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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549




FORM 20-F

(Mark One)

o Registration statement pursuant to section 12(b) or (g) of the Securities
Exchange Act of 1934

x Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the fiscal year ended March 31, 2003


o 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 333-72195

Infosys Technologies Limited

(Exact name of Registrant as specified in its charter)

Not Applicable
(Translation of Registrants name into English)

Bangalore, Karnataka, India
(Jurisdiction of incorporation or organization)

Electronics City, Hosur Road,
Bangalore, Karnataka
India 561 229
+91-80-852-0261
(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
|                    |  |                                          
|None                |  | Not Applicable                           

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

American Depositary Shares,
each represented by one-half of one Equity Share, par value Rs. 5 per
share.
(Title of class)

Securities for which there is a
reporting obligation pursuant to Section
15(d) of the Act:
Not Applicable

(Title of class)

Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by the Annual
Report. 66,243,078 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] |  | 





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Currency of Presentation and Certain Defined Terms

In this Annual Report on Form 20-F, references to U.S., or United States
are to the United States of America, its territories and its possessions.
References to India are to the Republic of India. Reference to $ or
dollars or U.S. 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. Our financial statements are presented in Indian rupees and translated
into U.S. dollars and are prepared in accordance with United States Generally
Accepted Accounting Principles (U.S. GAAP). References to Indian GAAP are
to Indian Generally Accepted Accounting Principles. References to a particular
fiscal year are to our fiscal year ended March 31 of such year.

All references to we, us, our, Infosys or the Company shall mean
Infosys Technologies Limited. Infosys is a registered trademark of Infosys
Technologies Limited in the United States and India. All other trademarks or
tradenames used in this annual report on Form 20F are the property of the
respective owners.

Except as otherwise stated in this annual report on Form 20F, all
translations from Indian rupees to U.S. dollars are based on the noon buying
rate in the City of New York on March 31, 2003, for cable transfers in Indian
rupees as certified for customs purposes by the Federal Reserve Bank of New
York which was Rs. 47.53 per $1.00. No representation is made that the Indian
rupee amounts have been, could have been or could be converted into United
States dollars at such a rate or any other rate. Any discrepancies in any table
between totals and sums of the amounts listed are due to rounding. Information
contained in our website, www.infosys.com, is not part of this Annual Report.

Forward-Looking Statements May Prove Inaccurate

IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT CONTAINS CERTAIN
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 CERTAIN 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 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS AND ELSEWHERE IN THIS REPORT. READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS,
WHICH REFLECT MANAGEMENTS ANALYSIS ONLY AS OF THE DATE HEREOF. 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.





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TABLE OF CONTENTS



|             |                                                                                       |  |  |  |  |  |  | 
|------------ | ------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Part I      
|             | Item 1. Identity of Directors, Senior Management and Advisors                        
|             | Item 2. Offer Statistics and Expected Timetable                                      
|             | Item 3. Key Information                                                              
|             | Item 4. Information on the Company                                                   
|             | Item 5: Operating and Financial Review and Prospects                                 
|             | Item 6: Directors, Senior Management and Employees                                   
|             | Item 7: Major Shareholders and Related Party Transactions                            
|             | Item 8: Financial Information                                                        
|             | Item 9: The Offer and Listing                                                        
|             | Item 10: Additional Information                                                      
|             | Item 11: Quantitative and Qualitative Disclosure About Market Risk                   
|             | Item 12: Description of Securities Other than Equity Securities                      
|Part II     
|             | Item 13. Defaults, Dividend Arrearages and Delinquencies                             
|             | Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
|             | Item 15. Controls and Procedures                                                     
|             | Item 16 A. Audit Committee Financial Expert                                          
|             | Item 16 B. Code of Ethics                                                            
|             | Item 17                                                                              
|Part III    
|             | Item 18. Financial Statements                                                        
|             | Item 19. Exhibits                                                                    
|Signatures  
|EXHIBIT 23.1
|EXHIBIT 99.1
|EXHIBIT 99.2
|EXHIBIT 99.3
|EXHIBIT 99.4
|EXHIBIT 99.5
|EXHIBIT 99.6
|EXHIBIT 99.7



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Part I




Item 1. Identity of Directors, Senior Management and Advisors



| |  | Not applicable.
| |  | ---------------




Item 2. Offer Statistics and Expected Timetable



| |  | Not applicable.
| |  | ---------------




Item 3. Key Information

Selected financial data

Summary of Selected Consolidated Financial Data

($ in thousands, except per equity share data)

You should read the selected consolidated financial data below in conjunction
with the consolidated financial statements, the related notes and
Operating and Financial Review and Prospects, all of which are included elsewhere in this Annual Report. The selected consolidated statements
of income data for the five years ended March 31, 2003 and the selected
consolidated balance sheet data as of March 31, 1999, 2000, 2001, 2002 and 2003
have been derived from our audited consolidated financial statements and
related notes, which have been prepared and presented in accordance with US
GAAP.

