The Company will be granted a Category `A' ISP license which will
               enable it to  provide  Internet  access at  locations  across the
               country; and

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


                                       38
<PAGE>

         On May 2, 2001, in an  Extraordinary  General Meeting the  shareholders
passed a resolution  requisitioned by the Government,  the majority shareholder,
accepting the above  compensation  package.  The Company has  subsequently  been
granted a  Category  "A" ISP  license to provide  Internet  access at  locations
across the country.  However, the Company has not yet applied for the license to
provide domestic long distance  telephony services and there can be no assurance
that the license will be granted under this  compensation  package.  No payments
have been made by the  Government  to the  Company  from April 2001  towards the
entry  fee and  license  fee  since the  Company  has not yet paid such  amounts
towards domestic long distance services.

         The  License  requires  the  Company  to share with the  Department  of
Telecommunications revenues from international telecommunication services in the
manner specified by the Department of  Telecommunications  from time to time. In
February 1997, the Company and the Department of Telecommunications  agreed to a
revenue sharing arrangement, which covers the period from April 1, 1997 to March
31, 2002. The revenue sharing arrangement  provides for the retention or receipt
by the Company of a fixed amount per call minute,  and provides the Company with
a degree of protection  from adverse  changes in  settlement  rates and exchange
rate  fluctuations.  Starting in the year ended  March 31,  2000,  decreases  in
combined  international call revenue,  if any, will be shared by the Company and
Bharat  Sanchar Nigam Limited with effect from October 1, 2000.  Bharat  Sanchar
Nigam Limited has stated that no change to the revenue  sharing  arrangement  is
currently   contemplated.   See   "--Traffic   Revenue   and   Revenue   Sharing
Arrangement--Revenue Sharing Arrangement."

         The  Department of  Telecommunications  retains the right to modify the
terms and conditions of the License (including the Company's monopoly status) at
any time if in its opinion it is necessary or expedient to do so in the interest
of the  general  public or for the proper  operation  of the  telecommunications
sector.  The  Department of  Telecommunications  may also  terminate the License
before its scheduled  expiration upon breach by the Company of any of its terms.
In addition,  the Department of Telecommunications  retains certain rights under
the License 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 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.

         The Company began offering Internet access services in August 1995, and
the Company  operates 12 main Internet  access nodes.  The Company also provides
Bharat  Sanchar Nigam Limited with Internet  connectivity  at  approximately  60
remote  access  nodes  owned by  Bharat  Sanchar  Nigam  Limited  (formerly  the
Department of Telecommunications), although the Company and Bharat Sanchar Nigam
Limited have not yet  finalized the terms and  conditions  under which they will
share the related revenue.  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  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.  The license can be revoked by
the  Department  of  Telecommunications  if the Company  breaches  the terms and
conditions of the Internet license. The Department of Telecommunications retains
the right to modify the terms and conditions of the Internet license at any time
if in its opinion it is  necessary  or expedient to do so in the interest of the
general public, or for the proper operation of the telecommunications  sector or
for security  considerations.  The Department of Telecommunications also retains
the right to review  the  terms of the  Internet  license  based on  changes  in
national  telecommunications  policy.  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 could set a tariff for the  provision of Internet  access
services  generally.  See  "--Government  Regulations--Rates."  License fees are
waived through  October 31, 2003, and a nominal license fee of Rs.1 per annum is
payable from November 1, 2003.


                                       39
<PAGE>

RATES

         The  Company  does not  control  the rates  charged to end users of its
international  telecommunication  services.  The  rates  for such  services  are
established   and   collected   by  the  relevant   foreign   telecommunications
administration  or carrier for  international  calls  originating  (and  billed)
outside of India and by the Bharat Sanchar Nigam Limited for international calls
originating (and billed) in India.

         The Company and the  Department of  Telecommunications  share  revenues
received by each entity from  international  calls pursuant to a revenue sharing
arrangement  between  the two  entities,  and the  Company  receives  settlement
payments  with respect to  international  calls from, or makes such payments to,
foreign  telecommunications  administrations  and carriers  based on  applicable
accounting rates. See "--Traffic Revenue and Revenue Sharing Arrangement."

         The License  provides that the tariffs for all services  offered by the
Company are subject to the approval of the Department of Telecommunications. The
Memorandum  of  Understanding  signed  by the  Company  and  the  Department  of
Telecommunications  each year,  however,  has permitted the Company to establish
the rates for its 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, subject to filing with TRAI.

         In June 1995, the then Department of  Telecommunications  introduced an
off-peak  discount  of between 17 and 25 percent  for  international  calls made
between  11:00  p.m.  and  6:00  a.m.  In  May  1999,  the  then  Department  of
Telecommunications  issued a tariff order  pursuant to which  international  and
domestic  long  distance  tariffs  have  been  reduced  by  approximately   30%.
International telephone call rates are ranging from approximately Rs.24 to Rs.60
per minute.

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  tariff  and other  tariff  adjustments  implemented  in the year
2000-2001.  Accordingly,  TRAI for  second  phase  of  tariff  re-balancing  has
notified  reduced  tariffs of 9 to 20 percent for  international  long  distance
calls effective from October 1, 2000 to March 31, 2002. Based on the TRAI order,
Bharat  Sanchar  Nigam  Limited  has  revised  tariffs  for  long  distance  and
international call charges effective from October 1, 2000.

ORGANIZATIONAL STRUCTURE

         The Company has no subsidiaries as of the date of this annual report.


                                       40
<PAGE>

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, 2001.
<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                            Infotech Park                                     0.039                  Leased
Mahape                           Millenium Business Park                           3.115                  Leased


NEW DELHI
VSB Connaught Place              Delhi gateway                                     1.0                    Owned
Greater Kailash                  Satellite earth station                         127.4                    Owned
Chattarpur                       Satellite access node (under                    126.0                    Owned
                                 construction)
Dasghara                         Repeater station                                  1.0                    Leased
Meerut                           Repeater station                                  1.0                    Owned

JALANDHAR
JP Nagar                         Jalandhar gateway                                 0.5                    Owned

KOLKATA
Halisahar                        Kolkata earth station                            82.2                    Owned
Ultadanga                        Switching facilities                              1.7                    Owned
SDF Salt Lake                    Switching facilities                              1.7                    Leased

CHENNAI
Adams Road                       Chennai gateway                                   2.0                    Owned
Korathur                         Earth station                                    37.08                   Owned

ERNAKULAM
Shive                            Ernakulam gateway                                 1.5                    Owned


PUNE
Dighi                            Pune gateway                                    774.5                    Owned
Arvi                             Satellite earth station                         228.0                    Owned

BANGALORE                        Satellite earth station                           0.4                    Leased
ITPL                             IT Park                                           0.104                  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                    Owned
Mussoorie                        Repeater station                                  2.487                  Owned

KANPUR                           Kanpur gateway                                    2.0                    Leased

PATNA                            Earth Station                                     0.094                  Leased
</TABLE>

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

         None of the above  described  properties are subject to a major lien or
encumbrance.

         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 certain period 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


                                       41
<PAGE>

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.

         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, 2001,  the Company  operated  eight gateways at Mumbai,
Kolkata,  Delhi,  Chennai,  Ernakulam,  Gandhinagar,  Jalandhar and Kanpur 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.

         The  following  table  sets  forth,  as of March  31,  2001,  the major
facilities, links and circuits at each main gateway, at the three earth stations
at Bangalore and at the earth station located near Pune.
<TABLE>
<CAPTION>

                                                                              NUMBER OF EFFECTIVE CIRCUITS
GATEWAY      FACILITIES            LINK                                            VOICE            DATA
-------      --------------------  -----------------------------------------     ---------        ------
<S>                 <C>                                           <C>              <C>                 <C>
MUMBAI       Vikram-1 Satellite    Intelsat Atlantic Ocean Region ("AOR")          1,702               79
             Earth Station         Satellite (359(0))(1)

             Vikram-2 Satellite    Intelsat Indian Ocean Region ("IOR")            1,957               55
             Earth Station         Satellite (60(0))(1)

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

             Vikram-5 Satellite    Intelsat IOR Satellite (64(0))(1)                 208                8
             Earth Station

             Jawahar Satellite     Intelsat IOR Satellite (64(0))(1)                   0                0
             Earth Station

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

             India-U.A.E.          Mumbai-Fujiarah (U.A.E.)                        1,081                0
             Undersea Cable
             System (Gulf Cable)

             SEA-ME-WE 2           Singapore, Indonesia, Sri Lanka, India,         4,099              461
             Undersea Optical      Djibouti, Saudi Arabia, Egypt, Turkey,
             Fibre Cable System    Cyprus, Italy, Tunisia, Algeria and
                                   France

             Fibre Optic Link      Japan, Korea, China, Hong King,                 2,525              482
             Around the Globe      Thailand, Malaysia, India, U.A.E.,
             Undersea Optical      Egypt, Saudi Arabia, Italy, Spain and
             Fibre Cable System    United Kingdom

             SMW-3 Undersea        Japan, S. Korea, China, Taiwan, Hong              362            1,693
             Optical Fibre Cable   Kong, Philippines, Vietnam, Brunei,
             System                Malaysia, Singapore, Thailand,
                                   Indonesia, Australia, Sri Lanka, India,
                                   Pakistan, UAE, Oman, Saudi Arabia,
                                   Egypt, Djibouti, Cyprus, Turkey,
                                   Greece, Italy, Portugal, France, UK,                0              107
                                   Belgium, Germany
                                   Intelsat IOR Satellite (66(0))(1)


                                       42
<PAGE>

KOLKATA      Kolkata Satellite     Intersputnik Express IOR Satellite                  8                0
             Earth Station         (80(0))(1)

             Bose-1 Satellite      Intelsat IOR Satellite (64(0))(1)                 822               64
             Earth Station

             Bose-4 Satellite      Intelsat IOR Satellite (62(0))(1)                 120                0
             Earth Station

DELHI        Ahmed Satellite       Intelsat IOR Satellite (62(0))(1)               2,274              319
             Earth Station

             Ahmed Satellite       Intelsat IOR Satellite (57(0))(1)                   0                0
             Earth Station(2)

             Greater Kailash       Intelsat IOR Satellite (64(0))(1)                 232               57
             Satellite
             Earth Station

             New Delhi Satellite   Intelsat IOR Satellite (64(0))(1)                   0                0
             Earth Station

             Coaxial Cable System  The Department of Telecommunications               30                0

CHENNAI      Indian Ocean          Chennai-Penang (Malaysia)                         323                0
             Commonwealth
             Undersea Cable
             ("IOCOM")

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

             Thiruvalluvar         Intelsat IOR Satellite (64(0))(1)               1,391              252
             Satellite Earth
             Station


                                       43
<PAGE>

ERNAKULAM    Ernakulam Satellite   Intelsat IOR Satellite (60(0))(1)                 793                0
             Earth Station

             SMW-3 Undersea        Japan, S. Korea, China, Taiwan, Hong            1,299              996
             Optical Fibre Cable   Kong, Philippines, Vietnam, Brunei,
             System                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(0))(1)                 210                0
             Satellite
             Earth Station

JALANDHAR    Jalandhar Satellite   Intelsat IOR Satellite (64(0))(1)                 671                0
             Earth Station

BANGALORE    Sona Towers           Intelsat IOR Satellite (64(0))(1)                   0               19
             Satellite Earth
             Station

             Aeronautical          Intelsat IOR Satellite (62(0))(1)                   0              241
             Development Agency
             Satellite Earth
             Station

             Information           Intelsat IOR Satellite (64(0))(1)                   0               79
             Technology Park
             Ltd. Satellite
             Earth Station

PUNE         Information           Intelsat AOR Satellite (359(0))(1)                  0                4
             Technology Park
             Ltd. Satellite
             Earth Station

KANPUR       Kanpur-1 Satellite    Intelsat IOR Satellite (64(0))(1)                 268                0
             Earth Station


             TOTAL EFFECTIVE CIRCUITS                                             20,495            4,916
                                                                                  ======            =====
</TABLE>

(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

         As  of  March  31,  2001,  the  Company   operated   20,495   effective
international voice circuits,  of which 10,776 were satellite circuits and 9,719
were cable circuits.  As of such date, the Company had digital  connections with
244 of the foreign  administrations and carriers with which it had direct links.
The Company intends to establish  digital  connections with the remainder of the
foreign  administrations  and carriers  with which it has direct links when such
administrations  and carriers  upgrade their  facilities.  From April 1, 2000 to
March 31,  2001,  the  Company  recorded  an average of 437  international  paid
minutes per day per circuit,  compared to an international norm of approximately
250 paid minutes per day per circuit.


                                       44
<PAGE>

         The   Company's   policy  is  to  maintain  a   sufficient   number  of
international  circuits  so that no more than one percent of call  attempts  are
blocked  due to lack of an  international  circuit.  The  Company,  through  the
acquisition of additional circuits, is also seeking to reduce the average number
of  international  paid  minutes  carried per day per circuit from 437 to levels
closer to the international norm.

         The Company meets  periodically with most of its correspondent  foreign
telecommunications  administrations and carriers,  either bilaterally or through
conferences organized by satellite or cable consortia,  to project future demand
for  international  circuits  between  India and other  countries,  to  allocate
capacity on existing  telecommunications  satellites and undersea  cables and to
plan for expanding capacity to meet future demand.

         SATELLITES.  As of March 31,  2001,  the  company  operated  a total of
10,776  satellite  voice circuits and 1,284  satellite data circuits  through 14
earth stations at its eight gateways, two earthstations located at Bangalore and
its  earth  station  located  in  Pune.  Satellite  capacity  is  obtained  from
International   Telecommunications   Satellite  Organization   ("Intelsat")  and
International  Mobile  Satellite   Organization   ("Inmarsat"),   two  satellite
consortia  established by national  telecommunications  administrations  for the
purpose of owning and operating satellite communication systems. As of March 31,
2001,  the  Company  had  an  interest  of  approximately  5.42  % in  Intelsat.
Telecommunications   administrations   and  carriers  from  145  countries  have
investment shares in Intelsat. Intelsat charges international telecommunications
administrations  and carriers for the use of their  satellites  in order to meet
its operating  expenses and  amortization  costs.  Any surplus then remaining is
distributed  annually to consortium members based on their respective  ownership
share in Intelsat.

         Intelsat  had been  privatized  with  effect  from July 18,  2001.  The
holding  company is known as  Intelsat  Ltd.,  incorporated  in  Bermuda.  After
conversion, the Company holds 5.4 % (27,045,940 shares of par value US $ 1 each)
in Intelsat.  The  Chairman and Managing  Director of the Company is a member of
the Board of Directors of Intelsat Ltd.

         During  1998-99,   Intelsat  as  part  of  its  restructuring   process
incorporated New Skies Satellite (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 each 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  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, 2001
stands at  3,442,150  ordinary  shares of 0.05 Euros each.  The market value per
share as of March 30, 2001 was US $ 7.75 per share.

         The intergovernmental organization Inmarsat 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 in  privatization
which is 2.02 %.

         UNDERSEA CABLES. As of March, 31, 2001, the Company operated a total of
9,719  effective  voice  circuits  and 3,632 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 holds a 47.5
percent ownership interest in the analog IOCOM cable between Chennai,  India and
Penang, Malaysia and as of March 31, 2001 was operating approximately 323 of its
total  capacity of 480 circuits.  The Company also holds a 50 percent  ownership
interest in an analogue  undersea  cable between  Mumbai and  Fujiarah,  U.A.E.,
which has a total capacity of 1,380 circuits,  of which 1,081 were being used as
of March 31, 2001.

         The Company also holds an interest of  approximately  10 percent in the
South East Asia-Middle East-Western Europe 2 optical fiber cable, which lands in
13 countries  between Singapore and France,  including India. This cable,  which
became fully  operational  in June 1994,  was operating  4,099 and 461 effective
high speed circuits as of March 31, 2001. In addition to expanding significantly
the number of international  circuits  available to the Company,  this cable has
also led to an improvement in the Company's international services,  since fiber
optic cables provide relatively higher quality  transmission than satellites and
enhance the Company's ability to offer high quality,  high capacity digital data
transmission services.


                                       45
<PAGE>

         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).  The Company made a provision of Rs.2.5 billion (US$53.36  million)
investment  in this cable in its revised Ninth Plan and the Company has acquired
a 3.5 percent  interest in the cable.  This cable added a total of approximately
11,340 Voice  Circuits to the  Company's  transmission  capacity from Mumbai and
Cochin out of which a total of 10,901  circuits  were  utilized  as of March 31,
2001.  This  cable  operated  at a total of 362  effective  Voice and 1,693 Data
circuits  from  Mumbai  as also  1299  effective  Voice  and 996  Data  circuits
respectively from Cochin as of March 2001.

         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,
2001,  3,007 of the  Company's  purchased  circuits on this cable system were in
use.

         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), 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, 2001,  the Company had the  capacity to connect  37,271
international  telephone,  2,386 telex and 198 telegraph circuits or channels to
its switches.  Substantially all of the Company's telephone capacity is digital,
provided by 12 digital switches installed at the Company's eight gateways.  Each
gateway is linked to the other gateways via dedicated  digital lines leased from
Bharat Sanchar Nigam Limited,  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.  The switches  operated by the Company
are supplied by Ericsson and NEC.

         With a view to obtaining secure and competitive  supplies,  the Company
procures equipment from a wide range of sources,  and the Company considers that
in all major areas of procurement there are sufficient  alternative suppliers to
make it unlikely  that  interruption  of supply from any one source  would cause
more than a temporary delay in the implementation of the Company's plans.

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, 2001,  the Company  owned five high
capacity underground fiber optic cables between Pune and Chennai,  approximately
50 earth stations,  six terrestrial  radio  communication  wires  connecting the
Company's  international  switches  with its earth  stations  and a  variety  of
hardware used for the Company's six main Internet access nodes.

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,  1999,  2000 and
2001 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
1999, 2000 and 2001,  which have been prepared by the Company in accordance with
US GAAP.


                                       46
<PAGE>

OPERATING RESULTS

         The  following  table sets forth  information  regarding  the Company's
operating data for the fiscal years ended March 31, 1999, 2000 and 2001.

<TABLE>
<CAPTION>

                                                                      YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------------------
                                                         1999                 2000              2001
                                                 -------------------- -------------------- ---------------------
<S>                                                       <C>                  <C>                  <C>
Paid telephone minutes (millions).............
Incoming......................................          1,499                1,773                2,161
Outgoing......................................            436                  473                  527
   Total......................................          1,935                2,246                2,688

Ratio (incoming/outgoing).....................           3.44                 3.75                 4.10

Average  revenue  received  from  Bharat
 Sanchar  Nigam  Limited  for  outgoing
 telephone calls ...
 (Rs./minute).................................          41.84                38.85                34.81
Average settlement rate received from foreign
 administrations for incoming telephone calls..
(Rs./minute)..................................          29.24                25.47                21.60
(US$/minute)(1)...............................           0.69                 0.58                 0.46
</TABLE>

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

(1)  Translated at the average of the Market Rates on the last day of each month
     during the period  which was  Rs.42.50,  Rs.43.65 and Rs. 46.85 per US$ for
     the fiscal years ended March 31, 1999, 2000 and 2001 respectively.

         The  following  table sets forth  information  regarding  the Company's
operating revenue for the fiscal years ended March 31, 1999, 2000 and 2001.

<TABLE>
<CAPTION>

                                                               YEARS ENDED MARCH 31,
                                        ------------------------------------------------------------------------
                                         1999                2000                2001                 2001
                                        -----                ----                ----                 ----
                                                        (RS. IN MILLIONS)                        US$ in millions
                                        -------------------------------------------------      -----------------
<S>                                        <C>                 <C>                 <C>                    <C>
OPERATING REVENUE
Incoming telephone.............         43,834              45,161              46,674                  996
Incoming telex.................            186                 128                 112                    2
Outgoing telephone.............         18,243              18,375              18,345                  392
Outgoing telex.................            173                 175                 112                    2
Leased circuits................          2,499               2,986               3,140                   67
Internet access services.......          1,733               2,095               2,980                   64
Other revenue..................            513                 720                 553                   12
                                        ------              ------              ------                -----
Total traffic revenue..........         67,181              69,640              71,916                1,535
                                        ======              ======              ======                =====
</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 in mostly Special Drawing Rights ("SDRs") or Dollars,
and (2) payments from Bharat  Sanchar Nigam Limited 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 revenue sharing  arrangement  with Bharat
Sanchar Nigam Limited,  accounting 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."


                                       47
<PAGE>

         TELEPHONE  REVENUE.  Revenue from telephone  traffic  historically  has
constituted the most substantial component of the Company's revenue,  accounting
for 92.40,  91.23  percent and 90.41  percent of revenue  for the fiscal  years,
1999, 2000 and 2001, respectively. The decline in telephone traffic revenue as a
percentage  of  total  revenue  is  due  primarily  to  the  increasing  revenue
contribution  from specialized and value-added  services such as Internet access
and international leased lines.

         Telephone  revenue grew by 2.35 percent  during fiscal 2000 and by 2.33
percent  during  fiscal  2001,  reflecting  increases  in total call volumes (as
measured  in paid  telephone  minutes)  of  16.07  percent  and  19.68  percent,
respectively. Incoming call revenue increased by 3.03 percent during fiscal 2000
and by 3.35  percent  during  fiscal 2001  primarily as a result of increases in
incoming call volume of 18.28 percent and 21.88 percent,  respectively,  and the
depreciation  of the Rupee  against the SDR and the Dollar  which  increased  in
Rupee terms the amount of foreign currency received from foreign administrations
and carriers.  This  increase was in spite of  reductions  in  accounting  rates
between the Company and foreign administrations and carriers in the same period.
The average settlement rate received from foreign  administrations  and carriers
in  respect  of  incoming  telephone  traffic  for  fiscal  1999,  2000 and 2001
decreased  in Dollar  terms  from  US$0.69,  to US$0.58  and to US$0.46  minute,
respectively  as a result of decreases in  accounting  rates  applicable  to the
Company.

         Outgoing call revenue  increased by 0.72 percent during fiscal 2000 due
to an increase in outgoing  call volume of 8.49  percent;  Outgoing call revenue
decreased  by 0.16  percent in fiscal 2001 despite an increase in call volume of
11.42 percent (due primarily to decreases in the applicable accounting rates.)

         The  increases  in incoming  call volume in fiscal 2000 and fiscal 2001
were attributable,  among other things, to decreases in average tariff rates for
international calls charged by foreign  administrations and carriers,  including
those in the United States,  which resulted in part from decreases in accounting
rates.  See "Item 4.  Information  on the  Company--Traffic  Revenue and Revenue
Sharing  Arrangement--Payments to and from Foreign Administrations or Carriers."
Increases in incoming call volume are also attributable to the increasing volume
of calls from India made through  call-back  and home country  direct  services,
which calls are billed  outside of India and are  therefore  treated as incoming
calls.  The increases in outgoing call volume in such periods were  attributable
principally  to the expansion and  upgrading of the domestic  telephone  network
which  resulted  in improved  access to the  Company's  international  telephone
services and to the reduction in tariffs for outgoing international calls.

         The ratio of incoming to outgoing calls increased steadily from 3.44 in
fiscal 1999, to 3.75 in fiscal 2000 and to 4.10 in fiscal 2001.  Such  increases
in the ratio of incoming  to outgoing  calls are due,  among  other  things,  to
continuing  decreases  in average  tariff  for  international  calls  charged by
foreign administrations and carriers, including those in the United States, as a
result of which it is  cheaper  to place a  long-distance  call to India from an
international destination than to place an international long-distance call from
India, and the effect of call-back and home country direct services.

         The  Company is facing  further  declines in  international  accounting
rates,  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."  Declines in tariff rates for telephone  services
offered by the Company,  including an approximately 27 percent reduction in peak
international call tariffs for fiscal 2000, have also been mandated by the TRAI.
TRAI has also mandated a further 23 percent reduction in peak international call
tariffs over the two fiscal years ended 2002. Accordingly, the TRAI has mandated
a further  reduction  in  tariffs  of 16 to 20 percent  for  international  long
distance  calls.  Such reduced tariffs are between October 1, 2000 and March 31,
2002. See "Item 3. Key Information--Risk  Factors--Tariff Reform." While further
declines in tariff rates can be expected to increase  traffic volume,  there can
be no assurance that lower tariff rates will not lead to  unfavorable  revisions
to the  revenue  sharing  arrangement  with  Bharat  Sanchar  Nigam  Limited  or
otherwise adversely affect the Company's business and prospects.

         TELEX REVENUE.  Total revenue from telex services decreased from Rs.359
million in fiscal 1999, to Rs.303  million in fiscal 2000 and to Rs.224  million
(US$4.78 million) in fiscal 2001. Such decreases are attributable principally to
a decline  in telex  traffic  volume as  customers  switched  from  using  telex
services  to other  forms of  communication  such as  facsimile,  telephone  and
E-mail.  Telex revenue  accounted for 0.53 percent of total traffic  revenues in
fiscal 1999, 0.44 percent in fiscal 2000 and 0.31 percent in fiscal 2001.


                                       48
<PAGE>

         LEASED  CIRCUITS  REVENUE.  Revenue from leased  circuits  increased by
19.49  percent  during  fiscal  2000 and by 5.16  percent  during  fiscal  2001.
Increase in revenue from leased circuits is lower as compared to the increase in
the number of customers due to the drastic reduction in tariffs over the period.

         INTERNET ACCESS SERVICES  REVENUE.  Internet access services were first
introduced  by the  Company  in India in August  1995.  Revenues  from  Internet
services were Rs.1,733  million,  Rs.2,095  million and Rs 2,980 million  (US$64
million)  during  fiscal  1999,  fiscal 2000 and fiscal 2001,  respectively,  an
increase of 20.89 percent and 42.24 percent  during fiscal 2000 and fiscal 2001,
respectively.  The  Company's  Internet  subscribers,   inclusive  of  customers
connectd across the remote access nodes of Bharat Sanchar Nigham  Limited,  have
grown from 213, 045 as of March  31,1999 to 366,432 as of March 31, 2000 and had
reached 630,970 as of March 31,2001.  Increase in Internet  revenues is lower as
compared to increase in customers  due to the drastic  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 allows the entry of private  Internet service  providers.  As of March 31,
2001, there were approximately 400 licensed Internet service providers in India.
See   "Item   4.   Information   on   the   Company--Industry   Overview--Recent
Developments."

         In  late  1998,  the  Department  of  Telecommunications  instituted  a
mandatory  license  requirement  for the  provision  of Internet  services.  The
Company  and  the  Department  of  Telecommunications  entered  into  a  license
agreement  on January 25,  1999,  with  effect on the same day,  under which the
Company was granted a license to provide  Internet  access service in six cities
on a non-exclusive basis.

         OTHER REVENUE.  Other traffic  revenues  include revenues from services
such as the transmission of television signals,  telegraph services,  electronic
mail 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 0.76 percent in
fiscal 1999, 1.03 percent in fiscal 2000 and 0.77 percent in fiscal 2001.

         ACCOUNTING  RATES.  The Company has concluded  its annual  negotiations
with its US  correspondent  carriers and with other major foreign  correspondent
carriers and  administrations  with respect to  accounting  rates  applicable to
fiscal 2001.  The Company  recorded  revenues on its incoming calls and costs on
its outgoing calls for the year ended March 31, 2001 at the accounting  rates at
which final settlement was reached.

         INCOME FROM SATELLITE CONSORTIA. This income accrues from investment in
satellite  consortia,  which are on account of amounts  paid to Intelsat for the
use of its  satellites,  which  are  paid  to the  signatories  in the  form  of
compensation  for the use of Capital.  Such income  decreased by 2.64 percent in
fiscal 2000- and increased by 57.39 percent in fiscal 2001.  The increase was on
account of additional  special  distribution on account of the  privatization of
Intelsat.

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
Department of Telecommunications.

         The  following  table  sets forth  certain  information  regarding  the
components  of the  Company's  operating  costs for the fiscal years ended March
31,1999, 2000 and 2001.


                                       49
<PAGE>
<TABLE>
<CAPTION>

                                                                        YEARS ENDED MARCH 31,
                                                        -----------------------------------------------------

                                                              1999              2000              2001
                                                        ----------------- ----------------- -----------------
<S>         <C>                                                  <C>              <C>               <C>
Average revenue sharing rate paid to Bharat Sanchar
Nigam Limited for incoming telephone calls .........
(Rs./minute)........................................            18.28            16.46             12.53
Average settlement rate paid to foreign
administrations for outgoing telephone calls........
(Rs./minute)........................................            32.33            26.33             23.81
(US$/minute)(1).....................................             0.76             0.60              0.51

Network and transmission costs
(in millions).......................................
Transmission costs to Bharat Sanchar Nigam Limited(2)       Rs.27,682        Rs.29,254            27,341
Transmission costs to foreign administrations(3)....           14,762           13,374            13,866
Other transmission costs............................            2,695            2,993             3,943
                                                                -----            -----             -----
Total...............................................           45,139           45,621            45,150
Other operating costs including depreciation (in
millions)...........................................            2,894            4,156             4,752
Government levy/license fee
(in millions).......................................            4,157            4,712             5,022
                                                                -----            -----             -----

Total operating costs (in millions).................           52,190           54,489            54,924
                                                               ======           ======            ======
</TABLE>

--------------
(1)  Translated at the average of the market rates on the last day of each month
     during the period which was Rs.42.50, Rs.43.65 and Rs.46.85 per US$1.00 for
     the fiscal years ended March 31,1999, 2000 and 2001 respectively.
(2)  Out of such  amounts,  payments  in respect  of  incoming  telephone  calls
     amounted to Rs.27,405 million,  Rs.29,176 million and Rs.27,079 million for
     the fiscal years ended March 31, 1999, 2000 and 2001 respectively.
(3)  Of such amounts,  payments in respect of outgoing  telephone calls amounted
     to  Rs.14,095  million,  Rs.12,455  million and  Rs.12,578  million for the
     fiscal years ended March 31, 1999, 2000 and 2001 respectively.

         NETWORK AND TRANSMISSION COSTS.  Network and transmission costs include
transmission  costs to Bharat Sanchar Nigam Limited for incoming  traffic and to
foreign  administrations  and  carriers  for  outgoing  traffic  (See  "Item  4.
Information on the Company--Traffic  Revenue and Revenue Sharing  Arrangement"),
as well as the cost of leasing certain transmission facilities,  including lines
from Bharat Sanchar Nigam Limited and satellite circuits from Intelsat, Inmarsat
and New Skies Satellites, NV.

         Transmission costs to Bharat Sanchar Nigam Limited for incoming traffic
increased by 5.68 percent during fiscal 2000 while these costs have decreased by
6.54 percent during fiscal 2001, principally due to decrease in settlement rates
being higher than the increase in volume.  The average revenue sharing rate paid
to Bharat Sanchar Nigam Limited per minute for incoming  traffic  decreased over
this  period.  Transmission  costs to foreign  administrations  and carriers for
outgoing traffic  decreased by 9.4 percent during fiscal 2000 due principally to
decrease in settlement rates.  Payments to foreign  administrations and carriers
for outgoing traffic increased by 3.68 percent in fiscal 2001 due to an increase
in call volume being higher than the increase in settlement  rates.  The average
settlement  rate paid to foreign  administrations  and carriers  decreased in US
Dollar terms from US$0.76,  to US$0.60 per minute and to US$0.51 per minute, and
in Rupee terms from  Rs.32.33,  to Rs.26.33  and to Rs.23.81  per minute for the
fiscal years ending March 31, 1999,  2000 and 2001  respectively.  This decrease
was  primarily as a result of decreases in  accounting  rates  applicable to the
Company.

         The cost of leasing transmission  facilities increased by 11.06 percent
and  31.74  percent  during  fiscal  2000 and  fiscal  2001  respectively.  Such
increases are attributable  primarily to increases in both incoming and outgoing
call  volume,  which  necessitated  leases of  additional  lines  and  satellite
circuits.

         OTHER  OPERATING  COSTS.  Other operating costs consist of staff costs,
depreciation,  energy costs and other costs, including for repairs,  maintenance
and  marketing.  During  fiscal 2000 other  operating  costs  increased by 43.61
percent and during fiscal 2001 other operating costs increased 14.34 percent due
principally to greater expenditures relating to repairs and maintenance,  spares
and electricity charges and substantial increases in staff costs.


                                       50
<PAGE>

         LICENSE  FEE.  For fiscal  1999,  fiscal 2000 and fiscal 2001 under the
current revenue sharing  arrangement with the Department of  Telecommunications,
the  Company  paid to the  Department  of  Telecommunications  a license  fee of
Rs.0.25 million per circuit commissioned on average per annum. Under the current
revenue  sharing  arrangement  with the  Department of  Telecommunications,  the
amount of the license fee paid by the Company  increased by 13.35 percent during
fiscal  2000  and by  6.58  percent  due  fiscal  2001  due to the  addition  of
commissioned circuits.

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, 1999, 2000 and 2001.

<TABLE>
<CAPTION>
                                                                        YEARS ENDED MARCH 31,
                                                          --------------------------------------------------

                                                                1999             2000             2001
                                                          ---------------- ---------------- ----------------
<S>                                                              <C>               <C>              <C>
Gross profit on telephone services (in millions)(1)....      Rs.20,577        Rs.21,174        Rs.25,251
Gross profit per telephone minute......................          10.63             9.43             9.39
  Incoming(2)..........................................           9.92            12.54             8.99
  Outgoing(2)..........................................          10.84             8.60            11.05
  Operating profit (in millions).......................         15,748           15,888           18,152
</TABLE>

-----------------
(1)  Telephone  revenue net of revenue sharing  payments to Bharat Sanchar Nigam
     Limited for incoming  telephone  calls and  settlement  payments to foreign
     administrations  and carriers for outgoing telephone calls after prior year
     adjustments.
(2)  The actual gross profit per telephone minute with respect to incoming calls
     from, and outgoing calls to,  particular  countries varies depending on the
     settlement rates negotiated with the telecommunications  administrations or
     carriers of such countries.

         Gross profit on  telephone  services  increased  2.90 percent and 19.25
percent in fiscal 2000 and fiscal 2001  respectively.  These  increases  are due
primarily  to  increases  in total  traffic  volume of 16.07  percent  and 19.68
percent,  for the fiscal years ended March 31, 2000 and 2001  respectively.  The
increase  in gross  profit on  telephone  services  in fiscal  2000 and 2001 was
despite a 11.29 and 0.42 percent  decrease in gross profit per telephone  minute
due to drastic reductions in settlement rates and changes in traffic patterns.

         Gross  profit per  telephone  minute is the average of gross profit per
telephone  minute for incoming and  outgoing  traffic,  weighted by the ratio of
incoming to outgoing calls.

         Gross profit per  telephone  minute for incoming  traffic  increased by
26.41 percent  during  fiscal 2000 and decreased by 28.31 percent  during fiscal
2001 the Company due to an increase in losses borne by the Company in connection
with its revenue  sharing  arrangements  with Bharat Sanchar Nigam  Limited.  In
fiscal 1998 the current revenue sharing  arrangement came into effect, and under
the current revenue sharing arrangement, payments between the Company and Bharat
Sanchar Nigam Limited over the course of the fiscal year are based on settlement
rates and exchange  rates  prevailing at the  beginning of the fiscal year.  See
"Item  4.  Information  on the  Company--Traffic  Revenue  and  Revenue  Sharing
Arrangement."  During  fiscal  2000  and  fiscal  year  2001,  the  fall  in the
depreciation of the Rupee against the SDR and the US Dollar exceeded the fall in
the average incoming  settlement rates.  Consequently,  the payments made by the
Company in fiscal 1999 and fiscal 2000 were based on lower  incoming  settlement
rates than the  Company  actually  received  from  foreign  administrations  and
carriers  during the  course of the year.  Coupled  with the larger  fall in the
value of the Rupee  relative to incoming  settlement  rates the Company earned a
gross  profit per incoming  telephone  minute that was higher than the Rs.10 per
minute provided under the revenue sharing agreement.

         Gross profit per  telephone  minute for outgoing  traffic  decreased by
20.66 percent  during fiscal 2000 and increased by 28.49 percent in fiscal 2001.
In fiscal 1999, fiscal 2000 and fiscal 2001, the Company was operating under the
current revenue sharing arrangement under which the payments between the Company
and Bharat  Sanchar  Nigam  Limited are based on  settlement  rates and exchange
rates  prevailing at the beginning of the fiscal year. See "Item 4.  Information
on the Company-- Traffic Revenue and Revenue Sharing Arrangement." During fiscal
2000 and fiscal 2001, the  depreciation  of the Rupee against the SDR and the US


                                       51
<PAGE>

Dollar exceeded the fall in average outgoing settlement rates. Consequently, the
payments  received by the Company from Bharat  Sanchar  Nigam  Limited in fiscal
1999,  2000 and fiscal 2001 were based on lower outgoing  settlement  rates than
the Company  actually paid to foreign  administrations  and carriers  during the
course of the year.  Coupled with the lesser  depreciation  of the Rupee against
the SDR and the US Dollar  relative to the fall in average  outgoing  settlement
rates, the Company earned a gross profit per outgoing  telephone minute that was
higher than the Rs.10 per minute provided under the revenue sharing arrangement.

         Operating  profit  increased by marginally  0.89 percent  during fiscal
2000.  Operating  profit  increased by 14.25  percent  during fiscal 2001 due to
primarily  increase in gross  profit on  telephone  services as well as revenues
from leased circuits,  Internet access services,  offset by increases in rent of
transmission facilities and other operating costs.

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, 1999, 2000 and 2001.

<TABLE>
<CAPTION>

                                                                       YEARS ENDED MARCH 31,
                                                         -------------------------------------------------

                                                               1999             2000            2001
                                                         ---------------- ---------------- ---------------
                                                                           (IN MILLIONS)
<S>                                                           <C>              <C>              <C>
Revenue from Intelsat.................................          507              737            1,160
Revenue from Inmarsat.................................          250                -                -
Profit / (loss) on sale of investments................           10               86               (5)
Forex gains...........................................        3,168            1,449            2,878
Other income..........................................        1,523            1,968            4,148
                                                              -----            -----            -----
Total.................................................        5,458            4,240            8,181
                                                              =====            =====            =====
</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.

         In April 1999,  Inmarsat was restructured as a corporate entity and the
Company was allotted shares in lieu of its investment in Inmarsat. Consequently,
any  future  revenues  from this  investment  will be in the form of  dividends.
Investment and other income decreased during fiscal 2000 by 37.18 percent and in
fiscal  2001,  increased  by  64.89  percent  primarily  due to an  increase  of
compensation from Intelsat on account of special distribution and higher foreign
exchange gains.

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 receivable  increased during fiscal 2000 from Rs.1,387
million in fiscal  1999 to Rs.1,683  million and during  fiscal 2001 to Rs.3,964
million (US$84.61 million) due to an improvement in the Company's cash position.

INCOME BEFORE TAXATION

         Income  before  taxation  increased  by 28.86  percent  from  Rs.15,002
million in fiscal  1999 to  Rs.19,331  million  in fiscal  2000.  Income  before
taxation  increased  by  30.22  percent  in  fiscal  2001 to  Rs.25,173  million
(US$537.31 million).


                                       52
<PAGE>

INCOME TAX EXPENSE

         The Company's  effective tax rates (including  dividend tax) were 42.23
percent, 32.28 percent and 38.32 percent for fiscal 1999, fiscal 2000 and fiscal
2001, respectively, compared to the statutory rate of 38.5, 39.2, 35 percent for
all such fiscal years.  Such effective rates were attributable to exchange gains
treated as capital receipts for income tax provision, provision in dimunition in
the value of investments not allowed for tax, etc..

         The Indian tax authorities  have taken the position that the Company is
not  entitled  to a tax  deduction  it took in the year ended March 31, 1995 for
license  fees paid by it to the DOT. The Indian tax  authorities  claim that the
Company owes  approximately  Rs.2.8  billion,  Rs.2.4  billion,  Rs.2.5 billion,
Rs.3.0 billion and Rs.2.6  billion in respect of taxes due (including  interest,
but excluding penalties) in connection with the license fees for the years ended
March 31, 1994, 1995, 1996, 1997 and 1998,  respectively.  Tax refunds otherwise
due to the Company for  subsequent  years,  amounting to  approximately  Rs.6.46
billion,  have been applied by the Indian income tax authorities to a portion of
this  disputed  claim.  In  addition,  the Company has paid the tax  authorities
Rs.3.6  billion  with respect to this claim.  However,  the  outstanding  amount
continues  to accrue  interest at a rate of two  percent per month.  The Company
disputed  this claim and lodged an appeal with the  Commissioner  of  Income-tax
(Appeals)  - I,  Mumbai  for  each  of the  four  relevant  years.  The  Company
subsequently  appealed  to the  Income-tax  Appellate  Tribunal,  Mumbai  as the
Commissioner of Income-tax (Appeals) - I. Mumbai denied the Company's claim with
respect to the year ended March 31, 1995.  The appeals with respect to the other
years are still  pending  with the  Commissioner  of  Income-tax  (Appeals) - I,
Mumbai. On September 14, 2000 the Income-tax  Appellate Tribunal,  Mumbai issued
an order  in the  Company's  favor  and held  that the  license  fee paid by the
Company to the DOT is an allowable tax deductible  expenditure  under the Income
Tax Act.  Consequent  to this  order,  the refund due to the Company is adjusted
against the demand due for the subsequent  years.  In addition,  the Company can
request the  Commissioner  of  Income-tax  (Appeals) - I, Mumbai to expedite the
orders for the other years.

         The  Income  Tax  Department  has the right to appeal  the order of the
Income Tax Appellate Tribunal in the High Court within a period of 120 days from
the date of the order.  The Company has so far not received  any  communications
from the department/High Court on whether the department has disputed this claim
of the  Company in the High  Court.  If the  Company  loses  that case,  the tax
authorities may make the Company liable for similar claims for subsequent  years
and this could  result in an  aggregate  potential  liability  of  approximately
Rs.12.4 billion (US$264.8 million) including interest,  but excluding penalties,
thereon as of March 31, 2001 and additional amounts for the periods  thereafter.
The Company has been advised by independent Indian counsel that it believes that
the Company has a strong case with respect to this claim.

         The  Indian  tax  authorities  have also  taken the  position  that the
Company is not entitled to a tax benefit  claimed by it in the years ended March
31, 1996, 1997 and 1998 with respect to certain of its profits which the Company
claims were generated by an enterprise  engaged in  infrastructure  development.
The Indian tax  authorities  claim that the Company  owes  approximately  Rs.0.1
billion,  Rs.0.3  billion and Rs.0.5  billion in respect of taxes due (including
interest)  in  connection  with such profits for the years ended March 31, 1996,
1997 and 1998,  respectively.  The Company disputes this claim and has lodged an
appeal  with  the  Commissioner  of  Income-tax   (Appeals)  -  I,  Mumbai.  The
outstanding  amount of the claim  continues to accrue  interest at a rate of two
percent per month.  If the Company loses its case, the tax  authorities may make
similar  claims  for  subsequent  years,  resulting  in an  aggregate  potential
liability  of  approximately   Rs.5.7  billion  (US$121.66   million)  including
interest,  but excluding penalties,  thereon as of March 31, 2001 and additional
amounts for periods  thereafter.  The Company  believes that it has a reasonable
basis for its claim and that its appeal will succeed.

         Furthermore,  the Indian tax  authorities  have taken the position that
the Company has not offered for tax certain  reimbursements it received from the
Government  during the year ended  March 31,  1994.  The Indian tax  authorities
claim that the Company owes approximately Rs.1.1 billion in respect of taxes due
in connection  with such  reimbursements  for the year ended March 31, 1994. The
Company  disputes this claim and has lodged an appeal with the  Commissioner  of
Income Tax (Appeals) - I. Mumbai.  The outstanding amount of the claim continues
to accrue  interest at the rate of two percent per month.  If the Company  loses
its case, the Company's  aggregate  potential  liability would be  approximately
Rs.2.7 billion (US$57.63 million) including interest,  but excluding  penalties,
thereon as of March 31,  2001.  The Company  believes  that it has a  reasonable
basis for its claim and that its appeal will succeed.


                                       53
<PAGE>

         Consequently,  the Company  has not made  provision  for the  potential
liability arising from these claims.

NET INCOME

         Net income  increased  by 51.06  percent in fiscal  2000 from  Rs.8,666
million in fiscal 1999 to Rs.13,091 million in fiscal 2000. Net income increased
by 17.81  percent in fiscal 2001 to  Rs.15,422  million  (US$329  million)  from
Rs.13,091 in fiscal 2000.

         LIQUIDITY AND CAPITAL RESOURCES

         The  Company  traditionally  has met its  working  capital  and capital
expenditure requirements with cash flow generated from operations.  In addition,
the Company  borrows funds under short term  overdraft  facilities  from time to
time in order to meet temporary  working  capital  deficits.  The Company has no
long-term loans or other long-term borrowings.

         As of March  31,  2001,  the  Company's  cash and  bank  balances  were
Rs.2,200  million (US$47  million),  reflecting a decrease of Rs.18,646  million
(US$398 million) since March 31, 2000.