|                                                                      |                                            |   |                             |            |      |   |         |            |      |   |         |            |  |   |         |            |  |   |         |            | 
|--------------------------------------------------------------------- | ------------------------------------------ | - | --------------------------- | ---------- | ---- | - | ------- | ---------- | ---- | - | ------- | ---------- |  | - | ------- | ---------- |  | - | ------- | ---------- | 
|                                                                      |                                            |   | Fiscal Year Ended March 31,
|                                                                      |                                            |   |                            
|                                                                      |                                            |   | 1999                        |            | 2000 |   | 2001    |            | 2002 |   | 2003   
|                                                                      |                                            |   |                             |            |      |   |         |            |      |   |        
|Statements of Income Data                                             |                                            |   | (1)(2                       | )          |      |   | (1      | )          |      |   |         |            |  |   |         |            |  |   | (3      | )         
|Revenues                                                              |                                            | $ | 120,955                     |            |      | $ | 203,444 |            |      | $ | 413,851 |            |  | $ | 545,051 |            |  | $ | 753,807 |           
|Cost of revenues including amortization of
stock compensation expense |                                            |   | 76,075                      |            |      |   | 114,424 |            |      |   | 216,776 |            |  |   | 293,032 |            |  |   | 417,359 |           
|Gross profit                                                          |                                            |   | 44,880                      |            |      |   | 89,020  |            |      |   | 197,075 |            |  |   | 252,019 |            |  |   | 336,448 |           
|Operating Expenses:                                                   |                                            |   |                             |            |      |   |         |            |      |   |         |            |  |   |         |            |  |   |         |           
|                                                                      | Selling and marketing expenses             |   |                             | 4,944      |      |   |         | 9,644      |      |   |         | 20,683     |  |   |         | 27,113     |  |   |         | 55,650     | 
|                                                                      | General and administrative expenses        |   |                             | 11,255     |      |   |         | 17,102     |      |   |         | 36,958     |  |   |         | 44,348     |  |   |         | 57,808     | 
|                                                                      | Amortization of stock compensation expense |   |                             | 1,279      |      |   |         | 1,775      |      |   |         | 1,919      |  |   |         | 2,010      |  |   |         | 1,985      | 
|                                                                      | Amortization of intangible assets          |   |                             |           |      |   |         |           |      |   |         |           |  |   |         |           |  |   |         | 2,361      | 
|Compensation arising from stock split                                 |                                            |   | 4,529                       |            |      |   |        |            |      |   |        |            |  |   |        |            |  |   |        |           
|                                                                      | Total operating expenses                   |   |                             | 22,007     |      |   |         | 28,521     |      |   |         | 59,560     |  |   |         | 73,471     |  |   |         | 117,804    | 
|Operating income                                                      |                                            |   | 22,873                      |            |      |   | 60,499  |            |      |   | 137,515 |            |  |   | 178,548 |            |  |   | 218,644 |           
|Equity in loss of unconsolidated subsidiary                           |                                            |   | (2,086                      | )          |      |   |        |            |      |   |        |            |  |   |        |            |  |   |        |           
|Other income, net                                                     |                                            |   | 1,537                       |            |      |   | 9,039   |            |      |   | 9,505   |            |  |   | 13,865  |            |  |   | 18,048  |           
|Income before income taxes                                            |                                            |   | 22,324                      |            |      |   | 69,538  |            |      |   | 147,020 |            |  |   | 192,413 |            |  |   | 236,692 |           
|Provision for income taxes                                            |                                            |   | 4,878                       |            |      |   | 8,193   |            |      |   | 15,072  |            |  |   | 27,947  |            |  |   | 41,822  |           
|Net income                                                            |                                            | $ | 17,446                      |            |      | $ | 61,345  |            |      | $ | 131,948 |            |  | $ | 164,466 |            |  | $ | 194,870 |           
|Earnings per Equity Share:                                            |                                            |   |                             |            |      |   |         |            |      |   |         |            |  |   |         |            |  |   |         |           
|                                                                      | Basic                                      |   | $                           | 0.28       |      |   | $       | 0.93       |      |   | $       | 2.01       |  |   | $       | 2.51       |  |   | $       | 2.97       | 
|                                                                      | Diluted                                    |   | $                           | 0.28       |      |   | $       | 0.93       |      |   | $       | 1.98       |  |   | $       | 2.49       |  |   | $       | 2.93       | 
|Weighted Equity Shares used in computing
earnings per Equity Share:   |                                            |   |                             |            |      |   |         |            |      |   |         |            |  |   |         |            |  |   |         |           
|                                                                      | Basic                                      |   |                             | 61,378,850 |      |   |         | 65,659,625 |      |   |         | 65,771,256 |  |   |         | 65,556,648 |  |   |         | 65,571,002 | 
|                                                                      | Diluted                                    |   |                             | 61,507,380 |      |   |         | 65,863,990 |      |   |         | 66,714,739 |  |   |         | 66,084,874 |  |   |         | 66,479,009 | 
|Cash dividend per Equity Share                                        |                                            | $ | 0.09                        |            |      | $ | 0.09    |            |      | $ | 0.14    |            |  | $ | 0.35    |            |  | $ | 0.51    |           

|                           |  |                 |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|-------------------------- |  | --------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                           |  | As of March 31,
|                           |  |                
|                           |  | 1999            |         | 2000 |  | 2001 |         | 2002 |  | 2003
|                           |  |                 |         |      |  |      |         |      |  |     
|Balance Sheet Data         | 
|Cash and cash equivalents  |  | $               | 98,875  |      |  | $    | 116,599 |      |  | $    | 124,084 |  |  | $ | 210,486 |  |  | $ | 354,363 | 
|Total assets               |  |                 | 153,658 |      |  |      | 219,283 |      |  |      | 342,348 |  |  |   | 471,162 |  |  |   | 704,308 | 
|Total long-term debt       |  |                 |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Total stockholders equity |  | $               | 139,610 |      |  | $    | 198,137 |      |  | $    | 311,792 |  |  | $ | 442,379 |  |  | $ | 626,005 | 



|(1) |  | The information presented above reflects our 2-for-1 stock splits in each
of fiscal 1999 and 2000.                                                                                             
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The financial statements of Yantra Corporation were consolidated with our
financial statements through October 20, 1998, and have been accounted for
using the equity method up to fiscal 1999.
|   
|(3) |  | The information for fiscal 2003 includes the results of operations of
Progeon Limited, a consolidated subsidiary.                                                                              





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Exchange rates

Fluctuations in the exchange rate between the Indian rupee and the U.S. dollar
will affect the U.S. dollar equivalent of the Indian rupee price of our equity
shares on the Indian stock exchanges and, as a result, will likely affect the
market price of our ADSs, and vice versa. Such fluctuations will also affect
the U.S. dollar conversion by the Depositary of any cash dividends paid in
Indian rupees on our equity shares represented by the ADSs.

The following table sets forth, for the fiscal years indicated, information
concerning the number of Indian rupees for which one U.S. 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 purposes 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 |  | Period End |       | Average |  | High |       | Low
|       |  |            |       |         |  |      |       |    
|2003   |  | Rs.        | 47.53 |         |  | Rs.  | 48.43 |     |  | Rs. | 49.07 |  |  | Rs. | 47.53 | 
|2002   |  |            | 48.83 |         |  |      | 47.71 |     |  |     | 48.91 |  |  |     | 46.58 | 
|2001   |  |            | 46.85 |         |  |      | 45.74 |     |  |     | 47.47 |  |  |     | 43.63 | 
|2000   |  |            | 43.65 |         |  |      | 43.39 |     |  |     | 43.75 |  |  |     | 42.50 | 
|1999   |  |            | 42.50 |         |  |      | 42.13 |     |  |     | 43.60 |  |  |     | 39.41 | 

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
|              |  |      |       |    
|November 2002 |  | Rs.  | 48.36 |     |  | Rs. | 48.21 | 
|December 2002 |  |      | 48.32 |     |  |     | 47.96 | 
|January 2003  |  |      | 48.10 |     |  |     | 47.83 | 
|February 2003 |  |      | 47.92 |     |  |     | 47.65 | 
|March 2003    |  |      | 47.85 |     |  |     | 47.53 | 
|April 2003    |  |      | 47.46 |     |  |     | 47.34 | 

On May 9, 2003, the noon buying
rate in the city of New York was Rs. 47.20.