         The  Company's  working  capital  (net  of  cash)  has  increased  from
Rs.41,752  million (US$891 million) as of March 31, 2000 to Rs.53,733 million as
of March 31, 2001.  This  increase is primarily due to an increase in short term
investments and other assets.

         OTHER INVESTMENTS

         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.

         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%. The Company had,  therefore,  made a provision for a loss of 99
percent of its investment in ICO in its  consolidated  financial  statements for
the  fiscal  year ended  March 31,  1999.  The  Company  recognized  a charge of
Rs.5,416  million and Rs.54 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.

         CAPITAL EXPENDITURES

PROCESS OF THE COMPANY'S FIVE YEAR PLANS

         Indian government  agencies and public sector companies,  including the
Company,  implement capital  expenditure  programs through a series of five year
plans.  The Company's five year plans are typically  subject to mid-term review,
which have  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  has also  been  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 are  often  revised  upward or  downward  as may be  required  by
changes in the telecommunications market and the evolving needs of the Company.


                                       54
<PAGE>

EIGHTH FIVE YEAR PLAN PROJECTS

         The Company's Eighth Five Year Plan (the "Eighth Plan"),  which covered
the period from April 1992 to March 1997 (the period  covered by the  Department
of  Telecommunications'  investment  program for India's Eighth Five Year Plan),
originally   provided  for  total  capital   expenditures   by  the  Company  of
approximately  Rs.9  billion  (US$192.10  million),  primarily  for facility and
equipment  investments within India to augment  transmission (both satellite and
cable)  and  connecting  capacity  and for  securing  rights  to use  additional
circuits on the Intelsat and Inmarsat  systems and on cables in the Atlantic and
Pacific  regions.  Principally  as a result of  faster-than-projected  growth in
domestic  demand  for  international   telecommunication  services,  during  the
mid-term  review of the Eighth  Plan in 1995,  the amount of  estimated  capital
expenditures was revised upwards to a total of approximately  Rs.14 billion (US$
298.83  million) for the entire five year period.  Upon completion of the Eighth
Plan in  March  1997,  the  Company  had made  actual  capital  expenditures  of
approximately Rs.15.4 billion (US$ 328.71 million).

         During the Eighth Plan,  two new standard A Intelsat earth stations and
the  South  East  Asia-Middle  East-Western  Europe 2 cable  were  commissioned,
numerous  facilities  were  digitalized,  connecting  capacity of  switches  was
increased  from 7,000 to 30,000  lines,  an earth  station  was  established  to
provide  Inmarsat  mobile  services,  and additional  value-added  services were
introduced,  including  Inmarsat related services,  Internet access,  electronic
data  interchange,  video  conferencing,  managed data network services and high
speed leased line circuits.

NINTH FIVE YEAR PLAN PROJECTS

         The  Company's  Ninth Five Year Plan (the "Ninth  Plan"),  covering the
period from April 1997 to March 2002 (the period  covered by the  Department  of
Telecommunications'  investment  program for India's Ninth Five Year Plan),  was
originally  adopted by the Board of  Directors  of the  Company  (the  "Board of
Directors") in November 1996. The original Ninth Plan provided for total capital
expenditures by the Company of approximately  Rs.50.3 billion (US$1074 million).
In  preparation  for the  mid-term  review  of the  Ninth  Plan by the  Board of
Directors,  the Ninth Plan was revised by  management  of the Company in January
1999 and proposed an increase in total capital expenditures from Rs.50.3 billion
(US$1,074 million) to Rs.73.19 billion (US$1,562 million). The proposed increase
primarily  reflected  increases  resulting  from the  depreciation  of the Rupee
against the US Dollar and substantial  changes to the scale and scope of certain
individual projects caused by changes in the  telecommunications  industry,  the
evolving needs of the Company and imprecise  estimations and inaccuracies in the
information provided in the original Ninth Plan. See "--Financial and Management
Accounting  and  Reporting  Systems."  The Ninth  Plan was  further  revised  by
management  and at the mid-term  review of the Ninth Plan in September  2000 the
Board of  Directors  approved the newly  revised  plan which  provided for total
capital  expenditures  of  Rs.59.1  billion  (US$1261  million).   Such  capital
expenditures  were primarily for additional  facility and equipment  investments
within India to augment  transmission  (both satellite and cable) and connecting
capacity of the switches,  for securing rights to use additional circuits on the
Intelsat and Inmarsat  systems and for  participating  in various undersea cable
projects in the  Atlantic  and Pacific  regions  and  various  satellite  mobile
telecommunications  systems.  These  investments  are  planned  in  response  to
telecommunications  network,  including through the future  participation of new
licensees  in domestic  long  distance  fixed line and mobile  telecommunication
services.  See  "Item 4.  Information  on the  Company--Industry  Overview."  In
addition,  these infrastructure  investments are expected to provide the Company
with a platform from which additional  services may be launched.  The Ninth Plan
also  contemplates  significant  capital  expenditures  in the areas of enhanced
Internet  access  and  other  specialized  and  value-added  services,  such  as
satellite  video uplinking and  direct-to-home  television  systems,  as well as
maintenance,  repair and  replacement  projects  and various  building and civil
works at Company locations.

         The original  Ninth Plan was approved in principle by the Department of
Telecommunications.  Certain projects  envisioned by the revised Ninth Plan that
exceed  defined  expenditure  levels  or the  current  scope  of  the  Company's
operations  remain  subject  to  further  review  and  formal  approval  by  the
Department  of  Telecommunications  and other  Government  entities  pursuant to
established  rules and procedures of the  Government.  There can be no assurance
that such  approvals will be issued or that such projects will be implemented as
currently planned.

         The  total  expenditures  of  approximately  Rs.59.1  billion  (US$1261
million)  covered by the  revised  Ninth Plan were  calculated  using  different
exchange  rates,  in accordance  with Indian GAAP. For all capital  expenditures
planned or  provided  for under the  revised  Ninth Plan  during the  three-year
period ending March 31, 2002, calculations were made assuming that 61 percent of
the cost will be denominated in currencies other than Rupees.


                                       55
<PAGE>
         The  following   table  sets  forth  the  actual  and  planned  capital
expenditures  of the Company  under the revised Ninth Plan by type of investment
for the periods indicated.  The planned capital  expenditures of the Company for
the  years  ended  March  31,  1997  through  March 31,  2002  represent  actual
expenditures  for the years ended March 31, 1997  through  March 31,  2001,  and
management's  estimates of projected  expenditures  for the year ended March 31,
2002. There can be no assurance that the Company's capital expenditure plan will
be  implemented  as  described  below.   See  "Item  3.  Key   Information--Risk
Factors--Significant Additional Capital Expenditures."
<TABLE>
<CAPTION>

                                                       YEAR ENDED MARCH 31,                           TOTAL
                                    -----------------------------------------------------------       -----
                                        1998         1999        2000         2001         2002
                                        ----         ----        ----         ----         ----
                                                          MILLIONS OF RUPEES
<S>                                     <C>         <C>           <C>        <C>        <C>            <C>
Transmission.....................     1,062       3,513        1,464       2,527        5,127         13,693
Switching........................       294         202           50         149        1,713          2,408
Specialized and value-added             323         662          659       3,832        4,310          9,786
   services......................
Satellite mobile services........       521          62            6           9            7            605
Restoration/replacement..........        29          41           36          71          100            277
Technical and office equipment...       247         330          153         231          353          1,314
Buildings and civil works........       180         163          582       1,083          779          2,787
Capital contributions to                786         671          922       2,998        4,707         10,084
   Intelsat/Inmarsat and IRUs....
Other projects and investments...     1,135       1,972          442       8,816        5,786         18,151
                                      -----       -----       ------     -------      -------         ------

     Total.......................     4,577       7,616        4,314      19,716       22,882         59,105
                                      =====       =====        =====      ======       ======         ======
</TABLE>

         The Company  has funded the above  capital  expenditures  to the extent
incurred and intends to fund the remaining capital  expenditures  primarily from
the  remaining  net  proceeds  of its  offering  of Global  Depositary  Receipts
("GDRs") in 1997 and cash flow from  operations.  The Company may consider other
options for raising any additional funds that may be required, including through
debt financing,  additional  equity financing and leasing  arrangements,  in the
event that such funds are needed.

         The  principal  areas of investment  contemplated  by the revised Ninth
Plan are as follows:

         EXPANSION OF TRANSMISSION  CAPACITY. The Company intends to invest more
on the  expansion of the Company's  existing  transmission  facilities  than any
other single  category in the revised Ninth Plan. The Company has provisions for
investing   approximately  Rs.5.7  billion  (US$121.66  million)  on  additional
capacity in undersea fiber optic cables,  approximately Rs.3.6 billion (US$76.84
million) on  additional  satellite  earth  stations,  antennas and other related
equipment,  and  approximately  Rs.825  billion  (US$17,609.39  million)  on new
terrestrial  radio  communication  links.  The Company  also plans on  improving
transmission  efficiency by investing in new  multiplex  equipment and equipment
that allows more trunk channels to be concentrated on a particular  transmission
channel. In addition,  the Company plans to establish  additional  international
gateways at Hyderabad by the end of 2001,  each  equipped with  satellite  earth
stations and other facilities.

         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 cable  system,  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).  The Company made a provision of Rs.2.5 billion (US$53.36  million)
investment  in this cable in its revised Ninth Plan and the Company has acquired
a 3.5 percent  interest in the cable.  This cable will have added  approximately
9000  circuits  to  the  Company's   transmission  capacity.  The  cable  became
operational in March 2000.

         The Company has entered into a Construction  and Maintenance  Agreement
with other international  telecommunications  carriers for the construction of a
broadband  high  capacity,  undersea,  fiber optic cable  system,  about  28,000
kilometers long, which will connect Southeast Asia to South Africa,  West Africa
and the Mediterranean region. It will have many landing points including in Cape
Town,  Mauritius,  Reunion,  Cochin  (India) and Penang  (Malaysia).  Presently,


                                       56
<PAGE>

connections  to  African   countries  from  India  are  by  means  of  satellite
transmission or through longer  alternative routes involving a number of transit
points.  This cable  system  provides  the  Company a direct  link to Africa and
indirect links to the  Mediterranean  region.  The Company has made provision in
the  revised  Ninth Plan for an  investment  of up to Rs.2.6  billion  (US$55.50
million) in this cable  system,  which is  scheduled  to be ready for service by
December 2001.

         The Company also plans to complete the  construction of a new satellite
earth station at Hyderabad,  and equipment that allows more trunk channels to be
concentrated on a particular  transmission channel and other equipment and fiber
optic systems at its existing transmission facilities.

         EXPANSION OF NUMBER OF  SWITCHES.  The Company  plans to invest  Rs.1.5
billion  (US$32  million) for  switches in order to  establish an  international
information highway for broadband traffic at Mumbai, Delhi,  Chennai,  Bangalore
and other  cities.  The Company  believes  that these  switches  will enable the
Company to integrate and allocate  bandwidth for voice, data and other broadband
traffic through improving the bandwidth efficiency, and provide the Company with
the ability to keep pace with convergence of voice, data and multimedia.

         Commencing  in the year ending March 31, 2001,  the revised  Ninth Plan
anticipates a need for digital  switch  expansion and other  advanced  switching
equipment to be used in connection with the Company's  facilities.  In addition,
the Company has  completed  the  establishment  of an  additional  international
gateway  exchange  at  Kanpur  in March  2000 and has made a  provision  for the
establishment  of  two  additional  VOIP  international   gateway  exchanges  at
Bangalore and Hyderabad in the revised Ninth Plan.  The Company has made a total
provision  of Rs.400  million  (US$8.54  million) in the revised  Ninth Plan for
these three gateway exchanges.

         SPECIALIZED AND VALUE-ADDED SERVICES. The Company plans to invest Rs.60
million  (US$1.28  million) for the  installation of electronic data interchange
facilities  at Chennai,  New Delhi and  Kolkata,  and to upgrade and augment its
existing  such  facilities  at Mumbai.  The Company also intends to complete the
construction  of  video  conferencing  facilities  in all  of its  international
gateways and has provided for up to Rs.107  million  (US$2.28  million) for this
purpose in the revised Ninth Plan.  The Company has also made  provisions for up
to Rs.7.5 billion (US$160  million)  throughout the balance of the revised Ninth
Plan to augment its Internet  gateways by installing  additional main and remote
access nodes, network management systems and more advanced routing switches.

         The Company is in discussions  with potential  global  partners for the
provision  of  new  E-commerce  and  voice  over  Internet  protocol  in  India.
Accordingly,  the  Company  has  provided  for up to  Rs.500  million  (US$10.67
million) to invest in systems  equipment  which may be required during the Ninth
Plan period in  connection  with the  formation of new global  alliances and the
expansion of managed data  network  services  provided  through  current  global
alliances.

         Provisions  have been made under the  revised  Ninth  Plan for  capital
expenditures of up to Rs.1.1 billion (US$23.48 million) to be used in connection
with  investments in video  uplinking  facilities and  direct-to-home  satellite
television systems.

         SATELLITE MOBILE SERVICES. The Company is one of the founding investors
in ICO Global  Communications  (Holdings)  Limited ("ICO"),  which was formed in
1995 by a consortium of international  telecommunications companies, governments
and satellite and telephone  equipment  manufacturers to establish and operate a
satellite-based mobile  telecommunications system is designed to offer worldwide
digital voice, data.  facsimile and message services primarily through hand-held
mobile terminals.

         The Company has made  capital  contributions  to ICO of US$150  million
until  March 31, 2000 and owned an interest  of  approximately  6.50  percent in
ICO's equity as of such date. In mid 1999,  ICO filed for bankruptcy and emerged
from  bankruptcy  protection  in May 2000.  The bailout  package  envisages  the
creation of New ICO Limited ("New ICO"), and the liquidation of ICO. The Company
is entitled to a very small  percentage  of the share  capital of New ICO and as
such its  investment in ICO is  substantially  reduced.  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 to two Equity Shares of New ICO upon
the payment of US$90 per warrant.  Such warrants are  exercisable  until May 15,
2006. Prior to ICO's bankruptcy filing the Company signed a prelaunch  agreement
with ICO which  specified that the Company was to be designated as the exclusive
provider  of  satellite  mobile  services  for ICO in India.  As a result of the
bankruptcy  proceedings,  this agreement is no longer in effect and will have to
be renegotiated with New ICO at a later date.


                                       57
<PAGE>

         The  Company  provided  gateway  services  for  Iridium  India  Telecom
Limited; the Company provisionally licensed to provide Iridium GMPCS services in
India.  However,  Iridium LLC, USA, the Company owning the  constellation  of 66
Iridium  satellites,  closed its services  worldwide  with effect from March 18,
2000 after the United States  bankruptcy court for the Southern  District of New
York  approved its wind down  operations.  Accordingly,  Iridium  India  Telecom
Limited was not able to perform its commercial  services and gateway  operations
from the gateway at Pune and  decided to close its  commercial  operations  in a
phased manner. Such operations ceased on April 1, 2000.

         In addition, the Company has also provided approximately Rs.8.0 billion
(US$171.76  million) for possible future  acquisitions of satellite  capacity in
the  Indian  Ocean  region  in  collaboration  with the  Indian  Space  Research
Organization.

         CAPITAL CONTRIBUTIONS TO INTELSAT AND INMARSAT AND ACQUISITION OF IRUs.
The Company has made  provisions for  investments of Rs.2.00  billion  (US$42.69
million)  and  Rs.220  million  (US$4.69  million)  in  Intelsat  and  Inmarsat,
respectively,  in the revised Ninth Plan. The planned capital  contributions  to
Intelsat  and Inmarsat are expected to assist the Company in meeting its growing
transmission needs by increasing its available satellite  capacity.  In addition
to these investments,  the Company plans additional investments of up to Rs.6.86
billion (US$146.42 million) in IRU's,  representing cable capacity on systems in
which there are no landing rights in India,  throughout the balance of the Ninth
Plan period.

         PROVISION FOR OTHER PROJECTS AND  INVESTMENTS.  If following the end of
Bharat  Sanchar  Nigam  Limited  monopoly,  the  Company is  licensed to provide
domestic long distance  services,  the Company  expects to invest  approximately
Rs.4.5  billion  (US$96.05  million) in  additional  transmission  and switching
facilities.

         Other capital  expenditures  in the Ninth Plan include  provisions  for
projects involving upgrading various internal management facilities, for Company
management  and new  employees  in  amounts  of up to  Rs.100  million  (US$2.13
million).

         The   Company's   revised   Ninth  Plan   provides  for  total  capital
expenditures of  approximately  Rs.73.19  billion  (US$1562.22  million) further
revised to Rs.59.10  billion  (US$1,261  million)  during the five years  ending
March 31, 2002, of which Rs.36.22 billion (US$773.17  million) had been expended
as of March 31, 2001. See  "--Investment  Program." The Company  intends to fund
the balance of these capital expenditures  primarily from the remaining proceeds
of the 1997 GDR  issue,  and from cash flow from  operations.  The  Company  may
consider other options for raising and leasing  arrangements,  in the event such
funds are needed.

TENTH FIVE YEAR PLAN PROJECTS

         The  Company's  Tenth Five Year Plan (the "Tenth  Plan"),  covering the
period from April 2002 to March 2007 is  provisionally  finalised  and the total
provisional  outlay under the Tenth Plan is Rs.63.3156 billion (US$1.35 billion)
which is further  subject to approval by the Board of the Company and consequent
approval by the Department of Telecommunications. While the Company has achieved
significant  development  in the  Ninth  Five  Year  Plan  period,  the  Company
anticipates liberalization and opening of International Long Distance Service to
competition  during  the  Tenth  Plan  period.  The  Company  hopes  to  achieve
continuous  growth and enhancement in existing  telephony  business and Internet
dial up services while  simultaneously  doing  backward  integration by entering
into the domestic  long distance  market.  The Company also expects to introduce
newer technologies like ATM and VoIP in its network. The Company also expects to
equip its  infrastructure  to provide new value added services like Bandwidth on
Demand, VPN services, Broadband Services and DTH services.


                                       58
<PAGE>

         RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

         The Company  maintains a level of spending on research and  development
activity  which  enables it to keep  abreast of the latest  developments  in the
industry.  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 continue  spending on 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 and graphic user interface
terminal for Internet applications.

         In addition to conducting  research in its own  facilities  the Company
has recently started  considering  funding certain  projects  recommended by the
Telecom  Research  and  Development  Council.  The  Company  is a member of this
council which is constituted by the Ministry of Communications of the Government
of India.  This council  coordinates the research and development  activities in
the field of telecommunications and identifies various key areas of research. It
also identifies  various  projects in these areas and aids in obtaining  funding
for such projects.

         In accordance  with the accounting  policy on research and  development
adopted by the Company in fiscal 2000  onwards,  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.  The Company is
unable to accurately  state its annual  research and  development  expenses from
fiscal 2000.

         TREND INFORMATION

         The  Company  derives a major part of its  revenues  through  telephony
traffic  originating  from and  terminating in the U.S. An economic  slowdown or
such other  negative  impact on the  economy  of the U.S may affect the  revenue
growth and operating results for fiscal 2002. The economic slowdown has affected
the information technology sector and there is a likelihood that this sector may
cut their  spending.  Such  cutbacks  are likely to affect the  revenues  of the
Company as a part of its  operations  are  related to this  sector.  For further
information,  please  see  "Item 3. Key  Information--Risk  Factors"  referenced
herein.

         The opening up of international telephony in India to private operators
and the loss of monopoly of the Company  would  impact  revenues of the Company.
The Company, however, believes that the private operators may not be able to put
up the  infrastructure  to cause major share  erosions for at least a year after
the monopoly loss.

BUSINESS OUTLOOK FOR FISCAL 2002

         Based on  currently  available  information,  the  Company  expects its
business outlook for the fiscal year ending March 31, 2002 to be as follows:

         Gross  revenue for the fiscal year ending March 31, 2002 is expected to
         be in the range of Rs.70490 million (US$1504 million) against which the
         Company has achieved over  Rs.16422  million  (US$350  million) for the
         first quarter ending June 2001.

         The above mentioned  expectations and projections  regarding 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.

         FINANCIAL AND MANAGEMENT ACCOUNTING AND REPORTING SYSTEMS

         The Company,  which remained wholly owned by the Government  until late
1992, continues 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.  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


                                       59
<PAGE>
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 REGISTRANT

         The Company's  Board of Directors has ultimate  responsibility  for the
administration and management of the affairs of the Company,  except for certain
matters  that  are  reserved  by the  Company's  Articles  of  Association  (the
"Articles") for the approval of the President of India.  The Company's  Articles
provide for a Board of not less than three and not more than  twelve  Directors.
The  President of India is empowered by Article 66A to appoint  one-third of the
total number of Directors  sitting at any time as non-retiring  directors and to
designate the Chairman and Managing  Director.  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.

         After the Company  was  declared  by the  Government  in July 1997 as a
"Navratna" company,  the Board of Directors was reconstituted to comprise eleven
members,  including  the Chairman and Managing  Director,  four other  full-time
directors,  two directors nominated by the Department of Telecommunications  and
four other external  directors.  The Company must notify the Public  Enterprises
Selection  Board, a Government  Agency,  of all vacancies in full-time  director
positions of the Company. The Public Enterprises Selection Board then recommends
an  appropriate  person  for the  Company to appoint  pursuant  to the  relevant
provisions of the Indian Companies Act of 1956.

         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>

                                                                            Current Term
Name                           Age     Position                             Expires In             Director Since
------------------------------ ------- ----------------------------------   --------------------   -----------------
<S>                                   <C>                                   <C>                   <C>
Shailendra Kumar Gupta.......  59      Chairman and Managing Director       September 2002         September 1999

Rajneesh Gupta...............  53      Director (Network)                   November 2003          November 1998

R.S.P. Sinha ................  50      Director (Finance)                   January 2004           January 1999

Sadhana Dikshit..............  48      Government Nominee (Deputy           (1)                    January 2001
                                       Director General (LF), the
                                       Department of Telecommunications)
P.V. Vaidyanathan............  54      Government Nominee (Advisor          (1)                    August 2001
                                       (Technology) the Department of
                                       Telecommunications)
Subodh Bhargava..............  59      External Director (Advisor,          December 2001(2)       December 1998
                                       Eicher Goodearth Limited)
N.R. Narayana Murthy.........  55      External Director (Chairman and      December 2001(2)       December 1998
                                       Chief Executive Officer, Infosys
                                       Technologies Limited)
Ashok Wadhwa.................  41      External Director (Managing          December 2001(2)       December 1998
                                       Partner, Ratan S. Mama & Co.)
H.P. Wagle...................  66      External Director (Ex-Chairman,      December 2001(2)       December 1998
                                       Telecom Commission and Secretary,
                                       the Department of
                                       Telecommunications)
</TABLE>


                                       60
<PAGE>

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

(1)  Government  nominee  directors  are not appointed by the  Government  for a
     fixed term.  They are eligible to retire by rotation.  However,  typically,
     nominee  directors  continue on the Board of the Company for so long as the
     nomination is not changed by the Government.