Capitalization and indebtedness

Not applicable.

Reasons for the offer and use of proceeds

Not applicable.

Risk factors

This Annual Report contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Annual Report.

Risks Related to Our Company and Our Industry

Our revenues and expenses are difficult to predict and can vary significantly
from quarter to quarter, which could cause our share price to
decline.

Our revenues and profitability have grown rapidly in recent years and are
likely to vary significantly in the future from quarter to quarter. Therefore,
we believe that period-to-period comparisons of our results of operations are
not necessarily meaningful and should not be relied upon as an indication of
our future performance. It is possible that in the future some of our quarterly
results of operations may be below the expectations of market analysts and our
investors, which could cause the share price of our equity shares and our ADSs
to decline significantly.

Factors which affect the fluctuation of our revenues include:



| |  | the size, timing and profitability of significant projects;                                                                                                             
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | changes in our pricing policies or those of our competitors;                                                                                                            
| 
| |  | the proportion of services that we perform outside India as opposed to at
our development centers in India;                                                             
| 
| |  | the effect of seasonal hiring patterns and the time required to train and
productively utilize new employees, particularly information technology, or IT,
professionals;
| 
| |  | the size and timing of facilities expansion;                                                                                                                            
| 
| |  | unanticipated cancellations, contract terminations or deferrals of
projects; and                                                                                        
| 
| |  | unanticipated variations in the duration, size and scope of our projects.                                                                                               

A significant part of our total operating expenses, particularly expenses
related to personnel and facilities, are fixed in advance of any particular
quarter. As a result, unanticipated variations in the number and timing of our
projects or employee utilization rates, or the accuracy of our estimates of the
resources required to complete ongoing projects, may cause significant
variations in our operating results in any particular quarter.

There are also a number of factors other than our performance that are not
within our control that could cause fluctuations in our operating results from
quarter to quarter. These include:





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| |  | the duration of tax holidays or exemptions and the availability of other
Government of India incentives;                                                                                                         
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | currency exchange rate fluctuations, particularly when the rupee appreciates
in value against the dollar since the majority of our revenues are in dollars
and a significant part of our costs are in rupees; and
| 
| |  | other general economic factors.                                                                                                                                                                                  

We have not been able to sustain
our previous profit margins or levels of profitability.

Our net income increased 18.5% in fiscal 2003 as compared to fiscal 2002.
Our net income increased 24.6% in fiscal 2002 as compared to fiscal 2001. As we continue to
experience declines in demand, pricing pressures for our services and increased wage
pressures in India, we have not been able to sustain our historical
levels of profitability.
During fiscal 2003, we incurred substantially higher selling and marketing
expenses to increase brand awareness among target clients and promote client
loyalty and repeat business among existing clients, and we expect to continue
to incur substantially higher selling and marketing expenses in the future,
which could result in declining profitability. While our Global Delivery Model
allows us to manage costs efficiently, as the proportion of our services
delivered at client sites increases, we may not be able to keep our operating
costs as low in the future.

The current economic downturn has
negatively impacted our revenues and operating
results.

Spending on IT products and services in most parts of the world has
significantly decreased due to a challenging global economic environment. Some
of our clients have cancelled, reduced or deferred expenditures for IT
services. Pricing pressures from our clients, wage pressures in India
and an increase in our sales and marketing expenditures have also
negatively impacted our operating results. For example, clients often expect that as we do more business with
them, they will receive volume discounts. Additionally, clients may ask for
fixed-price arrangements or reduced rates.

If the current economic downturn continues, our utilization and billing rates
for our IT professionals could be adversely affected which may result in lower
gross and operating profits.

Any inability to manage our growth could disrupt our business and reduce our
profitability.

We have grown significantly in recent periods. Between March 31, 1999 and March
31, 2003 the number of our total employees grew from approximately 3,770 to
approximately 15,400, representing a compound annual growth rate of 42.2%. In
addition, in the last four fiscal years we have undertaken major expansions of
our existing facilities, as well as the construction of new facilities.

We expect our growth to place significant demands on our management and other
resources. It will require us to continue to develop and improve our
operational, financial and other internal controls, both in India and
elsewhere. In particular, continued growth increases the challenges involved
in:



| |  | recruiting, training and retaining sufficient skilled technical,
marketing and management personnel;                                                        
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | adhering to our high quality and process execution standards;                                                                                               
| 
| |  | preserving our culture, values and entrepreneurial environment;                                                                                             
| 
| |  | developing and improving our internal administrative infrastructure,
particularly our financial, operational, communications and other internal
systems; and
| 
| |  | maintaining high levels of client satisfaction.                                                                                                             

Our growth strategy also relies on the expansion of our operations to other
parts of the world, including Europe and other parts of Asia. The costs
involved in entering these markets may be higher than expected and we may face
significant competition in these regions. Our inability to manage growth in
these regions may have an adverse effect on our business, results of operations
and financial condition.

We may face difficulties in providing end-to-end business solutions for our
clients, which could lead to clients discontinuing their work with us, which in
turn could harm our business.

Over the past three years, we have been expanding the nature and scope of our
engagements by extending the breadth of services we offer. We have recently
added new service offerings, such as IT consulting, business process
management, systems integration and IT outsourcing. The success of these
service offerings is dependent, in part, upon continued demand for such
services by our existing and new clients and our ability to meet this demand in
a cost-competitive and effective manner. In addition, our ability to
effectively offer a wider breadth of end-to-end business solutions depends on
our ability to attract existing or new clients to these service offerings. To
obtain engagements for such end-to-end solutions, we also are more likely to
compete with large, well-established international consulting firms, resulting
in increased competition and marketing costs. Accordingly, we cannot be certain
that our new service offerings will effectively meet client needs or that we
will be able to attract existing and new clients to these service offerings.

The increased breadth of our service offerings may result in larger and more
complex projects with our clients. This will require us to establish closer
relationships with our clients and a thorough understanding of their
operations. Our ability to establish such relationships will depend on a number
of factors including the proficiency of our IT professionals and our management
personnel.

Larger projects may involve multiple engagements or stages, and there is a risk
that a client may choose not to retain us for additional stages or may cancel
or delay additional planned engagements. These terminations, cancellations or
delays may result from the business or financial condition of our clients or
the economy generally, as opposed to factors related to the quality of our
services. Such cancellations or delays make it difficult to plan for project
resource requirements, and inaccuracies in such resource planning may have a
negative impact on our profitability.

Intense competition in the market for IT services could affect our cost
advantages, which could reduce our share of business from clients and decrease
our revenues.

The IT services market is highly competitive. Our competitors include large
consulting firms, divisions of large multinational technology firms, IT
outsourcing firms, Indian IT services firms, software firms and in-house IT
departments of large corporations.

The IT services industry is experiencing rapid changes that are affecting the
competitive landscape, including recent divestitures and acquisitions that have
resulted in consolidation within the industry. These changes may result in
larger competitors with significant resources. In addition, some of our
competitors have added or announced plans to add cost-competitive offshore
capabilities to their service offerings. Many of these competitors are
substantially larger than us and have significant experience with international
operations, and we may face competition from them





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##### Table of Contents



in countries in which we currently operate, as well as in countries in which we
expect to expand our operations. We also expect additional competition from IT
services firms with current operations in other countries, such as China and
the Philippines. While we believe that we are well positioned in our markets
relative to our competitors, such competitors may be able to offer services
using offshore and onshore models that are more effective than ours.

Many of our competitors, including Accenture, EDS and IBM, have significantly
greater financial, technical and marketing resources, generate greater revenues
and have greater name recognition than we do. We cannot be reasonably certain
that we will be able to compete successfully against such competitors, or that
we will not lose clients to such competitors. Additionally, we believe that our
ability to compete also depends in part on factors outside our control, such as
the price at which our competitors offer comparable services, and the extent of
our competitors responsiveness to their clients needs.

Our revenues are highly dependent upon a small number of clients, and the loss
of any one of our major clients could significantly impact our business.

We have historically earned, and believe that in the future we will continue to
earn, a significant portion of our revenues from a limited number of corporate
clients. In fiscal 2003, 2002 and 2001, our largest client accounted for 5.8%,
6.1% and 7.3% of our total revenues, and our five largest clients together
accounted for 23.4%, 24.1% and 26.0% of our total revenues. The volume of work
we perform for specific clients is likely to vary from year to year,
particularly since we historically have not been the exclusive external IT
services provider for our clients. Thus, a major client in one year may not
provide the same level of revenues in a subsequent year. However, in any given
year, a limited number of clients tend to contribute a significant portion of
our revenues.

There are a number of factors, other than our performance, that could cause the
loss of a client and that may not be predictable. In certain cases, we have
significantly reduced the services provided to a client when the client either
changed its outsourcing strategy by moving more work in-house or replaced its
existing software with packaged software supported by the licensor. Another
circumstance which may result in our loss of a client is a reduction in
spending on IT services due to a challenging economic environment. If we were
to lose one of our major clients or have it significantly reduce its volume of
business with us, our revenues and profitability could be reduced.

Our revenues are highly dependent on clients primarily located in the United
States, as well as clients concentrated in certain industries, and economic
slowdowns, changes in US law and other restrictions or factors that affect the
economic health of the United States and these industries may affect our
business.

A significant portion of our revenues is derived from clients located in the
United States, as well as clients in certain industries. In fiscal 2003, 2002
and 2001, approximately 72.0%, 69.1% and 70.0% of our revenues were derived
from the United States. For the same periods, we earned 37.6%, 36.6% and 33.7%
of our revenues from the financial services industry, and 16.4%, 17.2% and
17.9% from the manufacturing industry. Consequently, if the current economic
slowdown in the United States is prolonged, our clients may reduce or postpone
their IT spending significantly, which may in turn lower the demand for our
services and negatively affect our revenues and profitability. Further, any
significant decrease in the growth of the financial services or other industry
segments on which we focus may reduce the demand for our services and
negatively affect our revenues and profitability.

Recently, some organizations have expressed concerns about a perceived
association between offshore outsourcing and the loss of jobs in the United
States. Within the last 12 months, five U.S. states have enacted legislation
restricting government agencies from outsourcing their back office processes
and IT solutions work to companies outside the United States. It is also
possible that U.S. private sector companies that work with these states may be
restricted from outsourcing their work related to government contracts. We
currently do not have significant contracts with U.S. federal or state
government entities, however, there can be no assurance that these restrictions
will not extend to private companies, such as our clients. Any changes to
existing laws or the enactment of new legislation restricting offshore
outsourcing may adversely impact our ability to do business in the United
States, particularly if these changes are widespread.

Our success depends in large part upon our highly skilled IT professionals and
our ability to attract and retain these personnel.

Our ability to execute projects and to obtain new clients depends largely on
our ability to attract, train, motivate and retain highly skilled IT
professionals, particularly project managers and other mid-level professionals.
If we cannot hire and retain additional qualified personnel, our ability to bid
on and obtain new projects, and to continue to expand our business will be
impaired and our revenues could decline. We believe that there is significant
worldwide competition for IT professionals with the skills necessary to perform
the services we offer. We may not be able to hire and retain enough skilled and
experienced IT professionals to replace those who leave. Additionally, we may
not be able to redeploy and retrain our IT professionals to keep pace with
continuing changes in technology, evolving standards and changing client
preferences. Our inability to attract and retain IT professionals may have a
material adverse effect on our business, results of operations and financial
condition.

Our success depends in large part upon our management team and key personnel
and our ability to attract and retain them.

We are highly dependent on the senior members of our management team, including
the continued efforts of our Chairman, our Chief Executive Officer, our Chief
Operating Officer, other executive members of the board and the management
council, which consists of executive and other officers. Our future performance
will be affected by the continued service of these persons. We do not maintain
key man life insurance for any of the senior members of our management team or
other key personnel. Competition for senior management in our industry is
intense, and we may not be able to retain such senior management personnel or
attract and retain new senior management personnel in the future. The loss of
any members of our senior management or other key personnel may have a material
adverse effect on our business, results of operations and financial condition.

Our failure to complete fixed-price, fixed-timeframe contracts on budget and on
time may negatively affect our profitability.

As an element of our business strategy, we offer a portion of our services on a
fixed-price, fixed-timeframe basis, rather than on a time-and-materials basis.
In fiscal 2003, 2002 and 2001, revenues from fixed-price, fixed-timeframe
projects accounted for 36.7%, 31.6% and 28.2% of our total revenues. Although
we use our software engineering methodologies and processes and past project
experience to reduce the risks associated with estimating, planning and
performing fixed-price, fixed-timeframe projects, we bear the risk of cost
overruns, completion delays and wage inflation in connection with these
projects. If we fail to estimate accurately the resources and time required for
a project, future wage





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inflation rates, or currency exchange rates, or if we fail to complete our
contractual obligations within the contracted timeframe, our profitability may
suffer.