(2)  These are  independent  directors  liable to retire by  rotation.  However,
     their  appointment has been indicated by the Government to be nominated for
     a period of three years each.  However,  this three year nomination  period
     will  have to be  implemented  in  accordance  with the  provisions  of the
     Companies Act and other applicable regulations.

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>
Parminder Mathur.....     52       Chief Vigilance Officer                                 May 1999
S.G. Ranade..........     48       Company Secretary                                       May 1987
Hardev Singh.........     57       Chief General Manager (Corporate                        January 1995
                                   Affairs/Headquarters/Marketing)
K.P. Tiwari..........     51       Chief General Manager (Internet)                        January 1995
M.G.Wasnikar.........     58       Chief General Manager (Operations and Human Resources)  January 1995
Arun Gupta...........     44       Chief General Manager (Finance and Accounts)            May 1998
S.S. Bodh............     41       Chief General Manager (Finance and Accounts)            May 1998
G.C. Banik...........     57       Chief General Manager (Public Relations)                April 2000
C. Sudershan Rao.....     57       Chief General Manager (Finance and Accounts)            May 2000
Debajit Dutta........     48       Chief General Manager (Vigilance)                       June, 2000
</TABLE>

         Apart from Ms. Parminder Mathur, of the Indian Administrative  Service,
all other  principal  executive  officers of the Company are on the rolls of the
Company as permanent employees.

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

         Mr. Shailendra Kumar Gupta (Chairman and Managing Director), has been a
director of the Company  since  September  1999.  Mr.  Gupta has more than three
decades of experience in the Indian domestic telecommunications industry and has
held various government  positions in the  telecommunications  field,  including
Chief  General  Manager   (Telecom  -  Gujarat  Circle)  of  the  Department  of
Telecommunications, Principal General Manager (New Delhi) of Mahanagar Telephone
Nigam  Limited and  General  Manager,  Telephones  (Jaipur).  Mr.  Gupta holds a
Bachelors degree in Electrical  Engineering from Rourkee University and also won
the National Award of Excellence for telecommunications in 1989.

         Mr.  Rajneesh  Gupta,  Director  (Network),  has been a director of the
Company since November 1998. Mr. Gupta has held various government  positions in
the   telecommunications   and  education  fields,   including  General  Manager
(Materials  Management) and General Manager (south Delhi) of Mahanagar Telephone
Nigam Limited,  Chief General  Manager (North East Task Force) of the Department
of  Telecommunications,  and Director  (Technical  Education)  of  Department of
Education  of the  Ministry of Human  Resources  Development.  Mr. Gupta holds a
Bachelors degree in Electrical Engineering and Science.


                                       61
<PAGE>

         Mr.  R.S.P.  Sinha,  Director  (Finance),  has been a  director  of the
Company  since  January  1999.  Prior to joining  the  Company,  Mr.  Sinha held
positions of Director (Finance), Hindustan Organic Chemicals Limited, and Deputy
General Manager (Finance),  Tehri Hydro Development Corporation.  Mr. Sinha is a
fellow  member of Institute of Cost and Works  Accountants  of India.  Mr. Sinha
holds a  Bachelors  degree in  Electrical  Engineering  and a Masters  degree in
Business   Management  with  a  specialization  in  Finance,   both  from  Patna
University, a Bachelors degree in law from Magadh University and passed the exam
of the Certified Associate of Indian Institute of Bankers.

         Ms. Parminder Mathur,  Chief Vigilance Officer of the Company, has been
on deputation from the Government of India to the Company since May 1999. She is
a  postgraduate  in  political  science  and holds a Masters  degree in Business
Administration  from Leeds  University,  U.K.  Prior to her taking over as Chief
Vigilance  Officer,  she was the Chief Electoral Officer of Himachal Pradesh and
also the Commissioner-cum-Secretary (Election) of Himachal Pradesh.

         Mr. S.G.  Ranade,  Company  Secretary,  has been with the Company since
1987.  Prior to  joining  the  Company,  Mr.  Ranade  was  Deputy  Secretary  of
Maharashtra  Elektrosmelt  Limited,  Bombay.  Mr.  Ranade  has  over 26 years of
experience  in his  field.  He is a fellow  member of the  institute  of Company
Secretaries  of India.  Mr.  Ranade  holds  degrees in commerce and law from the
University of Bombay.

         Mr.    Hardev    Singh,     Chief    General     Manager     (Corporate
Affairs/Headquarters/Marketing),  joined the Overseas  Communications Service in
1964 and has been with the  company  since its  establishment.  Mr.  Singh  held
positions in the area of satellite communications, troposscatter communications,
submarine  cables,  technical  planning and Inmarsat.  Mr. Singh holds a Diploma
from  Punjab  State  Board of  Technical  Education  and a Degree in  Electrical
Engineering from the Institute of Engineers, Kolkata.

         Mr. K.P. Tiwari, Chief General Manager (Internet/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. M.G. Wasnikar, Chief General Manager (Human Resources),  joined the
Overseas  Communications Service in 1975 as Deputy  Engineer-in-Charge  (Class I
Service)  through  the Union  Public  Service  Commission  and has been with the
Company  since its  establishment.  Mr.  Wasnikar  holds a  Bachelors  degree in
Electronics  Engineering from  Vishweshwarayya  Regional College of Engineering,
Nagpur.

         Mr. Arun Gupta, Chief General Manager (Finance),  joined the Company in
his present capacity 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 RC&TFC. 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.

         Mr. S.S. Bodh, Chief General Manager  (Finance),  joined the Company in
his present capacity in 1998. Prior to joining the Company,  Mr. Bodh worked for
13 years as  Gazetted  Class I officer  (Indian  Railways  Accounts  Service) in
various areas of Finance and Accounting in Indian  Railways.  He also headed the
Finance department of the Northern Region of the Container  Corporation of India
for more than two years.  Mr.  Bodh holds a Master of arts  degree  from  Punjab
University.

         Dr. G.C. Banik,  Chief General Manager (Public  Relations),  joined the
Company in 1987. Prior to joining the Company, Mr. Banik served in various media
units of the Ministry of Information Service for twenty years. Dr. Banik holds a
post graduate degree in Journalism,  a Master of Business  Administration degree
and a degree of Doctor of Philosophy in  Sociology,  all from the  University of
Mumbai.  Dr. Banik was the National  President  of the  Association  of Business
Communicators of India and Chairman of the Public Relations Society of India. He
has authored two books on Journalism and Public Relations.


                                       62
<PAGE>

         Mr. C. Sudershan Rao, Chief General  Manager  (Finance),  has been with
the Company  since 1989.  He is a Fellow  Member of the  Institute  of Chartered
Accountants  of India and an Associate  Member of the Institute of Costs & Works
Accounts  of  India.  Mr.  Rao also  holds a post  graduate  diploma  in  Public
Enterprise  Management  from  Osmania  University.  Mr. Rao has over 20 years of
experience  in  finance  related  functions  and has  worked at  Siddhartha  Oil
Equipments  Ltd., R.G.  Foundry Forge Ltd., A.P. State Textile Dev.  Corporation
Ltd. and A.P.  Construction Co. Ltd., and as a practising  Chartered  Accountant
prior to joining the Company.

         Mr.  Debajit Dutta,  Chief General  Manager  (Vigilance)  joined Videsh
Sanchar  Nigam  Limited in 1992.  Mr. Dutta was employed as the Deputy  Director
(Personnel  &  Administration)-  Vigilance  by Oil and Natural  Gas  Corporation
Limited  for a period of nine  years  prior to  taking  up his post with  Videsh
Sanchar Nigam Limited.  He has served for two years as a gazetted police officer
of the rank of Deputy  Superintendent  of  Police.  Mr.  Dutta was a  practicing
lawyer specialising in labour matters and civil cases prior to his employment by
the police department.  Mr. Dutta holds a law degree and a post graduate diploma
in Personnel Management and Industrial Relations.

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

         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.

         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.2,000
(US$ 42.68) for attending every Board and a Committee  meeting.  In fiscal 2001,
Rs.135,000  (US$2,882)  were paid towards  sitting fees.  The Directors are also
reimbursed  for travel  and  out-of-pocket  expenses  in  connection  with their
attendence at Board and Committee meetings.

         For the fiscal  year ended  March 31,  2001,  the  aggregate  amount of
compensation paid by the Company to all directors and principal  officers of the
Company was  approximately  Rs.10.27  million.  No director or principal officer
received remuneration from the Company (salary, bonus, housing allowance,  perks
and benefits,etc.) in excess of Rs.1.50 million for fiscal 2001.

         For the fiscal  year ended March 31,  2001,  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.2.5 million.

         OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES.

         There are no employee  share option  schemes or other  similar  schemes
relating to the capital of the Company.

BOARD COMMITTEES

AUDIT COMMITTEE

         The  committee  has four members  including  one full time director and
three   non-official,   part-time   directors.   The  committee  is  chaired  by
non-official  director Mr. Ashok Wadhwa,  with Mr. Subodh  Bhargava and Mr. H.P.
Wagle non-official directors and Mr. S.K. Gupta, Chairman and Managing Director,
as members. The broad scope of the committee is as follows:

         (1) To  oversee  the  Company's  financial  reporting  process  and the
disclosure of its financial  information to ensure that the financial statements
are correct,  sufficient and credible;  to recommend the appointment and removal
of external auditors, fix audit fees and approve payment for any other services,
as applicable;  to review the annual financial statements with management before
they are submitted to the board,  focusing  primarily on:  changes in accounting
policies and practices,  major accounting entries based on exercise of judgement


                                       63
<PAGE>

by management, qualifications in the draft audit report, significant adjustments
arising  out of audit,  the going  concern  assumption,  compliance  with  stock
exchange and legal requirements concerning financial statements, and any related
party  transactions,  that is, company  transactions  of a material  nature with
promoters or the management,  their  subsidiaries or relatives,  that may have a
potential  conflict  with the interests of the Company;  to review  external and
internal  auditors  and the  adequacy  of  internal  control  systems  with  the
management; to review the adequacy of the internal audit function, including the
structure  of the  internal  audit  department,  staffing,  reporting  structure
coverage  and the  frequency  of internal  audits;  to discuss  any  significant
findings with the internal auditors and follow these up; to review and report to
the Board of Directors on the  findings of any  internal  investigations  by the
internal auditors concerning  suspected frauds or irregularities or a failure of
internal  control  systems;  to  discuss  the nature and scope of the audit with
external auditors before the audit commences, and to have post-audit discussions
to ascertain any areas of concern;  to review the  company's  financial and risk
management  policies;  and to look into the reasons for any substantial defaults
in  payments  to  depositors,   debenture  holders,  shareholders  (in  case  of
non-payment of declared dividends) and creditors.

         The Company does not have a remuneration committee.

         EMPLOYEES

         As of March 31, 2001,  the Company had 2,991  employees,  of whom 1,177
were executive employees  (technical employees and other employees with the rank
of officer or higher,  including  fulltime  directors  of the Company) and 1,814
were  non-executive  employees.  As of March 31, 2000,  and March 31, 1999,  the
Company  had  3,014  employees  and  2,975  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.

         As a public sector  enterprise,  the Company  abides by general  Indian
governmental  personnel policies which, among other things, limit its ability to
reduce   employment  levels  and  control  the  amount  of  salaries  and  other
remuneration  that the Company may pay to its  employees.  The Company  believes
that the average salary it pays to its employees is significantly lower than the
average salary of employees at equivalent ranks in the private sector.

         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.  Every five years the Company and the Federation  negotiate and
enter  into a  collective  bargaining  agreement,  which  governs  the  terms of
employment of non-executive  employees.  The most recent agreement,  executed in
November 2000, is for the pay revisions effective from January 1, 1997.

         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.

         On August 1, 2001, the Company announced a Voluntary Retirement Scheme.
The primary  objective for the scheme is to optimize the mix of  experience  and
overall skill level of the  Company's  employees.  The scheme  remains open from
September  1, 2001 to October 31, 2001.  Employees  who are at least 50 years of
age and have  rendered a minimum of 10 years service to the Company are eligible
to  opt  for  voluntary  retirement.  Apart  from  normal  retirement  benefits,
employees  opting for voluntary  retirement will be entitled to (1) a "one-time"
payment of 60 days salary  (including a basic and dearness  allowance)  for each
completed  year of service or (2) a payment of salary for the balance  months of
service left before retirement, whichever is less.

         As of June 30,  2001,  the  members of the Board of  Directors  and the
executive officers of the Company as a group owned an aggregate of 6,600 shares,
representing 0.002% of the Company's shares issued and outstanding at such date.


                                       64
<PAGE>

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

         MAJOR SHAREHOLDERS

         As of the date hereof,  approximately  52.97 percent of the outstanding
Shares of the Company are held by the Government.  Consequently, the Government,
acting  through the Department of  Telecommunications,  controls the Company and
has the power to approve the  appointment  of its directors and to determine the
outcome  of most  actions  requiring  approval  of the  Board  of  Directors  or
shareholders  of the  Company's  business  (including  into  areas in which  the
Company may compete with Bharat Sanchar Nigam Limited), transactions with Bharat
Sanchar Nigam Limited or the assertion of claims  against  Bharat  Sanchar Nigam
Limited. In addition, under the Company's Articles of Association, the President
of India,  on behalf of the  Government  of  India,  may issue  directives  with
respect to the conduct of the business  and affairs of the Company,  and certain
matters with respect to the Company's  business,  including the  appointment and
remuneration of the Company's Chairman and Managing Director and the declaration
of  dividends  are reserved  for the  decision of the  President  of India.  The
Company may not take action in respect of any matter  reserved for the President
without his approval. See "Item 10. Additional  Information--Description  of the
Shares."

         The  following  table  sets forth  certain  information  regarding  the
beneficial  ownership  of the  Equity  Shares at June 30,  2001,  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.

                                            NUMBER OF SHARES
NAME OF BENEFICIAL OWNER                   BENEFICIALLY OWNED(1)     PERCENTAGE
------------------------                   ---------------------     ----------
Government of India (2).......                150,961,440              52.97
-------------------

(1)  Number of shares and percentage  ownership is based on  285,000,000  Equity
     Shares outstanding as of June 30, 2001,  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 June 30, 2001 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  30,2001,  approximately  81,599,086
Equity Shares  (28.63% 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.

         Except as  mentioned  elsewhere  in this annual  report  regarding  the
disinvestment process by the Government of India which would include a change in
the control of management,  there are no arrangements known to the Company which
may at a subsequent date result in a change in control of the Company.

         RELATED PARTY TRANSACTIONS

         The  Company's   principal   related   parties  consist  of  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,  sharing  costs  and
revenues and subletting  premises.  Transactions  other than with the DoT are at
arm's length in accordance  with law.  Transactions  with the DoT are subject to
the revenue sharing  agreement  discussed in Note 1d. The Company's  significant
related party balances and  transactions  with DoT are detailed in the Statement
of Income and in Notes 5, 10, 14 and 15. Other  related party  transactions  and
balances are immaterial individually and in the aggregate.


                                       65
<PAGE>

         The Company is controlled by the Government of India, which holds 52.97
percent of the total equity. The Company's  principal related parties consist of
government departments,  government owned or controlled companies and affiliates
of the Company.  The Company is not aware of transactions between the Government
and such other entities.

         The Company had a revenue  sharing  arrangement  with the Department of
Telecommunications   for  the  fiscal   period   1997-2002.   Pursuant   to  the
corporatisation  of  the  service  provision  functions  of  the  Department  of
Telecommunications,  to the newly  formed and wholly owned  Government  company,
Bharat  Sanchar  Nigam  Limited  with  effect  from  October 1, 2000 the revenue
sharing  agreement  entered  into  by  Department  of   Telecommunications   was
transferred  and  assigned  to Bharat  Sanchar  Nigam  Limited  with effect from
October  1,  2000.  License  fee  shall  continue  to be paid to  Department  of
Telecommunications under the revenue sharing agreement.

         The  Company  routinely  enters  into  transactions  with  its  related
parties,  such  as  providing  telecommunication  services,  sharing  costs  and
revenues and subletting premises. Transactions other than with the Department of
Telecommunications are at arm's length in accordance with law.

         Telstra Vishesh  Communications  Limited is a joint venture between the
Company, Telstra, Australia and Infrastructure Leasing & Financial Services Ltd.
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  consultancy,  facility  management  services and turnkey VSAT projects for
large organizations.The Company had entered into agreements for purchase of VSAT
equipments  during the fiscal  year ended 2001  amounting  to  Rs.10.20  million
(US$0.22 million).  The Company believes that the foregoing transactions were on
terms no less  favourable than could have been obtained from  independent  third
parties.

         INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

         Not applicable.

ITEM 8.  FINANCIAL INFORMATION: CONSOLIDATED FINANCIAL INFORMATION

         CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

         We have elected to provide financial  statements pursuant to Item 18 of
this Form 20-F.

         LEGAL PROCEEDINGS

         The Company is not currently a party to any material  commercial  legal
proceedings.  However,  the Indian tax authorities  have taken the position that
the Company is not  entitled to a tax  deduction it took in the year ended March
31,  1995 for  license  fees paid by it to the DOT.  The Indian tax  authorities
claim that the Company owes approximately Rs.2.8 billion, Rs.2.4 billion, Rs.2.5
billion,  Rs.3.0  billion and Rs.2.6  billion in respect of taxes due (including
interest,  but excluding  penalties) in connection with the license fees for the
years ended March 31, 1994, 1995, 1996, 1997 and 1998 respectively.  Tax refunds
otherwise due to the Company for subsequent  years,  amounting to  approximately
Rs.6.46 billion, have been applied by the Indian tax authorities to a portion of
this  disputed  claim.  In  addition,  the Company has paid the tax  authorities
Rs.3.6  billion  with respect to this claim.  However,  the  outstanding  amount
continues  to accrue  interest at a rate of two  percent per month.  The Company
disputed  this claim and lodged an appeal with the  Commissioner  of  Income-tax
(Appeals) - I, Mumbai for each of the relevant years.  The Company  subsequently
appealed to the Income-tax  Appellate  Tribunal,  Mumbai as the  Commissioner of
Income-tax  (Appeals) - I. Mumbai denied the Company's claim with respect to the
year ended March 31, 1995. The appeals with respect to the other years are still
pending with the Commissioner of Income-tax  (Appeals) - I, Mumbai. On September
14,  2000 the  Income-tax  Appellate  Tribunal,  Mumbai  issued  an order in the
Company's  favor and held that the license fee paid by the Company to the DOT is
an allowable tax deductible  expenditure under the Income Tax Act. Consequent to
this order,  a refund due to the Company is adjusted  against the demand due for
the subsequent  years. In addition,  the Company can request the Commissioner of
Income-tax (Appeals) - I, Mumbai to expedite the orders for the other years.

         The  Income  Tax  Department  has the right to appeal  the order of the
Income Tax Appellate Tribunal in the High Court within a period of 120 days from
the date of the order.  The Company has so far not received  any  communications
from the department/High Court on whether the department has disputed this claim
of the  Company in the High  Court.  If the  Company  loses  that case,  the tax
authorities may make the Company liable for similar claims for subsequent  years
and this could  result in an  aggregate  potential  liability  of  approximately
Rs.12.4 billion (US$264.8 million) including interest,  but excluding penalties,

                                       66
<PAGE>

thereon as of March 31, 2000 and additional amounts for the periods  thereafter.
The Company has been advised by independent Indian counsel that it believes that
the Company has a strong case with respect to this claim.

         The  Indian  tax  authorities  have also  taken the  position  that the
Company is not entitled to a tax benefit  claimed by it in the years ended March
31, 1996, 1997 and 1998 with respect to certain of its profits which the Company
claims were generated by an enterprise  engaged in  infrastructure  development.
The Indian tax  authorities  claim that the Company  owes  approximately  Rs.0.1
billion,  Rs.0.3  billion  and 0.5  billion in  respect of taxes due  (including
interest)  in  connection  with such profits for the years ended March 31, 1996,
1997 and 1998,  respectively.  The Company disputes this claim and has lodged an
appeal  with  the  Commissioner  of  Income-tax   (Appeals)  -  I,  Mumbai.  The
outstanding  amount of the claim  continues to accrue  interest at a rate of two
percent per month.  If the Company loses its case, the tax  authorities may make
similar  claims  for  subsequent  years,  resulting  in an  aggregate  potential
liability  of  approximately   Rs.5.7  billion  (US$121.66   million)  including
interest,  but excluding penalties,  thereon as of March 31, 2001 and additional
amounts for periods  thereafter.  The Company  believes that it has a reasonable
basis for its claim and that its appeal will succeed.

         Furthermore,  the Indian tax  authorities  have taken the position that
the Company has not offered for tax certain  reimbursements it received from the
Government  during the year ended  March 31,  1994.  The Indian tax  authorities
claim that the Company owes approximately Rs.1.1 billion in respect of taxes due
in connection  with such  reimbursements  for the year ended March 31, 1994. The
Company  disputes this claim and has lodged an appeal with the  Commissioner  of
Income Tax (Appeals) - I, Mumbai.  The outstanding amount of the claim continues
to accrue  interest at the rate of two percent per month.  If the Company  loses
its case, the Company's  aggregate  potential  liability would be  approximately
Rs.2.7 billion (US$57.63 million) including interest,  but excluding  penalties,
thereon as of March 31,  2001.  The Company  believes  that it has a  reasonable
basis for its claim and that its appeal will succeed.

         Consequently,  the Company  has not made  provision  for the  potential
liability arising from these claims.

ITEM 9.  THE OFFER AND LISTING

TRADING MARKETS

         GENERAL

         The  Company's  Shares  are  traded on the stock  exchanges  of Mumbai,
Kolkata,  Delhi and  Chennai  and the  National  Stock  Exchange  of India  Ltd.
(collectively,  the "Indian 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  24, 2001,  the last reported sale
price was US$7.55 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 March 31, 2001
was  285,000,000.  As of March 31, 2001, there were 68,271 record holders of the
Shares  listed and traded on the Indian Stock  Exchanges.  As of March 31, 2001,
there  were  approximately  41,634,110  of the  Company's  ADRs  (equivalent  to
83,268,219 Shares).