Our client contracts can typically be terminated without cause and with little
or no notice or penalty, which could negatively impact our revenues and
profitability.

Our clients typically retain us on a non-exclusive, project-by-project basis.
Most of our client contracts, including those that are on a fixed-price,
fixed-timeframe basis, can be terminated with or without cause, with between
zero and 90 days notice and without termination-related penalties.
Additionally, our contracts with clients are typically limited to discrete
projects without any commitment to a specific volume of business or future
work. Our business is dependent on the decisions and actions of our clients,
and there are a number of factors relating to our clients that are outside our
control that might result in the termination of a project or the loss of a
client, including:



| |  | financial difficulties for a client;                                                                             
|- |  | -----------------------------------------------------------------------------------------------------------------
| 
| |  | a change in strategic priorities, resulting in a reduced level of IT
spending;                                   
| 
| |  | a demand for price reductions;                                                                                   
| 
| |  | a change in outsourcing strategy by moving more work to client in-house
IT departments or to our competitors; and
| 
| |  | the replacement by our clients of existing software with packaged
software supported by licensors.               

Our client contracts are often conditioned upon our performance, which, if
unsatisfactory, could result in less revenue generated than anticipated.

A number of our contracts have incentive-based or other pricing terms that
condition some or all of our fees on our ability to meet defined goals. Our
failure to meet these goals or a clients expectations in such
performance-based contracts may result in a less profitable or an unprofitable
engagement.

Our business will suffer if we fail to anticipate and develop new services and
enhance existing services in order to keep pace with rapid changes in
technology and the industries on which we focus.

The IT services market is characterized by rapid technological change, evolving
industry standards, changing client preferences and new product and service
introductions. Our future success will depend on our ability to anticipate
these advances and develop new product and service offerings to meet client
needs. We may not be successful in anticipating or responding to these advances
in a timely basis, or, if we do respond, the services or technologies we
develop may not be successful in the marketplace. Further, products, services
or technologies that are developed by our competitors may render our services
non-competitive or obsolete.

Disruptions in telecommunications could harm our service delivery model, which
could result in client dissatisfaction and a reduction of our revenues.

A significant element of our Global Delivery Model is to continue to leverage
and expand our global development centers. We currently have 26 global
development centers located in various countries around the world. Our global
development centers are linked with a network architecture that uses multiple
service providers and various satellite and optical links with alternate
routing. We may not be able to maintain active voice and data communications
between our various global development centers and between our global
development centers and our clients sites at all times. Any significant loss
in our ability to communicate could result in a disruption in business, which
could hinder our performance or our ability to complete client projects on
time. This, in turn, could lead to client dissatisfaction and a material
adverse effect on our business, results of operations and financial condition.

We may be liable to our clients for damages caused by system failures, which
could damage our reputation and cause us to lose clients.

Many of our contracts involve projects that are critical to the operations of
our clients businesses, and provide benefits which may be difficult to
quantify. Any failure in a clients system or breaches of security could result
in a claim for substantial damages against us, regardless of our responsibility
for such failure. Although we attempt to limit our contractual liability for
consequential damages in rendering our services, we cannot be assured that the
limitations on liability we provide for in our service contracts will be
enforceable in all cases, or that they will otherwise be sufficient to protect
us from liability for
damages. We maintain general liability insurance coverage, including coverage
for errors or omissions, however, we cannot be assured that such coverage will
continue to be available on reasonable terms or will be available in sufficient
amounts to cover one or more large claims, or that the insurer will not
disclaim coverage as to any future claim. A successful assertion of one or more
large claims against us that exceeds our available insurance coverage or
changes in our insurance policies, including premium increases or the
imposition of a large deductible or co-insurance requirement, could adversely
affect our operating results.

We are investing substantial cash assets in new facilities, and our
profitability could be reduced if our business does not grow proportionately.

As of March 31, 2003, we had contractual commitments of approximately $18.6
million for capital expenditure. We estimate additional capital expenditures of
approximately $9.7 million for the construction of a business continuity and
disaster recovery center to be located in Mauritius. Although we have
successfully developed new facilities in the past, we may still encounter cost
overruns or project delays in connection with new facilities. Additionally,
future financing for additional facilities, whether within India or elsewhere,
may not be available on attractive terms or at all. Such expansions will
significantly increase our fixed costs. If we are unable to grow our business
and revenues proportionately, our profitability will be reduced.

We may be unable to recoup our investment costs to develop our software
products.

In fiscal 2003, 2002 and 2001, we earned 4.6%, 4.0% and 2.5% of our total
revenue from the sale of software products. The development of our software
products requires significant investments. The markets for our primary suite of
software products that we call Finacle are competitive. Our current software
products or any new software products that we develop may not be commercially
successful and the costs of developing such new products may not be recouped.
Since software product revenues typically occur in periods subsequent to the
periods in which the costs are incurred for the development of such software
products, delayed revenues may cause periodic fluctuations of our operating
results.





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Our insiders are significant shareholders, are able to control the election of
our board and may have interests which conflict with those of our other
shareholders or holders of our ADSs.

Our executive officers and directors, together with members of their immediate
families, beneficially owned, in the aggregate, approximately 23.6% of our
issued equity shares as of March 31, 2003. As a result, acting together, this
group has the ability to exercise significant control over most matters
requiring our shareholders approval, including the election and removal of
directors and significant corporate transactions. Additionally, our Articles
provide that Mr. N. R. Narayana Murthy, our Chairman and one of our principal
shareholders, shall serve as the Managing Director and shall not be subject to
re-election as long as he and his relatives own at least 5% of our outstanding
equity shares. This level of
control could delay, defer or prevent a change in control of our company, or
impede a merger, consolidation, takeover or other business combination
involving us.

We may engage in acquisitions, strategic investments, strategic partnerships or
alliances or other ventures that may or may not be successful.

We may acquire or make strategic investments in complementary businesses,
technologies, services or products, or enter into strategic partnerships or
alliances with third parties in order to enhance our business. It is possible
that we may not identify suitable acquisition, strategic investment or
strategic partnership candidates, or if we do identify suitable candidates, we
may not complete those transactions on terms commercially acceptable to us or
at all. The inability to identify suitable acquisition targets or investments
or the inability to complete such transactions may affect our competitiveness
and our growth prospects.

If we acquire another company, we could have difficulty in assimilating that
companys personnel, operations, technology and software. In addition, the key
personnel of the acquired company may decide not to work for us. In some cases,
we could have difficulty in integrating the acquired products, services or
technologies into our operations. These difficulties could disrupt our ongoing
business, distract our management and employees and increase our expenses. As
of the date of this Annual Report, we have no agreements to enter into any
material acquisition, investment, partnership, alliance or other joint venture
transaction.

We make strategic investments in new technology start-up companies in order to
gain experience in or exploit niche technologies. As of March 31, 2003, we have
invested an aggregate amount of approximately $11.3 million in strategic
investments, of which $2.2 million had been invested in fiscal 2002. However,
our investments may not be successful. The lack of profitability of any of our
investments could have a material adverse effect on our operating results. In
fiscal 2003 and 2001, we made a loss provision for $ 3.2 million and $ 3.5
million related to investments in private start-up companies.

Our earnings may be adversely affected if we are required to change our
accounting policies with respect to the expensing of stock
options.

We do not currently deduct the expense of employee stock option grants from our
income based on the fair value method. Regulatory authorities, including the
Financial Accounting Standards Board and International Accounting Standards
Board, are considering requiring companies to change their accounting policies
to record the fair value of stock options issued to employees as an expense.
Many companies have or are in the process of voluntarily changing their
accounting policies to expense the fair value of stock options. Stock options
are an important component of our employee compensation package. If we change
our accounting policy with respect to the treatment of employee stock option
grants, our earnings could be adversely affected. We have adopted the pro forma
disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation.
Had compensation cost for our stock-based compensation plan been determined in
a manner consistent with the fair value approach described in SFAS No. 123, our
net income as reported would have been reduced to the pro forma amounts of
approximately $137.2 million, $105.2 million and $99.7 million in fiscal 2003,
2002 and 2001.

Risks Related to Investments in Indian Companies and International Operations
Generally

Our net income would decrease if the Government of India reduces or withdraws
tax benefits and other incentives it provides to us.

Currently, we benefit from the tax holidays the Government of India gives to
the export of IT services from specially designated software technology parks
in India. As a result of these incentives, which include a 10-year tax holiday
from Indian corporate income taxes for the operation of most of our Indian
facilities and a partial taxable income deduction for profits derived from
exported IT services, our operations have been subject to relatively low tax
liabilities. These tax incentives resulted in a decrease in our income tax
expense of $71.9 million, $67.3 million and
$57.3 million for fiscal 2003, 2002 and
2001 compared to the effective tax rates that we estimate would have applied if
these incentives had not been available, without accounting for double taxation
treaty set-offs, if any.

The Finance Act, 2000 phases out the 10-year tax holiday over a ten-year period
from fiscal 2000 through fiscal 2009. Additionally, the Finance Act, 2002
requires that ten percent of all income derived from services performed in
software technology parks be subject to income tax for a one-year period ending
March 31, 2003. For companies opting for the partial taxable income deduction
for profits derived from exported IT services, the Finance Act, 2000 phases out
the deduction over five years beginning on April 1, 2000. When our tax holiday
and taxable income deduction expire or terminate, our tax expense will
materially increase, reducing our profitability.

Wage pressures in India may prevent us from sustaining our competitive
advantage and may reduce our profit margins.

Wage costs in India have historically been significantly lower than wage costs
in the United States and Europe for comparably skilled professionals, which has
been one of our competitive strengths. However, wage increases in India may
prevent us from sustaining this competitive advantage and may negatively affect
our profit margins. Wages in India are increasing at a faster rate than in the
United States, which could result in increased costs for IT professionals,
particularly project managers and other mid-level professionals. We may need to
increase the levels of our employee compensation more rapidly than in the past
to remain competitive. Compensation increases may result in a material adverse
effect on our business, results of operations and financial condition.

Terrorist attacks or a war could adversely affect our business, results of
operations and financial condition.

Terrorist attacks, such as the attacks of September 11, 2001 in the United
States and other acts of violence or war, such as the recent conflict
in Iraq, have the potential to have a direct
impact on our clients. To the extent that such attacks affect or involve the
United States, our business may be significantly impacted, as the





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majority of our revenues are derived from clients located in the United States.
In addition, such attacks may make travel more difficult, may make it more
difficult to obtain work visas for many of our IT professionals who are
required to work in the United States, and may effectively curtail our ability
to deliver our services to our clients. Such obstacles to business may increase
our expenses and negatively affect the results of our operations. Many of our
clients, in particular for our newer services, such as business process
management and IT outsourcing, visit several IT services firms prior to
reaching a decision on vendor selection. Terrorist threats, attacks or war could
make travel more difficult and delay, postpone or cancel decisions to use our
services.

Regional conflicts in South Asia could adversely affect the Indian economy,
disrupt our operations and cause our business to suffer.

South Asia has from time to time experienced instances of civil unrest and
hostilities among neighboring countries, including between India and Pakistan.
In recent years there have been military confrontations between India and
Pakistan that have occurred in the region of Kashmir and along the
India-Pakistan border. The potential for hostilities between the two countries
is higher due to recent terrorist incidents in India, recent troop
mobilizations along the border, and the aggravated geopolitical situation in
the region. Military activity or terrorist attacks in the future could
influence the Indian economy by disrupting communications and making travel
more difficult and such political tensions could create a greater perception
that investments in Indian companies involve higher degrees of risk. This, in
turn, could have a material adverse effect on the market for securities of
Indian companies, including our equity shares and our ADSs, and on the market
for our services.

Restrictions on immigration may affect our ability to compete for and provide
services to clients in the United States, which could hamper our growth and
cause our revenues to decline.

The vast majority of our employees are Indian nationals. The ability of our IT
professionals to work in the United States, Europe and in other countries
depends on the ability to obtain the necessary visas and work permits. As of
March 31, 2003, the majority of our IT professionals in the United States held
H-1B visas (4,090 persons), allowing the employee to remain in the United
States as long as he or she remains an employee of the sponsoring firm, or L-1
visas (1,760 persons), allowing for the employee to stay in the United States
only temporarily. Although there is no limit to new L-1 visas, there is a limit
to the aggregate number of new H-1B visas that the U.S. Immigration and
Naturalization Service, or INS, may approve in any government fiscal year.
Further, in response to the recent terrorist attacks in the United States, the
INS has increased the level of scrutiny in granting visas. This may also lead
to limits on the number of L-1 visas granted. The U.S. immigration laws may
also require us to meet certain levels of compensation, and to comply with
other legal requirements, as a condition to obtaining or maintaining work visas
for our IT professionals working in the United States. For example, our
compensation expenses increased by $10.7 million for fiscal 2003 to comply with
such requirements.