                                       67
<PAGE>

         PRICE HISTORY

         PRINCIPAL MARKET FOR THE COMPANY'S ADSs

         The table below set forth, for the periods indicated,  the high and low
sales prices on the New York Stock  Exchange for the ADSs since August 2000, the
original date of listing of the ADSs.
<TABLE>
<CAPTION>
                                                         ADS PRICE
                                                -------------------------
                                                     HIGH           LOW
                                                     ----           ---
                                                      IN US DOLLARS
<S>                                                 <C>         <C>
Yearly Period:
Fiscal 2001 (beginning August 15, 2000).......       18.75         9.50


Quarterly Periods:
2001 Quarterly Periods:
   First Quarter..............................         N/A          N/A
   Second Quarter (beginning August 15,              18.75        10.25
   2000)......................................
   Third Quarter..............................       15.50         9.50
   Fourth Quarter.............................       17.88        11.77

2002 Quarterly Periods:
   First Quarter.......................              15.74        11.40
   Second Quarter (up to August 31,                  13.95        11.23
2001)..................................

2001 Monthly Periods:
   March......................................       14.45        11.77
   April .....................................       13.75        11.40
   May........................................       15.74        12.85
   June.......................................       15.00        13.35
   July.......................................       13.95        11.23
   August.....................................       12.20        11.36
</TABLE>

----------------
On September  24,2001,  the closing price of the Company's  ADSs on the New York
Stock Exchange was US$7.75. SOURCE: Bloomberg L.P.



                                       68
<PAGE>

         The table below sets forth,  for the periods  indicated,  the high, low
and closing sales prices for the Shares on the BSE.
<TABLE>
<CAPTION>
                           THE STOCK EXCHANGE, MUMBAI
-------------------------------------------------------------------------------
                                                           PRICE PER
PERIOD                                                      SHARE(1)
----------------------------------------------   ------------------------------
                                                   HIGH             LOW
                                                 --------          -------
<S>                                               <C>               <C>
Yearly Periods:
   1997.......................................    1475              900
   1998.......................................    1300              700
   1999.......................................     970              660
   2000.......................................    3250              565
   2001.......................................    1938.6            198.35(2)


Quarterly Periods:
2000
   First Quarter..............................     976.75           565
   Second Quarter.............................    1149.9            890
   Third Quarter..............................    2110             1005
   Fourth Quarter.............................    3250             1600

2001
   First Quarter..............................    1938.6            826.05
   Second Quarter.............................    1240.05           675
   Third Quarter..............................     355.95(2)        198.35(2)
   Fourth Quarter.............................     415              280


2001 Monthly Periods:
   March......................................     375              280
   April......................................     332              272
   May........................................     402              305.35
   June.......................................     366              312
   July.......................................     345              256.8
   August.....................................     299              261.25
</TABLE>
-------------------
(1)  On  September  24,  2001,  the closing  price of a Share on the BSE was Rs.
     197.25.
(2)  Post-Bonus  price - A bonus of 2:1 was declared and became effective during
     November 2000.
SOURCE:  The Stock Exchange, Mumbai


                                       69
<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.
<TABLE>
<CAPTION>
                             NATIONAL STOCK EXCHANGE
----------------------------------------------------------------------------
                                                           PRICE PER
PERIOD                                                      SHARE(1)
-------------------------------------------------   ------------------------
                                                       HIGH       LOW
                                                     -------     ------
<S>                                                    <C>        <C>
Yearly Periods:
   1997.......................................         1450        855
   1998.......................................         1300        715
   1999.......................................          995        640
   2000.......................................         3298        561
   2001.......................................         1990        210(2)


Quarterly Periods:
2000
   First Quarter..............................         1042.2      561
   Second Quarter.............................         1132.4      898.8
   Third Quarter..............................         2087.9     1024
   Fourth Quarter.............................         3298       1600

2001
   First Quarter..............................         1990        801
   Second Quarter.............................         1248.9      673.05
   Third Quarter..............................          355.6(2)   210(2)
   Fourth Quarter.............................          414.5      279.5



2001 Monthly Periods:
   March......................................          367.7      279.5
   April......................................          333        270
   May........................................          400        306
   June.......................................          366.7      311.05
   July.......................................          340.1      258.05
   August.....................................          296        230
</TABLE>
-------------------
(1)  On September 24, 2001,  the closing price of a Share on the National  Stock
     Exchange was Rs.196.05.  (2) Post-Bonus price - A bonus of 2:1 was declared
     and became effective during November 2000.

SOURCE:  The National Stock Exchange

         The  Company is not aware of trading  having  taken  place at the stock
exchanges in Kolkata,  Delhi and Chennai.

         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


                                       70
<PAGE>

1996,  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  depositories
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 Depositories 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  Depository
Services  Limited,  which commenced  operations on July 15, 1999. The depository
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 more than 600 companies at January 2000. 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 depository account with a participant.

         However, even in case of scripts 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% 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
Government of India approval 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,


                                       71
<PAGE>

1956 (the "Companies  Act").  The Company is registered  under the Companies Act
with the  Registrar of  Companies,  Mumbai,  India with Company No.  39266.  The
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 the Company's Annual Report on Form 20-F, filed with the
United  States  Securities  and Exchange  Commission on October 13, 2000 and are
incorporated herein by reference.

         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 recently 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:

         o     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.

         o     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.

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

         o     Providing and maintaining  international leased telecommunication
               services.

         o     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

         COMPENSATION.   The   fulltime   directors   are  entitled  to  receive
compensation  for their  service to the  Company.  The  external  directors  are
entitled to receive a fee for each  meeting of the Board or a committee  thereof


                                       72
<PAGE>

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.

         The President of India is empowered by Article 66A of the Companies Act
to appoint  one-third of the total  number of  Directors  sitting at any time as
non-retiring  directors and to designate the Chairman and Managing Director. 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.

         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 had  recommended  a dividend of
Rs.50 on every share of Rs.10 for the financial  year ended March 31, 2001,  and
the same has been approved at the Annual  General  Meeting held on September 27,
2001.



                                       73
<PAGE>

         The Company is subject to  nonbinding  Ministry  of Finance  guidelines
regarding the payout of dividends by PSUs. See "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.

         PREEMPTIVE RIGHTS AND ISSUE OF ADDITIONAL SHARES

         Subject to the approval of the  President of India,  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.


                                       74
<PAGE>

         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.

         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 42 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
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  Depository
Limited,  a depositary  established  pursuant to the Depositories Act, 1996, and
the only functioning depositary in India to date. Charges for opening an account
with an National 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  National  Securities  Depositary
Limited participant.  Upon delivery,  the Shares purchased will be registered in
the name of the National  Securities  Depositary Limited participant and held by
such National  Securities  Depositary Limited participant for the account of the
purchaser.  So long as the Shares are traded  through the  book-entry  system of
National 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  National   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 National 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."


                                       75
<PAGE>

         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.

         So long as the Government of India's shareholding in the Company equals
or exceeds 51 percent,  Section 187C will not apply to holders of the  Company's
equity securities, including holders of either the ADRs or the Shares.

         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.

         The  Comptroller  and Auditor  General of India has the power to direct
the manner in which the  Company's  accounts  shall be  audited by the  auditors
appointed  by the  Government  of India and to conduct a  supplementary  or test
audit of the Company's  accounts by such auditors.  The  Comptroller and Auditor
General of India also has the right to comment on or supplement the audit report
to the  Comptroller and Auditor General of India which must be placed before the
Annual General Meeting of the Company at the same time and in the same manner as
the audit report.

         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.

         POWERS OF THE PRESIDENT OF INDIA

         Under Article 66B of the  Articles,  the President of India is entitled
to appoint the Company's Chairman and Managing Director,  Article 69(i) requires
the Chairman to reserve for decision of the  President of India such  proposals,
decisions or matters  which raise in the opinion of the  Chairman any  important
issue and which are, on that account, fit to be reserved for the decision of the
President  of India.  No  decision on such  important  issue may be taken in the
absence of the Chairman  appointed by the  President  of India.  Article  69(ii)
lists the matters in respect of which prior  approval of the  President of India
must be obtained,  which include capital  expenditures in excess of Rs.2 billion
and the sale,  lease or disposal of any land or building  with an original  book
value in excess of Rs.1  million.  Under  Article  71, the  Company may not take
action in respect of any proposal or decision of the Board reserved for approval
of the President  until his approval is obtained.  The President may modify such
proposals or decisions.

         Article 70 grants the President of India the power to issue  directives
in  regard  to the  conduct  of  business  and  affairs  of the  Company,  which
directives are binding on the Company's Board of Directors.

         ACQUISITION BY THE COMPANY OF ITS OWN SHARES

         Until  recently,  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. See "--Description of American Depositary Receipts--Deposit
of Shares and Other Securities."


                                       76
<PAGE>

         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.

         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:

         o     Any  acquirer  (meaning a person  who,  directly  or  indirectly,
               acquires  or agrees  to  acquire  shares  or  voting  rights in a
               company,  either by himself or with any person acting in concert)
               who acquires  shares or voting  rights that would  entitle him to
               more than 5 percent of the  shares or voting  rights in a company
               is required to disclose  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 four working days of (a) the
               receipt of allotment information or (b) the acquisition of shares
               or voting rights, as the case may be.

         o     A person  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).

         o     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, summarised below:

         o     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.

         o     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 period
               of twelve months unless such acquiror makes a public announcement
               offering to acquire an additional 20 percent of the shares of the
               company.


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<PAGE>

         o     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.

         o     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 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$0.02 billion) or
less) up to and including Rs.1 billion (US$0.02  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. 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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<PAGE>

         MATERIAL CONTRACTS

         Not applicable.

         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% of the foreign  exchange
received  on the trade or current  account at a  market-determined  rate and the
remaining 40% 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.  However,  under Indian
regulations and practice,  the approval of the Reserve Bank of India is required
for the  sale of  Shares  underlying  the ADRs by a  non-resident  of India to a
resident of India as well as for  renunciation of rights to a resident of India.
Further,  the Depositary cannot accept deposits of outstanding Equity Shares and
issue  American   Depositary  Receipts  evidencing  American  Depositary  Shares
representing  such  Equity  Shares.  Therefore,  an  investor  in the  ADSs  who
surrenders  ADSs and withdraws  Shares is not permitted  subsequently to deposit
such  Shares  and  obtain  ADSs.  Nor  would a holder to whom  such  Shares  are
transferred  be permitted to deposit such Shares.  Investors who seek to sell in
India any Equity Shares  withdrawn from the  depositary  facility and to convert
the Rupee  proceeds  from such sale into foreign  currency and  repatriate  such
foreign  currency  from India  will,  subject to the  foregoing,  have to obtain
Reserve Bank of India approval for such transaction.

         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


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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.

         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 therefrom 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.

         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


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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.

         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 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.



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<PAGE>

         DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS

AMERICAN DEPOSITARY RECEIPTS

         The Bank of New York, also referred to as the Depositary,  will execute
and deliver  the ADRs.  ADRs are  American  Depositary  Receipts.  Each ADR is a
certificate  evidencing a specific number of American  Depositary  Shares,  also
referred to as ADSs.  Each ADS will  represent two Shares (or a right to receive
two Shares)  deposited  with ICICI  Limited,  as custodian for the Depositary in
India. Each ADS will also represent any other securities, cash or other property
which  may  be  held  by  the  Depositary  under  the  deposit  agreement.   The
Depositary's  office at which the ADRs will be  administered  is  located at 101
Barclay Street,  New York, New York 10286. The custodian's  office is located at
ICICI Towers, Bandrakurla Complex, Bandra East, Mumbai 400 051, India.

         YOU MAY HOLD ADSS EITHER  DIRECTLY (BY HAVING AN ADR REGISTERED IN YOUR
NAME) OR INDIRECTLY THROUGH YOUR BROKER OR OTHER FINANCIAL  INSTITUTION.  IF YOU
HOLD ADSS DIRECTLY,  YOU ARE AN ADR HOLDER.  THIS  DESCRIPTION  ASSUMES YOU HOLD
YOUR  ADSS  DIRECTLY.  IF YOU  HOLD THE ADSS  INDIRECTLY,  YOU MUST  RELY ON THE
PROCEDURES OF YOUR BROKER OR OTHER FINANCIAL INSTITUTION TO ASSERT THE RIGHTS OF
ADR HOLDERS  DESCRIBED IN THIS SECTION.  YOU SHOULD  CONSULT WITH YOUR BROKER OR
FINANCIAL INSTITUTION TO FIND OUT WHAT THOSE PROCEDURES ARE.

         AS AN ADR HOLDER,  WE WILL NOT TREAT YOU AS ONE OF OUR SHAREHOLDERS AND
YOU WILL NOT HAVE SHAREHOLDER RIGHTS. INDIAN LAW GOVERNS SHAREHOLDER RIGHTS. THE
DEPOSITARY  IS THE HOLDER OF THE  SHARES  UNDERLYING  YOUR ADSS.  AS A HOLDER OF
ADRS, YOU HAVE ADR HOLDER RIGHTS.  A DEPOSIT  AGREEMENT AMONG US, THE DEPOSITARY
AND YOU,  AS AN ADR HOLDER  SET OUT ADR HOLDER  RIGHTS AS WELL AS THE RIGHTS AND
OBLIGATIONS OF THE DEPOSITARY,  AS DEPOSITARY.  NEW YORK LAW GOVERNS THE DEPOSIT
AGREEMENT AND THE ADRS.

         THE  FOLLOWING IS A SUMMARY OF THE DEPOSIT  AGREEMENT.  BECAUSE IT IS A
SUMMARY,  IT DOES NOT CONTAIN ALL THE INFORMATION  THAT MAY BE IMPORTANT TO YOU.
FOR MORE COMPLETE INFORMATION,  YOU SHOULD READ THE ENTIRE DEPOSIT AGREEMENT AND
THE FORM OF ADR. COPIES OF THE DEPOSIT  AGREEMENT  INCLUDING THE FORM OF ADR ARE
AVAILABLE FOR  INSPECTION AT THE OFFICE OF THE  DEPOSITARY  AND AT THE OFFICE OF
THE CUSTODIAN SET FORTH ABOVE.

SHARE DIVIDENDS AND OTHER DISTRIBUTIONS

HOW WILL YOU RECEIVE DIVIDENDS AND OTHER DISTRIBUTIONS ON THE SHARES?

         The  Depositary  has agreed to pay to you the cash  dividends  or other
distributions  it or  the  custodian  receives  on  Shares  or  other  deposited
securities,  after  deducting  its fees and  expenses.  You will  receive  these
distributions in proportion to the number of Shares your ADSs represent.

         o     CASH. The Depositary  will, as promptly as  practicable,  convert
               any cash dividend or other cash distribution we pay on the Shares
               into US dollars,  if it can do so on a  reasonable  basis and can
               transfer  the US  dollars to the  United  States.  If that is not
               possible or if any approval  from any  government  or  regulatory
               authority  is  needed  and  can  not  be  obtained,  the  deposit
               agreement   allows  the  Depositary  to  distribute  the  foreign
               currency  only to those ADR  holders to whom it is possible to do
               so. It will hold the foreign  currency it cannot  convert for the
               account of the ADR  holders  who have not been paid.  It will not
               invest  the  foreign  currency  and it will not be liable for any
               interest.

Before making a distribution  the Depositary will deduct any  withholding  taxes
that must be paid under Indian law. See  "--Taxation".  It will  distribute only
whole US dollars and cents and will round  fractional cents to the nearest whole
cent. IF THE EXCHANGE RATES FLUCTUATE  DURING A TIME WHEN THE DEPOSITARY  CANNOT
CONVERT  THE  FOREIGN  CURRENCY,  YOU MAY LOSE  SOME OR ALL OF THE  VALUE OF THE
DISTRIBUTION.

         o     SHARES. The Depositary may, and will if we tell it to, distribute
               additional  ADSs  representing  any  Shares  we  distribute  as a
               dividend or free  distribution,  if we furnish it  promptly  with


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<PAGE>

               satisfactory  evidence that it is legal to do so. The  Depositary
               will only DISTRIBUTE  whole ADSs. It will sell Shares which would
               require  it to  issue a  fractional  ADS and  distribute  the net
               proceeds in the same way as it does with cash. If the  Depositary
               does not distribute  additional ADS, the ADSs will also represent
               the new Shares.

         o     RIGHTS TO RECEIVE  ADDITIONAL  SHARES. If we offer holders of our
               securities any rights to subscribe for  additional  shares or any
               other rights,  the Depositary may make these rights  available to
               you.  The  Depositary  must  first  consult  with  us and we must
               furnish the  Depositary  with  SATISFACTORY  evidence  that it is
               legal  to do so.  If we  don't  furnish  this  evidence,  and the
               Depositary  decides  it is  practical  to sell  the  rights,  the
               Depositary  will sell the rights and  distribute  the proceeds in
               the same way as it does  with  cash.  The  Depositary  may  allow
               rights that are not  distributed or sold to lapse.  IN THAT CASE,
               YOU WILL RECEIVE NO VALUE FOR THEM.

If the Depositary makes rights available to you, it will exercise the rights and
purchase the Shares on your behalf upon your  instruction.  The Depositary  will
then deposit the Shares and deliver ADSs to you. It will only exercise rights if
you pay it the exercise  price and any other  charges the rights  require you to
pay.

US securities  laws may restrict sales,  transfers and  cancellation of the ADSs
represented by Shares  purchased upon exercise of rights.  For example,  you may
not be able to trade these ADSs freely in the United  States.  In this case, the
Depositary may deliver the ADSs under a separate  restricted  deposit  agreement
which will  contain the same  provisions  as the deposit  agreement,  except for
changes needed to put the necessary restrictions in place.

         o     OTHER  DISTRIBUTIONS.  The  Depositary  will send to you anything
               else we distribute on deposited securities by any means it thinks
               is legal, fair and practical.  If it cannot make the distribution
               in that way, the Depositary has a choice,  after  consulting with
               us. It may decide to sell what we distributed  and distribute the
               net  proceeds,  in the same way as it does with cash.  Or, it may
               decide to hold what we  distributed,  in which case the ADSs will
               also represent the newly distributed property.

         The Depositary is not  responsible if it decides that it is unlawful or
impractical  to make a  distribution  available to any ADR  holders.  We have no
obligation  to  register  ADSs,  Shares,  rights or other  securities  under the
Securities  Act. We also have no  obligation  to take any other action to permit
the distribution of ADRs, Shares,  rights or anything else to ADR holders.  THIS
MEANS THAT YOU MAY NOT  RECEIVE THE  DISTRIBUTIONS  WE MAKE ON OUR SHARES OR ANY
VALUE FOR THEM IF IT IS ILLEGAL OR IMPRACTICAL  FOR US TO MAKE THEM AVAILABLE TO
YOU.

DEPOSIT, WITHDRAWAL AND CANCELLATION

HOW ARE ADSs ISSUED?

         Subject to Indian law, the Depositary  will deliver ADSs if you or your
broker  deposit  Shares  or  evidence  of  rights  to  receive  Shares  with the
custodian.  Upon  payment of its fees and  expenses and of any taxes or charges,
such as stamp  taxes or stock  transfer  taxes  or  fees,  the  Depositary  will
register  the  appropriate  number  of ADSs in the names  you  request  and will
deliver the ADRs at its office to the persons you request.  Under current Indian
laws and regulations, the Depositary cannot accept deposits of Shares other than
from us  (except  for  Shares  issued  as bonus  shares  or  pursuant  to rights
offerings,  and except  for Shares  withdrawn  from our ADR  facility  which are
immediately deposited under the deposit agreement) and deliver ADSs representing
Shares.

HOW DO ADS HOLDERS CANCEL AN ADR AND OBTAIN SHARES?

         You may turn in your ADRs at the Depositary's  office.  Upon payment of
its fees and expenses and of any taxes or charges,  such as stamp taxes or stock
transfer  taxes or fees, the  Depositary  will deliver the deposited  securities
represented  by your ADRs (1) to an account  designated by you in the book-entry


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system in India,  if that is feasible,  or (2) at the office of the custodian to
you or to a person you  designate,  if feasible.  Or, at your request,  risk and
expense,  the Depositary will deliver the Deposited Securities at its office, if
feasible .

         If you surrender  ADRs and withdraw  Shares,  you will have to take the
Shares in  dematerialized  book-entry form. You will be required to establish an
account with a participant of the Indian  book-entry  system to hold or sell the
shares in  dematerialized  book-entry form, and you may incur customary fees and
expenses  in  doing  so.  In  addition,  the  sale  of  withdrawn  Shares  by  a
non-resident of India may require  approval from the Reserve Bank of India.  For
further  details  on the sale of  underlying  Shares,  see "Item 10.  Additional
Information -- Register of Shareholders, Records Dates, Transfer of Shares".

VOTING RIGHTS

         You will not be  entitled to instruct  the  Depositary  how to vote the
Shares underlying your ADSs. Rather, by accepting an ADR, you will authorize and
direct the Depositary to vote as set forth below.

         The  Depositary  will vote the  deposited  Shares as  instructed by our
Board of  Directors  or give a proxy or power of attorney to vote the  deposited
Shares to a person our Board of Directors  designates.  However,  the Depositary
will  only do this if we  arrange  for our  lawyers  to give the  Depositary  an
opinion  saying it is legal for the  Depositary  to do so and that doing so will
not expose the  Depositary  to legal  liability.  If we do 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.

FEES AND EXPENSES

<TABLE>
<S>                                                   <C>
ADR HOLDERS MUST PAY:                                      FOR:
----------------------------------------------------   ------------------------------------------------------------
$5.00 (or less) per 100 ADSs                           o   Each issuance of an ADR , including as a result of
                                                           a distribution of Shares or rights or other property
                                                       o   Each cancellation of an ADR for the purpose of
                                                           withdrawal, including if the deposit agreement
                                                           terminates

$.02 (or less) per ADS (to the extent                  o   Any cash distribution
permitted by the rules of any stock exchange
on which ADSs are listed for trading)

A fee  equivalent  to  the  fee  that  would  be       o   Distribution  of  securities distributed to holders of
payable upon deposit of Shares for                         deposited securities  which  are  distributed  by the
issuance of ADSs                                           Depositary  to ADR  holders

Registration  or transfer fees                         o   Transfer of shares on our share  register to or from
                                                           the name of the Depositary or its agent when you
                                                           deposit or withdraw Shares

Expenses of the Depositary                             o   Conversion of foreign currency to US dollars

Expenses of the Depositary                             o   Cable, telex and facsimile transmission expenses
                                                           (if expressly provided in the deposit agreement)

Taxes and other governmental charges the               o   As necessary.
Depositary or the custodian have to pay on
any ADR or Share underlying an ADR, for
example, stock transfer taxes, stamp duty or
withholding taxes

Any charges payable by the Depositary or its           o   As incurred.
agents in connection with servicing the
deposited securities.
</TABLE>


                                       84
<PAGE>

INSPECTION OF TRANSFER BOOKS

         The Depositary will maintain at its office facilities for the execution
and delivery,  registration  of transfer,  combination or split-up of ADRs and a
register for the  registration  of ADRs and the  registration of the transfer of
ADRs that at reasonable times will be open for inspection by you and us provided
that  such  inspection  shall  not be for  the  purpose  of  communication  with
investors  in the ADRs in the  interest of a business  or object  other than our
business or a matter related to the deposit agreement or the ADRs.

PAYMENT OF TAXES

         The  Depositary  may  deduct  the  amount  of any  taxes  owed from any
payments due to you. It may also sell deposited securities, by public or private
sale, to pay any taxes owed.  You will remain  liable for any  deficiency if the
proceeds of the sale are not enough to pay the taxes.  If the  Depositary  sells
deposited  securities,  it will,  if  appropriate,  reduce the number of ADSs to
reflect  the  sale  and pay to you any  proceeds,  or send to you any  property,
remaining after it has paid the taxes.

RECLASSIFICATIONS, RECAPITALIZATIONS AND MERGERS

<TABLE>
<S>                                               <C>
IF WE:                                             THEN:
------------------------------------------------  ---------------------------------------------------------
o   Change  the  nominal  or par  value of our     The  cash,  Shares  or other securities  received by the
    shares                                         Depositary will  become  deposited securities.  Each
                                                   ADS will automatically represent its equal share of
                                                   the new deposited securities.
o   Reclassify, split up or consolidate any of
    the deposited securities
                                                   The Depositary may, and will if we ask it to,
o   Distribute securities on the shares that       distribute some or all of the cash, Shares or other
    are not distributed to you                     securities it received.  It may also deliver new
                                                   ADSs or ask you to surrender your outstanding
o   Recapitalize, reorganize, merge, liquidate,    ADRs in exchange for new ADRs identifying the
    sell all or substantially all of our           new deposited securities.
    assets, or take any similar action
</TABLE>


AMENDMENT AND TERMINATION

HOW MAY THE DEPOSIT AGREEMENT BE AMENDED?

         We may agree with the Depositary to amend the deposit agreement and the
ADRs  without  your  consent for any reason.  If the deposit  amendment  adds or
increases fees or charges,  except for taxes and other  governmental  charges or
out-of-pocket  expenses of the Depositary,  or prejudices a substantial right of
ADR holders, it will only become effective 30 days after the Depositary notifies
you of the  amendment.  At the  time an  amendment  becomes  effective,  you are
considered,  by continuing to hold your ADR, to agree to the amendment and to be
bound by the ADRs and the deposit agreement as amended.

HOW MAY THE DEPOSIT AGREEMENT BE TERMINATED?

         The Depositary will terminate the deposit  agreement if we ask it to do
so. the Depositary  may also  terminate the deposit  agreement if the Depositary
has  told us that it  would  like to  resign  and we have  not  appointed  a new
depositary bank within 90 days. In both cases, the Depositary must notify you at
least 30 days before termination.

         After termination,  the Depositary and its agents will do the following
under the deposit  agreement but nothing else: (1) advise you that the agreement
is terminated,  (2) collect  dividends and other  distributions on the deposited
securities,  (3) sell rights offered to shareholders  and (4) deliver Shares and
other  deposited   securities   upon   cancellation  of  ADRs.  One  year  after
termination,  the  Depositary  may sell any  remaining  deposited  securities by
public or private sale. After that, the Depositary will hold the proceeds of the
sale,  as well as any other cash it is holding  under the deposit  agreement for
the PRO RATA benefit of the ADR holders that have not surrendered their ADRs. It


                                       85
<PAGE>

will not invest the money and has no liability  for interest.  The  Depositary's
only  obligations will be to account for the proceeds of the sale and other cash
and to indemnify us. After termination our only obligations will be to indemnify
the Depositary and to pay certain amounts to the Depositary.

LIMITATIONS ON OBLIGATIONS AND LIABILITY

LIMITS ON OUR  OBLIGATIONS  AND THE  OBLIGATIONS  OF THE  DEPOSITARY;  LIMITS ON
LIABILITY TO HOLDERS OF ADRS

         The  deposit  agreement   expressly  limits  our  obligations  and  the
obligations of the Depositary. It also limits our liability and the liability of
the Depositary. We and the Depositary:

         o     are only obligated to take the actions  specifically set forth in
               the deposit agreement without negligence or bad faith;

         o     are not liable if either of us is  prevented or delayed by law or
               circumstances  beyond our control from performing our obligations
               under the deposit agreement;

         o     are not  liable if either of us  exercises  discretion  permitted
               under the deposit agreement;

         o     have no  obligation  to become  involved  in a  lawsuit  or other
               proceeding  related to the ADRs or the deposit  agreement on your
               behalf or on behalf of any other person; and

         o     may rely upon any  documents  we believe or it  believes  in good
               faith to be genuine and to have been signed or  presented  by the
               proper  party,  and may rely on  advice or  information  from any
               person we believe or it believes,  in good faith, to be competent
               to give such advice or information.

         In the deposit  agreement,  we agree to indemnify  the  Depositary  for
acting  as  depositary,  except  for  losses  caused  by  the  Depositary's  own
negligence or bad faith,  and the  Depositary  agrees to indemnify us for losses
resulting from its negligence or bad faith.

REQUIREMENTS FOR DEPOSITARY ACTIONS

         Before the  Depositary  will  deliver or register a transfer of an ADR,
make a distribution  on an ADR, or permit  withdrawal of Shares,  the Depositary
may require:

         o     payment of stock  transfer or other  taxes or other  governmental
               charges  and  transfer  or  registration  fees  charged  by third
               parties  for  the  transfer  of any  Shares  or  other  deposited
               securities;

         o     satisfactory  proof  of  the  identity  and  genuineness  of  any
               signature or other information it deems necessary; and

         o     compliance  with such  reasonable  regulations  it may establish,
               from  time to  time,  consistent  with the  agreement,  including
               presentation of transfer documents.

         o     The Depositary  may refuse to deliver ADRs, register transfers of
               ADRs or permit  withdrawal  of Shares when the transfer  books of
               the Depositary or our transfer books are closed or at any time if
               the Depositary or we think it advisable to do so.

YOUR RIGHT TO RECEIVE THE SHARES UNDERLYING YOUR ADRS

         You have the right to  cancel  your ADRs and  withdraw  the  underlying
Shares at any time except:

         o     When  temporary  delays arise  because:  (1) the  Depositary  has
               closed its transfer  books or we have closed our transfer  books;
               (2) the  transfer  of Shares  is  blocked  to permit  voting at a
               shareholders'  meeting;  or (3) we are paying a  dividend  on our
               Shares.



                                       86
<PAGE>

         o     When you or other ADR  holders  seeking  to  withdraw  Shares owe
               money to pay fees, taxes and similar charges.

         o     When it is necessary to prohibit  withdrawals  in order to comply
               with any laws or governmental  regulations  that apply to ADRs or
               to the withdrawal of Shares or other deposited securities.

This  right of  withdrawal  may not be  limited  by any other  provision  of the
deposit  agreement.  Foreign  investors  who withdraw  Shares will be subject to
Indian legal restrictions  governing the ownership of Indian  securities.  For a
discussion, see "--Restriction on Foreign Ownership of Indian Securities".

PRE-RELEASE OF ADRS

         Unless we tell the  Depositary to cease doing so, the  Depositary  may,
but is not required to, deliver ADRs before  deposit of the  underlying  Shares.
This is called a pre-release  of the ADR. The Depositary may also deliver Shares
upon cancellation of pre-released ADRs (even if the ADRs are canceled before the
pre-release  transaction  has been closed out). A  pre-release  is closed out as
soon as the underlying  Shares are delivered to the  Depositary.  the Depositary
may receive ADRs instead of Shares to close out a  pre-release.  the  Depositary
may pre-release ADRs only under the following  conditions:  (1) before or at the
time of the  pre-release,  the person to whom the pre-release is being made must
represent to the  Depositary  in writing that it or its customer owns the Shares
or ADRs to be deposited;  (2) the pre-release must be fully  collateralized with
cash or other collateral that the Depositary considers appropriate;  and (3) the
Depositary  must be able to close out the  pre-release on not more than five (5)
business days' notice. In addition, the Depositary will limit the number of ADSs
that may be  outstanding  at any time as a result of  pre-release,  although the
Depositary  may  disregard  the  limit  from  time to time,  if it  thinks it is
appropriate to do so.

         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.

         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:

         o     is in India in that year for a period or periods amounting to 182
               days or more; or

         o     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.


                                       87
<PAGE>

         TAXATION OF DISTRIBUTIONS

         Pursuant to the Finance Act, 1997, withholding tax on dividends paid to
shareholders  no longer applies.  However,  the Company is now required to pay a
10.2  percent  tax on any  amount  declared,  distributed  or paid as  dividends
including present surcharge of 2 percent.  Distributions to non-resident holders
of  additional  ADSs or Equity  Shares or rights to subscribe  for Equity Shares
("Rights")  granted  with  respect to ADSs or Equity  Shares are not  subject to
Indian tax.

         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 Income Tax Act, 1961, 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.

         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)  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


                                       88
<PAGE>

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 thereunder 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 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  or  partnership  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.

         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

         Dividends  (other  than  certain  dividends  of  Shares  or  rights  to
subscribe  for  Shares)  paid to US Holders of Shares or ADSs will be treated as
dividend  income  to  such  holders,  to  the  extent  paid  out of  current  or
accumulated  earnings and profits,  as determined  under United  States  federal
income tax  principles.  Such income will be includable in the gross income of a
US Holder as ordinary  income on the day received by the US Holder,  in the case
of Shares, or by the Depositary, in the case of ADSs. Such dividends will not be
eligible for the dividends  received deduction allowed to corporations under the
Code.


                                       89
<PAGE>

         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 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 is not a passive  foreign  investment  company
("PFIC")  for fiscal  year 2001 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:

         o     at least 75 percent of its gross income is passive income, or

         o     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


                                       90
<PAGE>

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  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:

         o     the excess  distribution  or gain will be allocated  ratably over
               such holder's holding period for the Shares or ADSs,

         o     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

         o     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


                                       91
<PAGE>

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. Capital gains of individuals  derived with
respect to capital  assets held for more than one year are  eligible for reduced
rates of taxation.  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.  India does not impose an estate
tax  on  a   Non-Resident   Holder  who  owns  Shares  or  ADSs.  See  "--Indian
Taxation-Estate Duty" above.

         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 30.5 percent backup withholding
may apply to such amounts (30 percent for payments made after December 31, 2000)
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.  As a foreign
private issuer, we are not required to use the EDGAR system.  This annual report
is our  initial  EDGAR  filing and we intend to  continue to make our future SEC
filings available over the Internet.


                                       92
<PAGE>

         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 is exposed to market risk from changes in foreign  currency
exchange  rates  because  certain  of its costs are  denominated  in  currencies
(primarily  SDRs and US  Dollars)  other than  those in which it earns  revenues
(primarily the Rupee).  Fluctuations  in the exchange rate between the Rupee 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  and  therefore  the revenues 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  it   including   payments   to   foreign
telecommunications  administrations  and  payments for  imported  equipment  and
technology.  However, the Company does 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 does it
hold or issue derivative or other financial instruments for trading purposes.

         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, DIVIDENDS ARREARAGES AND DELINQUENCIES

         Not applicable.

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

         Not applicable.

ITEM 15.  RESERVED

ITEM 16.  RESERVED


                                    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, 2000 and March 31, 2001 and the  related  statements  of
income, cash flows and shareholders'  equity for the years ended March 31, 1999,
2000 and 2001  have  been  audited  by  Deloitte  Haskins  & Sells,  independent
accountants, in accordance with US GAAP. The financial statement pages appear on
pages F-1 through F-27.


                                       93
<PAGE>

ITEM 19.  EXHIBITS

EXHIBIT
NUMBER     DESCRIPTION
------- ----------------------------------------------------------------

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 September
        26, 2000 and as currently in effect.

1.3     Memorandum  of  Association  of  Videsh  Sanchar  Nigam  Limited,  dated
        September 26, 2000 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 Depository Receipt).

4.1*    License  Agreement  for the  provision of Internet  Service  between the
        President of India and Videsh Sanchar Nigam  Limited,  dated January 25,
        1999.

4.2+    Total Accounting Rate  Arrangement  between Videsh Sanchar Nigam Limited
        and Concert--USA.

4.3+    Total Accounting Rate  Arrangement  between Videsh Sanchar Nigam Limited
        and Concert (UK).

4.4+    Total  Accounting Rate  Arrangement  letter between Videsh Sanchar Nigam
        Limited and UAE.

4.5     Memorandum of  Understanding  between  Videsh  Sanchar Nigam Limited and
        Ministry of Communications Department of Telecommunications for the year
        2001-2002.

4.6     Memorandum of Settlement Over the Revision of Pay and Certain Allowances
        between  Management of Videsh  Sanchar Nigam Limited and Their  Workmen,
        dated December 2, 2000.

4.7*    Letter from the  Department  of  Telecommunications  with respect to the
        Revenue Sharing Arrangement between the Bharat Sanchar Nigam Limited and
        Videsh Sanchar Nigam Limited, dated April 22, 1997.

10.1    The Hindu  Business  Line,  article  titled  "Teledensity  Set to Exceed
        Target", dated September 15, 2001.

10.2    IT Space.com, article regarding analysis of VSNL, dated April 2001.

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 July 9, 2000.

10.5    Telecom Regulatory  Authority of India Consultation Paper No. 2001/2 on
        International Long Distance Services, dated September 3, 2001.

+  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. 000-30772) filed with the Commission on October 13,
2000 and incorporated herein by reference.


                                       94
<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 30, 2001


                                   VIDESH SANCHAR NIGAM LIMITED



                                   By: /S/ S.K. GUPTA
                                       ----------------------------------------
                                   Name: S.K. Gupta
                                   Title:   Chairman & Managing Director



                                   By: /S/ R.S.P. SINHA
                                       ----------------------------------------
                                   Name: R.S.P. Sinha
                                   Title:   Director (Finance)





                                       95
<PAGE>

                          VIDESH SANCHAR NIGAM LIMITED
                          INDEX TO FINANCIAL STATEMENTS





FINANCIAL  STATEMENTS OF VIDESH  SANCHAR  NIGAM LIMITED  (PREPARED IN ACCORDANCE
WITH US GAAP)

                                                                      PAGE

Report of independent auditors.........................................F-2
Balance sheets as of March 31, 2000 and 2001...........................F-3
Statements of income for the years ended
  March 31, 1999, 2000 and 2001........................................F-4
Statements of shareholders' equity for the
  years ended March 31, 1999, 2000 and 2001............................F-5
Statements of cash flows for the years ended
  March 31, 1999, 2000 and 2001........................................F-6
Notes to financial statements..........................................F-7


                                      F-1
<PAGE>

                          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,  2000  and  2001,  and the  related
statements of income, cash flows and shareholders'  equity for each of the three
years in the period ended March 31, 2001.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

         We conducted our audits 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, 2000 and 2001,  and the results of its  operations  and cash flows for
each of the three years in the period ended March 31, 2001, 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.




/s/ Deloitte Haskins & Sells
Mumbai, India
September 24, 2001


                                      F-2
<PAGE>

                          VIDESH SANCHAR NIGAM LIMITED
                                 BALANCE SHEETS
                          AS OF MARCH 31, 2000 AND 2001
<TABLE>
<CAPTION>

                                                                                     AS OF MARCH 31,
                                                                      ----------------------------------------------
                                                                           2000            2001           2001
                                                                      --------------- --------------- --------------
                                                                      (IN MILLIONS, EXCEPT PAR VALUE AND NUMBER OF
                                                                                         SHARES)
<S>                                                                       <C>              <C>               <C>
ASSETS:
    Cash and cash equivalents                                              Rs.20,846        Rs.2,200          US$47
    Short term investments                                                     8,778          46,050            983
    Trade and other receivables, net of allowances of Rs.1,021
         million and Rs.979 million (US$21
         million), respectively                                               25,651          19,745            421
    Investments                                                                3,657           4,247             91
    Property, plant and equipment                                             15,920          18,077            386
    Capital work-in-progress                                                   1,982           2,328             50
    Other assets                                                               6,377           7,778            166
                                                                      --------------- --------------- --------------
           TOTAL ASSETS                                                    Rs.83,211      Rs.100,425       US$2,144
                                                                      =============== =============== ==============

LIABILITIES AND SHAREHOLDERS' EQUITY:

LIABILITIES
    Trade payables                                                         Rs.13,535       Rs.11,309         US$242
    Accrued expenses and other liabilities                                     6,365          10,731            229
                                                                      --------------- --------------- --------------
       TOTAL LIABILITIES                                                      19,900          22,040            471
                                                                      --------------- --------------- --------------

COMMITMENTS AND CONTINGENCIES (SEE NOTES 1B, 1C AND 20)                        -               -                 -

SHAREHOLDERS' EQUITY:
    Equity shares: par value - Rs. 10 each;
      authorized: 100,000,000 shares and 300,000,000 shares at March
      31, 2000 and 2001, respectively; issued and outstanding:
      95,000,000 shares and 285,000,000 shares at March 31, 2000 and
      2001, respectively (See Note 13)                                           950           2,850             61
    Additional paid in capital                                                14,481          14,481            309
    Retained earnings                                                         47,880          60,642          1,294
    Accumulated comprehensive income                                           -                 412              9
                                                                      --------------- --------------- --------------
         TOTAL SHAREHOLDERS' EQUITY                                           63,311          78,385          1,673
                                                                      --------------- --------------- --------------
           TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                      Rs.83,211      Rs.100,425       US$2,144
                                                                      =============== =============== ==============
</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, 1999, 2000 AND 2001

<TABLE>
<CAPTION>
                                                                               YEARS ENDED MARCH 31,
                                                             -----------------------------------------------------------
                                                                 1999          2000            2001           2001
                                                             ------------- -------------- --------------- --------------
                                                                 (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S>                                                          <C>              <C>            <C>              <C>
OPERATING REVENUE:
  Traffic revenues                                              Rs.67,181      Rs.69,640       Rs.71,916       US$1,535
  Income from satellite consortia                                     757            737           1,160             25
                                                             ------------- -------------- --------------- --------------
     TOTAL OPERATING REVENUE                                       67,938         70,377          73,076          1,560
                                                             ------------- -------------- --------------- --------------

COST OF REVENUE:
    Network and transmission costs                                 45,139         45,621          45,150            964
    License fee paid to DoT                                         4,157          4,712           5,022            107
                                                             ------------- -------------- --------------- --------------
      TOTAL COST OF REVENUE                                        49,296         50,333          50,172          1,071
                                                             ------------- -------------- --------------- --------------
           GROSS MARGIN                                            18,642         20,044          22,904            489
                                                             ------------- -------------- --------------- --------------
OTHER OPERATING COSTS
    Depreciation and amortization                                   1,266          1,534           1,729             37
    Other operating costs                                           1,628          2,622           3,023             65
                                                             ------------- -------------- --------------- --------------
     TOTAL OTHER OPERATING COSTS                                    2,894          4,156           4,752            102
                                                             ------------- -------------- --------------- --------------
        OPERATING PROFIT                                           15,748         15,888          18,152            387
                                                             ------------- -------------- --------------- --------------

OTHER INCOME (EXPENSE), NET:
    Non-operating income                                            3,314          1,821           3,058             65
    Interest income                                                 1,387          1,683           3,964             85
    Interest cost                                                     (1)            (7)             (1)           -
    Permanent impairment in the value of investment               (5,416)           (54)          -                -
    Share of loss of affiliate                                       (30)          -              -                -
                                                             ------------- -------------- --------------- --------------
TOTAL OTHER INCOME (EXPENSE), NET                                   (746)          3,443           7,021            150
                                                             ------------- -------------- --------------- --------------
        INCOME BEFORE INCOME TAX                                   15,002         19,331          25,173            537
 Income-tax expense                                               (6,298)        (6,156)         (9,646)          (206)
 Dividend tax                                                        (38)           (84)           (105)            (2)
                                                             ------------- -------------- --------------- --------------
        NET INCOME                                               Rs.8,666      Rs.13,091       Rs.15,422         US$329
                                                             ------------- -------------- --------------- --------------

PER SHARE INFORMATION:
      Earnings per equity share - basic and diluted              Rs.30.41       Rs.45.93        Rs.54.11        US$1.15
      Weighted average 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.60.82       Rs.91.86       Rs.108.22        US$2.30
</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, 1999, 2000 AND 2001



<TABLE>
<CAPTION>
                             NUMBER OF     EQUITY      ADDITIONAL                  ACCUMULATED      TOTAL
                               EQUITY      SHARE         PAID IN      RETAINED    COMPREHENSIVE  SHAREHOLDERS'    COMPREHENSIVE
                            SHARES (SEE    CAPITAL      CAPITAL       EARNINGS       INCOME         EQUITY            INCOME
                              NOTE 13)
                            ------------- ----------- ------------ ------------- -------------- -------------     --------------
                                                        (IN MILLIONS, EXCEPT NUMBER OF EQUITY SHARES)

<S>                           <C>            <C>       <C>            <C>              <C>        <C>                 <C>
BALANCE AT APRIL 1, 1998      95,000,000      Rs.950    Rs.14,481     Rs.27,263        Rs.-        Rs.42,694             Rs.-
Net income                                                                8,666                        8,666              8,666
Dividends                                                                 (380)                        (380)
                                                                                                                  --------------
COMPREHENSIVE INCOME                                                                                                      8,666
                            ------------- ----------- ------------ ------------- -------------- -------------     --------------
BALANCE AT MARCH 31, 1999     95,000,000         950       14,481        35,549         -             50,980
Net income                                                               13,091                       13,091             13,091
Dividends                                                                 (760)                        (760)
                                                                                                                  --------------
COMPREHENSIVE INCOME                                                                                                     13,091
                            ------------- ----------- ------------ ------------- -------------- -------------     --------------
BALANCE AT MARCH 31, 2000     95,000,000         950       14,481        47,880         -             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                                                    -                 412           412                412
   securities, net
                                                                                                                  --------------
COMPREHENSIVE INCOME                                                                                                  Rs.15,834
                                                                                                                  ==============
COMPREHENSIVE INCOME                                                                                                     US$338
                            ------------- ----------- ------------ ------------- -------------- -------------     ==============
BALANCE AT MARCH 31, 2001    285,000,000    Rs.2,850    Rs.14,481     Rs.60,642         Rs.412     Rs.78,385
                            ============= =========== ============ ============= ============== =============
BALANCE AT MARCH 31, 2001    285,000,000       US$61       US$309      US$1,294           US$9      US$1,673
                            ============= =========== ============ ============= ============== =============
</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, 1999, 2000 AND 2001