Immigration laws in the United States and in other countries are subject to
legislative change, as well as to variations in standards of application and
enforcement due to political forces and economic conditions. It is difficult to
predict the political and economic events that could affect immigration laws,
or the restrictive impact they could have on obtaining or monitoring work visas
for our IT professionals. Our reliance on work visas for a significant number
of IT professionals makes us particularly vulnerable to such changes and
variations as it affects our ability to staff projects with IT professionals
who are not citizens of the country where the work is to be performed. As a
result, we may not be able to obtain a sufficient number of visas for our IT
professionals or may encounter delays or additional costs in obtaining or
maintaining the condition of such visas.

Changes in the policies of the Government of India or political instability
could delay the further liberalization of the Indian economy and adversely
affect economic conditions in India generally, which could impact our business
and prospects.

Since 1991, successive Indian governments have pursued policies of economic
liberalization, including significantly relaxing restrictions on the private
sector. Nevertheless, the role of the Indian central and state governments in
the Indian economy as producers, consumers and regulators has remained
significant. The current Government of India, formed in October 1999, has
announced policies and taken initiatives that support the continued economic
liberalization policies that have been pursued by previous governments.
However, these liberalization policies may not continue in the future. The rate
of economic liberalization could change, and specific laws and policies
affecting technology companies, foreign investment, currency exchange and other
matters affecting investment in our securities could change as well. A
significant change in Indias economic liberalization and deregulation policies
could adversely affect business and economic conditions in India generally, and
our business in particular.

The current Indian government is a coalition of several parties. The withdrawal
of one or more of these parties could result in political instability. Such
instability could delay the reform of the Indian economy and could have a
material adverse effect on the market for securities of Indian companies,
including our equity shares and our ADSs, and on the market for our services.

Currency exchange rate fluctuations
may affect the value of our ADSs.

Our functional currency is the Indian rupee although we transact a major
portion of our business in foreign currencies and accordingly face foreign
currency exposure through our sales in the United States and purchases from
overseas suppliers in dollars. Historically, we have held a
substantial majority of our cash funds in rupees. Accordingly, changes in exchange rates may have
a material adverse effect on our revenues, cost of services sold, gross margin
and net income, which may in turn have a negative impact on our business,
operating results and financial condition. The exchange rate between the rupee
and the dollar has changed substantially in recent years and may fluctuate
substantially in the future. We expect that a majority of our revenues will
continue to be generated in U.S. dollars for the foreseeable future and that a
significant portion of our expenses, including personnel costs, as well as
capital and operating expenditures, will continue to be denominated in Indian
rupees. Consequently, the results of our operations are adversely affected as
the rupee appreciates against the dollar.

We have sought to reduce the effect of exchange rate fluctuations on our
operating results by purchasing foreign exchange forward contracts to cover a
portion of outstanding accounts receivable. As of March 31, 2003, we had
outstanding forward contracts in the amount of $88.0 million. We may not
purchase contracts adequate to insulate ourselves from foreign exchange
currency risks.

Fluctuations in the exchange rate between the rupee and the dollar will also
affect the dollar conversion by Deutsche Bank Trust Company Americas, the
Depositary, of any cash dividends paid in rupees on the equity shares
represented by the ADSs. In addition, these fluctuations will affect the dollar
equivalent of the rupee price of equity shares on the Indian stock exchanges
and, as a result, the prices of our ADSs in the United





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States, as well as the dollar value of the proceeds a holder would receive upon
the sale in India of any equity shares withdrawn from the Depositary under the
Depositary Agreement. Holders may not be able to convert rupee proceeds into
dollars or any other currency, and there is no guarantee of the rate at which
any such conversion will occur, if at all.

Our international expansion plans subject us to risks inherent in doing
business on an international level.

Currently, we have global development centers in six countries around the
world. The majority of our global development centers are located in India. We
intend to establish new development facilities, potentially in Asia, Africa,
Latin America and Europe. For example, we intend to increase our presence in
China through our recently established representative office in Beijing.
Because of our limited experience with facilities outside of India, we are
subject to additional risks related to our international expansion strategy,
including risks related to complying with a wide variety of national and local
laws, restrictions on the import and export of certain technologies and
multiple and possibly overlapping tax structures. In addition, we may face
competition in other countries from companies that may have more experience
with operations in such countries or with international operations generally.
We may also face difficulties integrating new facilities in different countries
into our existing operations, as well as integrating employees that we hire in
different countries into our existing corporate culture. In addition,
our international expansion strategy in China may face difficulty
resulting from the current outbreak of Severe Acute Respiratory
Syndrome or SARS. Our international expansion plans may not be successful and we may not be able
to compete effectively in other countries.

It may be difficult for you to enforce any judgment obtained in the United
States against us, the selling shareholders or our affiliates.

We are incorporated under the laws of India and many of our directors and
executive officers, reside outside the United States. Virtually all of our
assets and the assets of many of these persons are located outside the United
States. As a result, you may be unable to effect service of process upon us
outside India or upon such persons outside their jurisdiction of residence. In
addition, you may be unable to enforce against us in courts outside of India,
or against these persons outside the jurisdiction of their residence, judgments
obtained in courts of the United States, including judgments predicated solely
upon the federal securities laws of the United States.

We have been advised by our Indian counsel that the United States and India do
not currently have a treaty providing for reciprocal recognition and
enforcement of judgments (other than arbitration awards) in civil and
commercial matters.
Therefore, a final judgment for the payment of money rendered by any federal or
state court in the United States on civil liability, whether or not predicated
solely upon the federal securities laws of the United States, would not be
enforceable in India. However, the party in whose favor such final judgment is
rendered may bring a new suit in a competent court in India based on a final
judgment that has been obtained in the United States. 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 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 from the Reserve Bank
of India under the Foreign Exchange Management Act, 1999, to execute such a
judgment or to repatriate any amount recovered.

The laws of India do not protect intellectual property rights to the same
extent as those of the United States, and we may be unsuccessful in protecting
our intellectual property rights. We may also be subject to third party claims
of intellectual property infringement.

We rely on a combination of patent, copyright, trademark and design laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
intellectual property. However, the laws of India do not protect proprietary
rights to the same extent as laws in the United States. Therefore, our efforts
to protect our intellectual property may not be adequate. Our competitors may
independently develop similar technology or duplicate our products or services.
Unauthorized parties may infringe upon or misappropriate our products, services
or proprietary information.