<TABLE>
<CAPTION>
                                                                              YEARS ENDED MARCH 31,
                                                           -------------------------------------------------------------
                                                                1999            2000            2001           2001
                                                           --------------- --------------- ---------------- ------------
                                                                                  (IN MILLIONS)
<S>                                                           <C>            <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                   Rs.8,666       Rs.13,091        Rs.15,422       US$329
    ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH
          PROVIDED BY OPERATING ACTIVITIES:
        Depreciation and amortization                               1,266           1,534            1,729           37
        Share of loss of affiliates                                    30          -                -            -
        Permanent impairment in the value of investment             5,416              54           -            -
        Allowance for impairment of property, plant and             -                 356           -            -
           equipment
        (Profit)/loss on sale of fixed assets                       -                (81)                5       -
          Deferred tax charge / (benefit)                             404           (219)            1,759           38
          Unrealized exchange loss                                (1,637)         (1,009)            (526)         (11)
    Net change in:
        Trade and other receivables                               (3,521)         (4,694)            5,977          127
        Other assets                                              (2,157)         (2,742)          (1,400)         (30)
        Trade payables                                            (1,752)           1,331          (2,225)         (47)
        Accrued expenses and other liabilities                       (36)             326            2,380           50
                                                           --------------- --------------- ---------------- ------------
             NET CASH PROVIDED BY OPERATING ACTIVITIES              6,679           7,947           23,121          493
                                                           --------------- --------------- ---------------- ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property, plant and equipment                     (2,615)           (956)          (2,957)         (63)
    Expenditure on capital work-in-progress                       (1,735)         (2,665)          (1,281)         (27)
    (Increase)/decrease in investments                            (2,308)           (871)               92            2
    (Increase)/decrease in short-term investments, net                 57             494         (37,272)        (796)
    Sale of property, plant and equipment                           -                 100                2       -
                                                           --------------- --------------- ---------------- ------------
             NET CASH USED BY INVESTING ACTIVITIES                (6,601)         (3,898)         (41,416)        (884)
                                                           --------------- --------------- ---------------- ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Dividends paid                                                  (380)           (760)            (760)         (16)
    Bank overdraft                                                (1,536)              20             (46)          (1)
                                                           --------------- --------------- ---------------- ------------
             NET CASH USED BY FINANCING ACTIVITIES                (1,916)           (740)            (806)         (17)
                                                           --------------- --------------- ---------------- ------------

Unrealized exchange gain on cash and cash equivalents               1,560             879              455           10
                                                           --------------- --------------- ---------------- ------------
NET CHANGE IN CASH FLOWS                                            (278)           4,188         (18,646)        (398)
Cash and cash equivalents, beginning of year                    Rs.16,936       Rs.16,658        Rs.20,846       US$445
                                                           --------------- --------------- ---------------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR                          Rs.16,658       Rs.20,846         Rs.2,200        US$47
                                                           =============== =============== ================ ============

SUPPLEMENTARY CASH FLOW INFORMATION:
     Interest paid                                                  Rs. 1            Rs.7             Rs.1      US$-
     Income taxes paid                                         Rs.(7,564)     Rs. (9,316)       Rs.(9,597)     US$(205)
</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.  The Government of India  currently  holds
     approximately  52.97% of the Company's equity share capital. The Company is
     the  exclusive  provider of  international  telecommunications  services in
     India,    directly   and   indirectly    linking   the   domestic    Indian
     telecommunications network to 237 territories worldwide. VSNL operates from
     its  corporate  office at Mumbai and through its branches at Mumbai,  Pune,
     Arvi,  Gandhinagar,  New  Delhi,  Dehradun,   Jalandhar,  Kanpur,  Kolkata,
     Chennai, Bangalore, Ernakulam and Hyderabad.

          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.   MONOPOLY STATUS

          In  September  2000,  the  Government  of  India  (the   "Government")
     announced its intention to allow private  players to provide  international
     telephone services from April 1, 2002, thus terminating VSNL's monopoly two
     years ahead of schedule. The Government plans to compensate the Company for
     this early termination with the following package:

     1.   A license to operate domestic long distance ("DLD") service.

     2.   Re-imbursement  by the Government for all license fees, entry fees and
          revenue  sharing fees, net of taxes,  that the Company may have to pay
          with respect to the DLD license, for five years with effect from April
          2001.

     3.   Exemption  from the  performance  bank  guarantee of Rs.4 billion with
          respect to the DLD license.

     4.   A category 'A' Internet Service  Provider ("ISP") license,  which will
          allow the  Company to expand  internet  access  services to the entire
          country.

     5.   The  Government  may  also  consider   additional   compensation,   if
          necessary, after a detailed review is undertaken.

          The Company has accepted the  Government's  decision to terminate  the
     Company's  monopoly  before the year 2004. The  shareholders of the Company
     have approved the compensation package at the meeting held in May 2001.


                                      F-7
<PAGE>

     C.   DISINVESTMENT

          The  Government  currently  holds a  majority  stake of  52.97% in the
     Company's equity. The Government has announced its decision to divest a 25%
     stake to a  strategic  partner,  along  with the  right to  management  and
     simultaneously   disinvest  1.97%  to  the  Company's  employees.   If  the
     Government  achieves  successful  divestment,  certain  procedures that are
     currently   mandatory  for  public  sector  companies  will  no  longer  be
     applicable to the company.  The disinvestment  process commenced in January
     2001.  There can be no  assurance  that a strategic  buyer will be found or
     that negotiations will result in a sale.

     D.   REVENUE SHARING ARRANGEMENT

          The  Company  operates  its  business   pursuant  to  a  license  from
     Department of Telecommunications ("DoT"), Government of India. In pursuance
     of the New Telecom Policy 1999, the Government  decided to corporatise  the
     service  provision  functions  of  the  DoT.  Accordingly,  the  Government
     transferred  the business of providing  telecom  services in the country to
     the newly formed company, Bharat Sanchar Nigam Limited ("BSNL") with effect
     from October 1, 2000. Further, the existing contracts, agreements and MoU's
     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.

          The  license is  periodically  renewed  by the DoT  subject to certain
     conditions and is currently  valid up to March 31, 2004.  Under the current
     arrangements,  although the Company provides  international  gateway access
     out of and into India,  all calls must either  initiate or  terminate on or
     pass through the DoT's network.  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  DoT  for  the  delivery  of  international   calls  abroad.
     Consequently,  the Company and DoT share  revenues  received by each entity
     from international  calls pursuant to a revenue sharing arrangement between
     them.  The  arrangement  is effective from April 1, 1997 and is valid until
     March 31, 2002.

          Under the revenue  sharing  arrangement,  the  Company  pays to DoT, a
     charge per minute equal to the weighted average  incoming  settlement rate,
     minus Rs.  10.00 on all  incoming  international  calls and DoT 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.

          The above  arrangement  was  intended  to result in an  average  gross
     profit to VSNL of  approximately  Rs.10.00  per call minute for each of the
     financial  years ended March 31, 1998 and March 31, 1999. This was based on
     the assumption that  applicable  settlement  rates,  exchange rates and the
     composition  of the incoming and  outgoing  traffic from and to  particular
     destinations  remain  constant  during the year.  Any  fluctuation in these
     variables, either to the benefit or detriment of VSNL, was borne by VSNL.


                                      F-8
<PAGE>

          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 DoT (net of  payments  by the  Company to
     foreign  administrations  and  carriers  and by the Company and DoT 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 DoT
     according to the following percentages:

                                                            INCREASE/DECREASE
       YEARS ENDED MARCH 31        COMPANY'S SHARE              DOT'S SHARE
       --------------------        ---------------           -----------------
               2000                      15%                        85%
               2001                      20%                        80%
               2002                      25%                        75%

          In computing the international  traffic revenue of DoT for purposes of
     calculating the combined  international  traffic revenue per call minute of
     the Company and DoT, the tariff charged by DoT 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 DoT from its subscribers for outgoing international calls.

          The current  revenue  sharing  arrangement is subject to review in the
     event that the exchange rate fluctuates more than 10 per cent from the rate
     at the beginning of the year or the Company's actual average gross earnings
     per call minute is less than Rs.9.00 or more than Rs.11.00 in any financial
     year covered by the  arrangement.  The  objective of the review would be to
     renegotiate terms that correct the imbalance.

          For the years ended March 31, 1999, 2000 and 2001 the gross profit per
     call minute was Rs.10.63, Rs.9.43 and Rs.9.39, respectively.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A.   BASIS OF PRESENTATION AND CONSOLIDATION

          The Company does not have any subsidiaries. Entities 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.

          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 insofar
     as they relate to the Company include valuation of investments,  accounting
     for property, plant and equipment and depreciation thereon, deferred income
     taxes,  retirement benefits,  investment in affiliates and the presentation
     and format of the financial statements and related notes.

     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


                                      F-9
<PAGE>

     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  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 provisions for bad and doubtful amounts. Amounts payable to,
     and receivable from, the same administration and the DoT are shown on a net
     basis,  where  a  legal  right  of  set-off  exists.   These  payables  and
     receivables are intended to be settled on a net basis.

     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 corporations 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.

     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.


                                      F-10
<PAGE>

          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:

                                                               YEARS
                                                              ------
                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 vehicles               10-15

          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 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.

     G.   IMPAIRMENT OF LONG LIVED ASSETS

          The Company evaluates the carrying value of its property and equipment
     whenever events or circumstances  indicate the carrying value of 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 of an asset are less than the  carrying  amount of the
     asset.  Measurement  of an  impairment  loss is based on fair  value of the
     asset computed using  discounted  cash flows as if the asset is expected to
     be held and used.  Measurement of an impairment  loss for an asset held for
     sale would be based on fair market value less estimated costs to sell.

     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 employees.  The plan provides
     for lump sum  payments to vested  employees at  retirement,  death while in


                                      F-11
<PAGE>

     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   benefits   comprise  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.

          PROVIDENT FUND

          In addition to the above benefits, all 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 was 11% and 9.5% as of March 31, 2000 and 2001,
     respectively.  Currently,  the Company has no further  obligation under the
     provident 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 DoT for  completing  outgoing  calls made from
     India and from payments by foreign  administrations for incoming calls that
     originate outside India.

          Income   from   the    Company's    investments    in    International
     Telecommunications Satellite Organisation ("Intelsat"), which represent the
     surplus earned by Intelsat  during the year, is accrued on the basis of the
     statements  received and is included as part of non-operating  income.  The
     charges paid to Intelsat for the use of  satellites  is included in network
     and transmission costs.

     K.   OPERATING COSTS

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

          Network and  transmission  costs include  payments to DoT for incoming
     traffic and to foreign  administrations  and carriers for outgoing traffic,
     as well as the cost of leasing  transmission  facilities,  including  lines
     from DoT and  satellite  circuits from  Intelsat and  International  Mobile


                                      F-12
<PAGE>

     Satellite Organisation ("Inmarsat"). As discussed in note 1(b), the Company
     must pay a proportion  of the amounts  received from the DoT to transit and
     destination  foreign  administrations.   Similarly,  a  proportion  of  the
     payments  from the foreign  administrations  is paid to DoT for  completing
     calls within India.

          Under the current revenue sharing agreement with DoT, the Company pays
     to DoT a license  fee of  Rs.0.25  million  per annum on  average  circuits
     commissioned.

          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 recorded at the exchange rate prevailing on the
     date of the transaction.  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.

     M.   INCOME TAX

          Income tax  comprises  the current tax provision and the net change in
     the deferred tax asset or liability in the year. Temporary  differences are
     identified  and the provision is made using the asset and liability  method
     for all such differences. 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, 2000 and 2001,
     the amounts  available for  distribution are Rs.1,002 million and Rs.16,147
     million,  respectively.  Dividends for the years ended March 31, 1999, 2000
     and 2001 were Rs.8,  Rs.8 and Rs.50 per  equity  share,  respectively.  The
     Company paid dividends of Rs.380 million, Rs.760 million and Rs.760 million
     during the years ended March 31, 1999, 2000 and 2001, respectively.

     O.   EARNINGS PER SHARE

          The Company  reports  basic and diluted  earnings  per equity share in
     accordance with SFAS No. 123, 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.


                                      F-13
<PAGE>

     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
     along with net income are components of comprehensive income.

     Q.   SEGMENT INFORMATION

          The  Company  identifies  basic  telephony,  Internet  and leased line
     services  as its  operating  segments.  Segment-wise  information  has been
     provided in Note 22.

     R.   NEW ACCOUNTING PRONOUNCEMENTS

          SFAS NO. 141

          In June 2001, the Financial Accounting Standards Board ("FASB") issued
     SFAS No. 141, BUSINESS COMBINATIONS. The provisions of this Statement apply
     to all business combinations  initiated after June 30, 2001. This Statement
     also applies to all business combinations  accounted for using the purchase
     method  for which the date of  acquisition  is July 1, 2001 or later.  This
     Statement  addresses  financial   accounting  and  reporting  for  business
     combinations and supersedes APB Opinion No. 16, BUSINESS COMBINATIONS,  and
     SFAS No. 38,  ACCOUNTING  FOR  PREACQUISITION  CONTINGENCIES  OF  PURCHASED
     ENTERPRISES.  All business  combinations in the scope of this Statement are
     to be accounted for using the purchase  method only.  This Statement is not
     applicable as the Company has not initiated any business combinations.

          SFAS NO. 142

          In June  2001,  the FASB  issued  SFAS No.  142,  GOODWILL  AND  OTHER
     INTANGIBLE  ASSETS.  The  provisions  of this  Statement are required to be
     applied  starting with fiscal years beginning after December 15, 2001. This
     Statement  addresses  financial   accounting  and  reporting  for  acquired
     goodwill and other  intangible  assets and  supersedes  APB Opinion No. 17,
     INTANGIBLE  ASSETS.  It addresses how  intangible  assets that are acquired
     individually  or with a group of other assets (but not those  acquired in a
     business  combination) should be accounted for in financial statements upon
     their  acquisition.  This  Statement  also addresses how goodwill and other
     intangible  assets should be accounted  for after they have been  initially
     recognized in the financial statements.  The Statement states that goodwill
     and  intangible  assets  that  have  indefinite  useful  lives  will not be
     amortized  but  rather  will be tested at least  annually  for  impairment.
     Intangible  assets  that have  finite  useful  lives  will  continue  to be
     amortized  over their  useful  lives,  but  without  the  constraint  of an
     arbitrary ceiling. The Company does not have goodwill and intangible assets
     with  indefinite  useful lives.  Intangible  assets that have finite useful
     lives are already  being  amortized  over their useful  lives.  Hence,  the
     Company's current amortization policy complies with SFAS No. 142.

          SFAS NO. 143

          In June 2001,  the FASB  issued  SFAS No.  143,  ACCOUNTING  FOR ASSET
     RETIREMENT   OBLIGATIONS.   This   statement  is  effective  for  financial
     statements  issued for fiscal years  beginning  after June 15,  2002.  This
     Statement  addresses  financial  accounting  and reporting for  obligations


                                      F-14
<PAGE>

     associated  with the  retirement  of  tangible  long-lived  assets  and the
     associated asset  retirement costs and applies to all entities.  It applies
     to legal  obligations  associated with the retirement of long-lived  assets
     that result from the  acquisition,  construction,  development and (or) the
     normal operation of a long-lived asset,  except for certain  obligations of
     lessees. The Company does not have material asset retirement obligations.

     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,
     2001 have been  translated  into US dollars at US$1.00 = Rs.46.85  based on
     the noon buying rate for cable transfers on March 30, 2001 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.

3.   CASH AND CASH EQUIVALENTS

          Cash and cash equivalents include the following:

                                               AS OF MARCH 31,
                             ------------------------------------------------
                                  2000             2001            2001
                             ----------------  --------------  --------------
                                              (IN MILLIONS)

         Cash in hand                  Rs.1           Rs.15            US$-
         Bank balances:
            Current accounts         19,449             485              10
            Time deposits             1,396           1,700              37
                             ----------------  --------------  --------------
               TOTAL              Rs.20,846        Rs.2,200           US$47
                             ================  ==============  ==============

          Time deposits are  interest-bearing  deposits with original maturities
     ranging  from 15 days to 90  days.  Interest  rates on such  time  deposits
     during the year ended March 31, 2001,  ranged from  approximately  6.10% to
     6.98% on  foreign  currency  deposits  and 7.00% to 11.25% on Indian  rupee
     deposits.

4.   SHORT-TERM INVESTMENTS

          Short-term investments include the following:

                                                       AS OF MARCH 31,
                                     -------------- -------------- -------------
                                          2000             2001           2001
                                     -------------- -------------- -------------
                                                     (IN MILLIONS)

         Restricted cash balances         Rs.6,658       Rs.7,730       US$165
         Time deposits with maturity
           exceeding 90 days                 2,120         38,320          818
                                     -------------- -------------- -------------
             TOTAL                        Rs.8,778      Rs.46,050       US$983
                                     ============== ============== =============

          Restricted cash balances  comprise of time deposits,  the use of which
     is restricted to the import of capital equipment.


                                      F-15
<PAGE>

5.       TRADE AND OTHER RECEIVABLES

          Trade and other receivables include the following:

<TABLE>
<CAPTION>
                                                                                   AS OF MARCH 31,
                                                                -------------------------------------------------------
                                                                      2000                 2001               2001
                                                                ------------------    ----------------    -------------
                                                                                    (IN MILLIONS)
<S>                                                                   <C>                 <C>               <C>
         Trade accounts receivables:
             Amount due from foreign administrations                    Rs.24,564           Rs.17,347           US$370
             Domestic trade debtors                                           527                 792               17
         Interest receivable on bank deposits                                 134               1,231               26
         Other sundry deposits                                                 49                  56                1
         Other receivables                                                    377                 319                7
                                                                ------------------    ----------------    -------------
              TOTAL                                                     Rs.25,651           Rs.19,745           US$421
                                                                ==================    ================    =============
</TABLE>

          Trade accounts  receivables are net of an allowance for doubtful debts
     of Rs.1,021  million and Rs.979  million for the years ended March 31, 2000
     and 2001, respectively.

          Amounts due from DoT for traffic settlement are netted against amounts
     due to DoT for traffic  settlement and are reported in trade payables.  The
     Company has legal right of setoff.

6.       INVESTMENTS

          The  portfolio  of  investments  as of March  31,  2000 and 2001 is as
     follows:

<TABLE>
<CAPTION>
                                         AS OF MARCH 31, 2000                            AS OF MARCH 31, 2001
                               ------------ ------------ ---------------    --------------- ----------------- --------------
                                               GROSS                                              GROSS
                                AMORTIZED   UNREALIZED      CARRYING          AMORTIZED        UNREALIZED        CARRYING
                                  COST         GAINS          VALUE              COST             GAINS             VALUE
                               ------------ ------------ ---------------    --------------- ----------------- --------------
                                                                      (IN MILLIONS)
<S>                             <C>             <C>         <C>                 <C>                 <C>           <C>
Investment carried at fair value:
    Satellite companies            Rs.-         Rs.-          Rs.-                  Rs.562            Rs.681       Rs.1,243
                               ============ ============                    =============== =================

Investment carried at cost:
    Satellite companies                                           9,127                                               8,474
    Less: Permanent
    impairment                                                  (5,470)                                             (5,470)
                                                         ---------------                                      --------------
     TOTAL                                                     Rs.3,657                                            Rs.4,247
                                                         ===============                                      ==============
     TOTAL                                                                                                            US$91
                                                                                                              ==============
</TABLE>

          INTELSAT

          Intelsat is an Inter  Government  Organisation  ("IGO") formed in 1964
     that owns and operates satellite communication systems. It offers Internet,
     broadcast,  telephony and corporate  network solutions to customers in over
     200  countries  through  its  network of 20  geostationary  satellites.  It
     currently has 10 new next-generation satellites under construction.


                                      F-16
<PAGE>

          The  Company's  ownership  share  in  this  organization  is  adjusted
     quarterly  to  conform  to the  respective  percentage  of total use of the
     system  or  another  percentage  based  on  the  terms  of  the  agreement.
     Accordingly,  on the basis of share  re-determinations,  as of March  1999,
     2000  and  2001,  the  Company's  investment  was at 4.3%,  5.2% and  5.4%,
     respectively, of the total shareholding of Intelsat.

          Net capital  contributions  are billed by Intelsat to the Company from
     time to time in proportion to the ownership share determined.  The total of
     such  net  capital   contributions   are   disclosed  as   investments   in
     communication satellites under investments.

          In  November  2000,  Intelsat's  member  nations  formally  decided to
     privatise it to increase flexibility.

          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,  shares 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
     ("IPO") in October 2000 and redesignated its shares from Guilders to Euros.
     Thus,  the  Company's  total  holding in NSS as of March 31, 2001 stands at
     3,442,150 ordinary shares of 0.05 Euros each. The market value per share as
     of March 30, 2001 was US$7.75 per share.

          INTERNATIONAL MOBILE SATELLITE ORGANISATION ("INMARSAT")

          Inmarsat was an intergovernmental organization with membership from 88
     countries providing satellite mobile  communications in air, on land and at
     sea. Inmarsat 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 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.

          ICO GLOBAL COMMUNICATIONS HOLDINGS LTD. ("ICO")

          ICO, a company registered in Bermuda, was incorporated in January 1995
     to provide global mobile personal communication services. ICO was listed on
     the NASDAQ in July 1998. The Company has invested a sum of Rs.5,471 million
     (US$150 million) in ICO.

          ICO filed a voluntary petition for re-organization under Chapter 11 of
     the United States  Bankruptcy  Code on August 27, 1999 in the United States
     Bankruptcy  Court in the district of Delaware as the  additional  financial
     resources  required to complete the system and begin commercial  operations
     could not be raised as per schedule.


                                      F-17
<PAGE>

          In May 2000, the court confirmed the plans of  re-organization of ICO,
     which became  effective on May 17, 2000. By virtue of the  re-organization,
     the Company  received  180,053  shares of class A common stock of US$ 0.01,
     amounting  to  Rs.0.06  million  and  975,398  warrants,  with an option to
     purchase  shares of class A common stock  exercisable in New ICO by May 15,
     2006. The Company recognized a charge of Rs.5,416 million and Rs.54 million
     as  permanent  impairments  in the years  ended  March  31,  1999 and 2000,
     respectively.

          TELSTRA VISHESH COMMUNICATIONS LIMITED ("TVCL")

          TVCL is a joint  venture  between the Company,  Telstra-Australia  and
     Infrastructure  Leasing &  Financial  Services  Ltd.  , 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 face value in the previous year.

7.   PROPERTY, PLANT AND EQUIPMENT

          Property, plant and equipment by asset category is as follows:

<TABLE>
<CAPTION>
                                                                                  AS OF MARCH 31,
                                                             ----------------------------------------------------------
                                                                   2000                 2001                2001
                                                             -----------------     ---------------    -----------------
                                                                                   (IN MILLIONS)
<S>                                                                  <C>                <C>                    <C>
         Land                                                          Rs.143              Rs.754                US$16
         Buildings                                                      1,780               2,062                   44
         Plant and machinery                                           20,658              23,349                  499
         Computers                                                        431                 574                   12
         Motor vehicles                                                    14                  16                    -
         Furniture and fixtures                                           339                 366                    8
                                                             -----------------     ---------------    -----------------
              Property, plant and equipment, at cost                   23,365              27,121                  579
         Less: Accumulated depreciation                               (7,445)             (9,044)                (193)
                                                             -----------------     ---------------    -----------------
              PROPERTY, PLANT AND EQUIPMENT, NET                    Rs.15,920           Rs.18,077               US$386
                                                             =================     ===============    =================
</TABLE>

          Depreciation expense for the years ended March 31, 1999, 2000 and 2001
     was Rs.1,266 million, Rs.1,534 million and Rs.1,729 million, respectively.

          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 allowance for  impairment  has been made of Rs.356  million in the
     year ended March 31, 2000 to reflect their estimated realizable value.

          Property,  plant and  equipment  includes  assets held for disposal of
     Rs.1 million as of March 31, 2000 and 2001, respectively,  which represents
     their estimated realizable value.

          Property,  plant and  equipment  include  Rs.851 million and  Rs.1,672
     million  for  indefeasible  rights  of use as of March  31,  2000 and 2001,
     respectively.


                                      F-18
<PAGE>

8.       CAPITAL WORK-IN-PROGRESS

          Capital work-in-progress includes the following:

                                                AS OF MARCH 31,
                             --------------------------------------------
                                 2000              2001           2001
                             ----------       ------------    -----------
                                             (IN MILLIONS)
         Buildings              Rs.313             Rs.382          US$8
         Plant & Machinery       1,173              1,912            41
         Other assets              496                 34             1
                             ----------       ------------     ---------
              TOTAL           Rs.1,982           Rs.2,328         US$50
                             ==========       ============     =========


9.       OTHER ASSETS

          Other assets includes the following:

                                                   AS OF MARCH 31,
                             ------------------------------------------------
                                    2000           2001             2001
                             ------------     -------------    --------------
                                                 (IN MILLIONS)
         Advance tax (net)      Rs.5,858          Rs.7,463            US$160
         Advance paid for
           capital goods             348                63                 1
         Prepaid expenses            140               235                 5
         Inventories                  31                17                 -
                             ------------     -------------     -------------
                             ------------     -------------     -------------
              TOTAL             Rs.6,377          Rs.7,778            US$166
                             ============     =============     =============


10.       TRADE PAYABLES

                  Trade payables include the following:

<TABLE>
<CAPTION>
                                                                                AS OF MARCH 31,
                                                          -------------------------------------------------------------
                                                                 2000                   2001                2001
                                                          --------------------     ---------------    -----------------
                                                                                 (IN MILLIONS)

        <S>                                                     <C>                  <C>                     <C>
         Accounts payable-trade:
           Amounts due to foreign administrations                Rs.1,151            Rs.2,585                US$56
           Amounts due to DoT net of amounts due from
           DoT for traffic settlement                              12,384               8,724                  186
                                                          --------------------     ---------------    -----------------
              TOTAL                                             Rs.13,535           Rs.11,309               US$242
                                                          ====================     ===============    =================
</TABLE>


                                      F-19
<PAGE>

11.  ACCRUED EXPENSES AND OTHER LIABILITIES

          Accrued expenses and other liabilities include the following:

<TABLE>
<CAPTION>
                                                                        AS OF MARCH 31,
                                                     -------------------------------------------------------
                                                          2000                2001               2001
                                                     ----------------    ----------------   ----------------
                                                                         (IN MILLIONS)
        <S>                                                 <C>                 <C>                   <C>
         Bank overdraft                                        Rs.46                Rs.-               US$-
         Unearned income                                       1,605               2,235                 48
         Deferred taxation                                     1,155               3,183                 68
         Other payables and accrued expenses                   3,559               5,313                113
                                                     ----------------    ----------------   ----------------
              TOTAL                                         Rs.6,365           Rs.10,731             US$229
                                                     ================    ================   ================
</TABLE>


          Bank  overdraft  of Rs. 46 million and Rs.Nil  million as of March 31,
     2000 and 2001, respectively, represent book overdrafts.


12.      INCOME TAXES

          The income tax expense comprises the following:

<TABLE>
<CAPTION>

                                                                   YEARS ENDED MARCH 31,
                                          -------------------------------------------------------------------
                                               1999               2000              2001              2001
                                          --------------    ---------------    --------------    ------------
                                                                    (IN MILLIONS)
        <S>                                <C>                  <C>             <C>                <C>
         Current income tax expense            Rs.5,894           Rs.6,375          Rs.7,887          US$168
         Deferred income tax expense
             (benefit)                              404              (219)             1,759              38
                                          --------------    ---------------    --------------    ------------
                INCOME TAX EXPENSE             Rs.6,298           Rs.6,156          Rs.9,646          US$206
                                          ==============    ===============    ==============    ============
</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,
                                                   ---------------------------------------------------------------------
                                                       1999               2000                2001              2001
                                                   --------------    ----------------    ----------------    -----------
                                                                              (IN MILLIONS)

        <S>                                          <C>                <C>                   <C>              <C>
         Net income before taxes                       Rs.15,002           Rs.19,331           Rs.25,173         US$537
         Effective statutory income tax rate
                                                          35.00%              38.50%              39.55%         39.55%
         Expected income tax expense                       5,251               7,442               9,956            212

         Adjustments to reconcile expected income tax to actual tax expense:
              Permanent differences:
               Income exempt under tax holiday
                                                           (708)               (899)             (1,209)           (26)
               Provision for diminution in value
                of investment not allowed for tax
                                                           1,896                  21                 153              3
               Exchange gain on GDR deposits
                treated as capital receipt for
                income tax purposes
                                                           (248)                (94)                (60)            (1)
               Other, net                                    107               (451)                 775             17
              Effect of change in statutory
                 tax rate                                    -                   137                  31              1
                                                   --------------    ----------------    ----------------    -----------
                INCOME TAX EXPENSE                      Rs.6,298            Rs.6,156            Rs.9,646         US$206
                                                   ==============    ================    ================    ===========
</TABLE>


                                      F-20
<PAGE>

          The tax effects of significant temporary differences are as follows:
<TABLE>
<CAPTION>

                                                                                    AS OF MARCH 31,
                                                                  -----------------------------------------------------
                                                                       2000                2001               2001
                                                                  ----------------    ----------------    -------------
         TAX EFFECT OF:                                                              (IN MILLIONS)

        <S>                                                             <C>                 <C>                 <C>
           DEDUCTIBLE TEMPORARY DIFFERENCES:
             Allowances for trade receivables
                                                                           Rs.482              Rs.387             US$8
             Other                                                            511                  -                 -
                                                                  ----------------    ----------------    -------------
                DEFERRED TAX ASSET                                         Rs.993              Rs.387             US$8
                                                                  ----------------    ----------------    -------------

           TAXABLE TEMPORARY DIFFERENCES:
              Property, plant and equipment                              Rs.2,148            Rs.3,204            US$68
              Investment income deferred for tax                               -                  269                6
              Other                                                            -                   97                2
                                                                  ----------------    ----------------    -------------
                DEFERRED TAX LIABILITY                                   Rs.2,148            Rs.3,570            US$76
                                                                  ----------------    ----------------    -------------
                NET DEFERRED TAX LIABILITY                               Rs.1,155            Rs.3,183            US$68
                                                                  ================    ================    =============
</TABLE>

13.      SHAREHOLDERS' EQUITY

          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 of November 16, 2001. In accordance with ARB No.
     43, the Company has  capitalized  the  legally  required  face value of the
     equity shares issued.

          During the year ended March 31, 2001, the authorized  share capital of
     the Company was  increased  from 100  million  equity  shares of Rs.10 each
     aggregating  Rs.1,000  million to 300 million  equity  shares of Rs.10 each
     aggregating Rs.3,000 million.


                                      F-21
<PAGE>

14.      REVENUES

          Revenues comprise the following:
<TABLE>
<CAPTION>

                                                                            YEARS ENDED MARCH 31,
                                                       -----------------------------------------------------------------
                                                           1999              2000             2001             2001
                                                       --------------    -------------    --------------    ------------
                                                                                (IN MILLIONS)
      <S>                                                <C>              <C>               <C>               <C>
         Revenues from foreign Administrations
         for incoming traffic:
             Telephone                                     Rs.43,834        Rs.45,161         Rs.46,674          US$996
             Telex                                               186              128               112               2
         Revenues from DoT for outgoing traffic:
             Telephone                                        18,243           18,375            18,345             392
             Telex                                               173              175               112               2
         Leased circuits                                       2,499            2,986             3,140              67
         Telegraph, television and others                      2,246            2,815             3,533              76
                                                       --------------    -------------    --------------    ------------
              TOTAL                                        Rs.67,181        Rs.69,640         Rs.71,916        US$1,535
                                                       ==============    =============    ==============    ============
</TABLE>


15.      NETWORK AND TRANSMISSION COSTS

          Network and transmission costs comprise the following:

<TABLE>
<CAPTION>
                                                                         YEARS ENDED MARCH 31,
                                                 ----------------------------------------------------------------------
                                                     1999               2000                2001              2001
                                                 --------------    ----------------    ---------------     ------------
                                                                             (IN MILLIONS)

       <S>                                         <C>                 <C>                <C>                <C>
         Payment for traffic costs to:
             DoT                                     Rs.27,682           Rs.29,254          Rs.27,341           US$584
             Foreign administrations                    14,762              13,374             13,866              296
         Rent of land lines                                915                 579              1,037               22
         Other transmission facilities                   1,780               2,414              2,906               62
                                                 --------------    ----------------    ---------------     ------------
              TOTAL                                  Rs.45,139           Rs.45,621          Rs.45,150           US$964
                                                 ==============    ================    ===============     ============
</TABLE>


                                      F-22
<PAGE>

16.  OTHER OPERATING COSTS

         Other operating costs comprise the following:
<TABLE>
<CAPTION>

                                                                           YEARS ENDED MARCH 31,
                                                      -----------------------------------------------------------------
                                                          1999              2000             2001             2001
                                                      -------------     -------------    -------------     ------------
                                                                               (IN MILLIONS)

        <S>                                             <C>               <C>             <C>                <C>
         Staff costs:
             Salaries and wages                            Rs. 680           Rs. 866         Rs.1,400            US$30
             Social security contributions                      86                90              132                3
         Energy costs                                          175               235              271                6
         Advertising                                           102               113              116                2
         Repairs,  maintenance,  marketing and other
             costs                                             585             1,318            1,104               24
                                                      -------------     -------------    -------------     ------------
              TOTAL                                       Rs.1,628          Rs.2,622         Rs.3,023            US$65
                                                      =============     =============    =============     ============
</TABLE>


17.      NON-OPERATING INCOME

          Non-operating income comprises the following:

<TABLE>
<CAPTION>

                                                                           YEARS ENDED MARCH 31,
                                                      -----------------------------------------------------------------
                                                          1999              2000             2001             2001
                                                      -------------     -------------    -------------     ------------
                                                                               (IN MILLIONS)

        <S>                                            <C>               <C>             <C>                 <C>
         Foreign exchange gains, net                      Rs.3,168          Rs.1,449         Rs.2,878            US$61
         Profit (Loss) on sale of fixed assets                  10                86              (5)                -
         Miscellaneous income                                  136               286              185                4
                                                      -------------     -------------    -------------     ------------
              TOTAL                                       Rs.3,314          Rs.1,821         Rs.3,058            US$65
                                                      =============     =============    =============     ============
</TABLE>



                                      F-23
<PAGE>

18.  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, 2000 and 2001.
<TABLE>
<CAPTION>
                                                                                         AS OF MARCH 31,
                                                                           --------------------------------------------
                                                                               2000            2001            2001
                                                                           --------------   ------------    -----------
                                                                                          (IN MILLIONS)

         CHANGE IN BENEFIT OBLIGATION:

        <S>                                                                    <C>            <C>               <C>
           Projected benefit obligation, beginning of the year                    Rs.151         Rs.153           US$4
           Service cost                                                                8              8              -
           Interest cost                                                              16             16              -
           Actuarial loss/(gain)                                                     (21)             65             1
           Benefits paid                                                              (1)            (10)            -
                                                                           --------------   ------------    -----------
                PROJECTED BENEFIT OBLIGATION, END OF THE YEAR                        153            232              5
                                                                           --------------   ------------    -----------

         CHANGE IN PLAN ASSETS:

           Fair value of plan assets, beginning of the year                          56             95              2
           Actual return on plan assets                                               7             10           -
           Employer contributions                                                    33             32              1
           Benefits paid                                                             (1)           (10)          -
                                                                           --------------   ------------    -----------
                FAIR VALUE OF PLAN ASSETS, END OF THE YEAR                            95            127             3
                                                                           --------------   ------------    -----------

           Excess of obligation over plan assets                                    (58)          (105)            (2)
           Unrecognized actuarial loss                                                2             68              1
           Unrecognized transitional obligation                                      18             13           -
                                                                           --------------   ------------    -----------
                ACCRUED BENEFIT                                                  Rs.(38)        Rs.(24)         US$(1)
                                                                           ==============   ============    ===========
</TABLE>


          Net gratuity  cost for the years ended March 31,  1999,  2000 and 2001
     comprises the following components:

<TABLE>
<CAPTION>
                                                                            YEARS ENDED MARCH 31,
                                                       ----------------------------------------------------------------
                                                             1999              2000             2001             2001
                                                       --------------    -------------    --------------    -----------
                                                                                (IN MILLIONS)
        <S>                                                  <C>              <C>               <C>           <C>
         Service cost                                           Rs.7            Rs. 8             Rs. 8           US$-
         Interest cost                                            11               16                16           -
         Amortization of unrecognized transitional
             obligation                                            5                5                 5           -
         Actual investment return                                (4)              (7)              (10)           -
                                                       --------------    -------------    --------------    -----------
              NET GRATUITY COST                                Rs.19            Rs.22             Rs.19           US$-
                                                       ==============    =============    ==============    ===========
</TABLE>


                                      F-24
<PAGE>

          The assumptions used in accounting for the gratuity plan for the years
     ended March 31, 1999, 2000 and 2001 are set out below:

<TABLE>
<CAPTION>
                                                                                          YEARS ENDED MARCH 31,
                                                                                    -----------------------------------
                                                                                      1999         2000         2001
                                                                                    ---------    ---------    ---------
                                                                                                   (%)

        <S>                                                                           <C>          <C>          <C>
         Discount rate                                                                  10.5         10.5         10.5
         Rate of increase in compensation levels of covered employees                      6            6            6
         Rate of return on plan assets                                                   9.5          9.5          9.5
</TABLE>


          LEAVE ENCASHMENT

          The Company  provided Rs.11  million,  Rs.26 million and Rs.28 million
     for leave  encashment  for the years ended March 31,  1999,  2000 and 2001,
     respectively.


          PROVIDENT FUND

          The Company contributed Rs.36 million, Rs.45 million and Rs.75 million
     to the  provident  fund for the years ended March 31, 1999,  2000 and 2001,
     respectively.


19.  ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS


          The  carrying   amounts  for  cash,   cash   equivalents,   short-term
     investments,  accounts  receivable and accounts payable  approximate  their
     fair values due to the short maturity of these instruments.


20.  COMMITMENTS AND CONTINGENCIES

          Commitments and contingencies are as follows:

          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  and  unpaid  amounts on  investments,  with the  majority  of
     payments  due within a one year  period.  The  amount of these  commitments
     totalled Rs.2,887 million as of March 31, 2001.

          CONTINGENCIES

          INCOME TAX MATTERS

          For the assessment years 1988-89,  1994-95 and 1996-97 to 1998-99, the
     income tax authorities have raised demands  aggregating  Rs.14,728 million,
     including  interest of Rs. 6,343 million on the disallowance of license fee


                                      F-25
<PAGE>

     paid  by  the  Company  to DoT  and  other  claims  against  which  amounts
     aggregating to Rs.10,625 million have been paid or adjusted.  The claim for
     license fee for assessment  year 1995-96 has been allowed by the Income Tax
     Appellate  Tribunal.  The  Company  has been  advised by  counsel  that the
     demands are not likely to be sustained and hence no provision is considered
     necessary.

          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.


21.  RELATED PARTY TRANSACTIONS

          The  Company's   principal   related  parties  consist  of  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,  sharing costs and
     revenues and subletting premises.  Transactions other than with the DoT are
     at arm's  length  in  accordance  with law.  Transactions  with the DoT are
     subject  to the  revenue  sharing  agreement  discussed  in  Note  1d.  The
     Company's  significant related party balances and transactions with DoT are
     detailed in the  Statement  of Income and in Notes 5, 10, 14 and 15.  Other
     related party transactions and balances are immaterial  individually and in
     the aggregate.

22.  SEGMENT INFORMATION

          The  Company  has  three  operating  segments,  comprising  telephony,
     Internet  and  leased  line  services.  Operating  segments  other than the
     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  "All  other"
     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.


                                      F-26
<PAGE>

          Summarized  segment  information  for the years ended March 31,  1999,
     2000 and 2001 is as follows:

<TABLE>
<CAPTION>
                                                                  YEARS ENDED MARCH 31,
                                                                      (IN MILLIONS)
                                 -----------------------------------------------------------------------------------------
                                            1999                           2000                           2001
                                 ----------------------------    --------------------------    ---------------------------
<S>                                   <C>              <C>           <C>             <C>            <C>             <C>
                                    BASIC                        BASIC                            BASIC
                                  TELEPHONY     ALL OTHER        TELEPHONY     ALL OTHER        TELEPHONY     ALL OTHER
                                 ------------ ---------------    ----------- --------------    ------------ --------------
Traffic revenue                    Rs.62,077        Rs.5,104      Rs.63,535       Rs.6,105       Rs.65,019       Rs.6,897
Income from satellite consortia        -                 757           -               737           -              1,160
                                 ------------ ---------------    ----------- --------------    ------------ --------------
  OPERATING REVENUE                   62,077           5,861         63,535          6,842          65,019          8,057
Network and transmission costs        42,976           2,163         43,004          2,617          41,861          3,289
License fee                            4,157          -               4,712         -                5,022        -
                                 ------------ ---------------    ----------- --------------    ------------ --------------
  SEGMENT OPERATING PROFIT            14,944           3,698         15,819          4,225          18,136          4,768
                                 ============ ===============    =========== ==============    ============ ==============

TOTAL SEGMENT OPERATING PROFIT                        18,642                        20,044                         22,904
Less:   Unallocable   operating                        2,894                         4,156                          4,752
  costs
                                                 ------------                   -----------                    -----------
OPERATING PROFIT, AS REPORTED                      Rs.15,748                     Rs.15,888                      Rs.18,152
                                                 ============                   ===========                    ===========
</TABLE>


          Unallocable   operating   costs  include  staff  cost,   energy  cost,
     depreciation  and other  general  administrative  overheads,  which are not
     allocable segment-wise.

          Revenues from major customers are as follows:

<TABLE>
<CAPTION>

                                                        YEARS ENDED MARCH 31,
                             -----------------------------------------------------------------------------
                                 1999                 2000                 2001                2001
                             --------------     -----------------     ---------------    -----------------
                                                            (IN MILLIONS)

<S>                                  <C>                  <C>                 <C>                     <C>
         DoT                     Rs.18,416             Rs.18,550           Rs.18,346               US$392
         USA-MCI                     7,749                11,071              10,916                  233
         USA-ATT                     7,572                 5,157               9,639                  206
         UAE                         6,921                 6,589               7,222                  153
         UK-BTI                      4,501                 4,276               2,213                   47
         Saudi Arabia                4,179                 3,179               4,185                   89
         US Sprint                   1,216                 1,794               1,384                   30
         UK MCL                      1,119                   928                 717                   15
         Singapore                   1,067                 1,719               1,384                   30
         Canada                      1,232                 1,199                 702                   15
                             --------------     -----------------     ---------------    -----------------
         TOTAL                   Rs.53,972             Rs.54,462           Rs.56,708             US$1,210
                             ==============     =================     ===============    =================
</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.


                                      F-27
<PAGE>

          The balances due from major customers are as follows:


                                         YEARS ENDING MARCH 31,
                         -------------------------------------------------------
         CUSTOMER NAME        2000                2001               2001
                         ----------------    ----------------   ----------------
                                             (IN MILLIONS)

         USA-MCI                Rs.7,308            Rs.4,066              US$87
         USA-ATT                   1,616               2,585                 55
         UAE                       4,197               2,419                 51
         UK-BTI                    3,689               1,717                 37
         Saudi Arabia              1,534               2,057                 44
         Singapore                 1,118                  49                  1
                         ----------------    ----------------   ---------------
                         ----------------    ----------------   ---------------
              TOTAL            Rs.19,462           Rs.12,893             US$275
                         ================    ================   ===============


          All revenues  earned by the Company are from its  operations in India.
     Substantially all of the Company's fixed assets are located in India.

23.  SUBSEQUENT EVENTS REVIEW

     A.   CONVERSION OF INTELSAT INTO A PRIVATE COMPANY

          Intelsat,  the world's  largest  commercial  satellite  communications
     organisation, was privatised on July 18, 2001. The holding company is known
     as Intelsat Ltd.,  incorporated in Bermuda.  After conversion,  the Company
     holds 5.4%  (27,045,940  shares of par value US$1  each) in  Intelsat.  The
     Company is represented on the Board of Directors of Intelsat Ltd.

     B.   PROPOSED VOLUNTARY RETIREMENT SCHEME ("VRS")

          On  August 1,  2001,  the  Company  announced  a VRS with the  primary
     objective of improving  the average mix of its employees as also to improve
     the overall skill level.  The scheme remains open from September 1, 2001 to
     September  30,  2001.  Employees  who are at least 50 years of age and have
     rendered a minimum of 10 years  service in the Company are  eligible to opt
     for voluntary retirement.  Apart from normal retirement benefits, employees
     opting for voluntary retirement will be entitled to an ex-gratia payment of
     60 days salary (basic and dearness  allowance)  for each  completed year of
     service  or  payment of salary  for the  remaining  period of service  left
     before  retirement,  whichever is lower. As the scheme has not closed as of
     September 24, 2001, the Company is unable to accurately predict the cost of
     the scheme.




                                      F-28