The misappropriation or duplication of our intellectual property could disrupt
our ongoing business, distract our management and employees, reduce our
revenues and increase our expenses. We may need to litigate to enforce our
intellectual property rights or to determine the validity and scope of the
proprietary rights of others. Any such litigation could be time consuming and
costly. As the number of patents, copyrights and other intellectual property
rights in our industry increases, and as the coverage of these rights increase,
we believe that companies in our industry will face more frequent infringement
claims. Defense against these claims, even if not meritorious, could be
expensive and divert our attention and resources from operating our company.

Although we believe that our intellectual property rights do not infringe on
the intellectual property rights of any other party, infringement claims may be
asserted against us in the future. There are currently no material pending or
threatened intellectual property claims against us. However, if we become
liable to third parties for infringing their intellectual property rights, we
could be required to pay a substantial damage award and be forced to develop
non-infringing technology, obtain a license or cease selling the applications
or products that contain the infringing technology. We may be unable to develop
non-infringing technology or to obtain a license on commercially reasonable
terms, or at all.

Our ability to acquire companies organized outside India depends on the
approval of the Government of India and/or the
Reserve Bank of India, and failure to obtain this approval could negatively
affect our business.

Generally, the Reserve Bank of India must approve any acquisition by us of any
company organized outside of India. The Reserve Bank of India has recently
permitted acquisitions of companies organized outside of India without approval
where the transaction value is:



| |  | if in cash, up to 100% of the proceeds from an ADS offering; and                                                           
|- |  | ---------------------------------------------------------------------------------------------------------------------------
| 
| |  | if in stock, up to the greater of $100 million or ten times the acquiring
companys previous fiscal years export earnings.

Any required approval from the Reserve Bank of India and the Ministry of
Finance of the Government of India or any other government agency may not be
obtained. Our failure to obtain approvals for acquisitions of companies
organized outside India may restrict our international growth, which could
negatively affect our business and prospects.

Indian law limits our ability to raise capital outside India and may limit the
ability of others to acquire us, which could prevent us from operating our
business or entering into a transaction that is in the best interests of our
shareholders.

Indian law relating to foreign exchange management constrains our ability to
raise capital outside India through the issuance of equity or convertible debt
securities. Generally, any foreign investment in, or acquisition of, an Indian
company requires approval from relevant government authorities in India,
including the Reserve Bank of India. There are, however, certain exceptions to
this approval requirement for IT companies on which we





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are able to rely. Changes to such policies may create restrictions on our
capital raising abilities. For example, a limit on the foreign equity ownership
of Indian IT companies may constrain our ability to seek and obtain additional
equity investment by foreign investors. In addition, these restrictions, if
applied to us, may prevent us from entering into certain transactions, such as
an acquisition by a non-Indian company, which might otherwise be beneficial for
us and the holders of our equity shares and ADSs.

Additionally, under current Indian law, the sale of an IT services company can
result in the loss of the tax benefits for specially designed software
technology parks in India. The potential loss of this tax benefit may
discourage others from acquiring us or entering into a transaction with us that
is in the best interest of our shareholders.

Risks Related to the ADSs

Historically, our ADSs have traded at a significant premium to the trading
prices of our underlying equity shares, a situation which may not continue.

Historically, our ADSs have traded on Nasdaq at a substantial premium to the
trading prices of our underlying equity shares on the Indian stock exchanges.
Please see Market Price Information for the underlying data. We believe that
this price premium has resulted from the relatively small portion of our market
capitalization previously represented by ADSs, restrictions imposed by Indian
law on the conversion of equity shares into ADSs, and an apparent preference
for investors to trade dollar-denominated securities. Over time some of the
restrictions on issuance of ADSs imposed by Indian law have been relaxed and we
expect that other restrictions may be relaxed in the future. No assurances can
be made that the historical premium enjoyed by ADSs compared to equity shares
will not be reduced or eliminated as a result of transactions in the future, a change in Indian law permitting further conversion of
equity shares into ADSs or changes in investor preferences.

Sales of our equity shares may adversely affect the prices of our equity shares
and the ADSs.

Sales of substantial amounts of our
equity shares, including sales by insiders, in the public market, or the
perception that such sales may occur, could adversely affect the prevailing
market price of our equity shares or the ADSs or our ability to raise capital
through an offering of our securities. In the future, we may also sponsor the
sale of shares currently held by some of our shareholders, or issue new shares.
We can make no prediction as to the timing of any such sales or the effect, if
any, that future sales of our equity shares, or the availability of our equity
shares for future sale, will have on the market price of our equity shares or
ADSs prevailing from time to time.

An active or liquid trading market for our ADSs is not assured.

An active, liquid trading market for our ADSs may not be maintained in the long
term. Loss of liquidity could increase the price volatility of our
ADSs.

Indian law imposes foreign investment restrictions that limit a holders
ability to convert equity shares into ADSs, which may cause our ADSs to trade
at a premium or discount to the market price of our equity shares.

Except under limited circumstances, the Reserve Bank of India must approve the
sale of equity shares underlying ADSs by a non-resident of India to a resident
of India. Since foreign exchange controls are in effect in India, the Reserve
Bank of India will also approve the price at which equity shares are
transferred based on a specified formula, and a higher price per share may not
be permitted. Additionally, except under certain limited circumstances, if an
investor seeks to convert the rupee proceeds from a sale of equity shares in
India into foreign currency and then repatriate that foreign currency from
India, he or she will have to obtain an additional Reserve Bank of India
approval for each transaction. Required approval from the Reserve Bank of India
or any other government agency may not be obtained on terms favorable to a
non-resident investor or at all.

Investors who exchange ADSs for the underlying equity shares and are not
holders of record will be required to declare to us details of the holder of
record, and the holder of record will be required to disclose the details of
the beneficial owner. Any investor who fails to comply with this requirement
may be liable for a fine of up to Rs. 1,000 for each day such failure
continues. Such restrictions on foreign ownership of the underlying equity
shares may cause our ADSs to trade at a premium or discount to the equity
shares.

An investor in our ADSs may not be able to exercise preemptive rights for
additional shares and may thereby suffer dilution of his or her equity interest
in us.

Under the Indian Companies Act, a company incorporated in India must offer its
holders of equity shares preemptive rights to subscribe and pay for a
proportionate number of shares to maintain their existing ownership percentages
prior to the issuance of any new equity shares, unless such preemptive rights
have been waived by three-fourths of the shares voting on the resolution to
waive such rights. Holders of ADSs may be unable to exercise preemptive rights
for equity shares underlying ADSs unless a registration statement under the
Securities Act is effective with respect to such rights or an exemption from
the registration requirements of the Securities Act is available. We are not
obligated to prepare and file such a registration statement and our decision to
do so will depend on the costs and potential liabilities associated with any
such registration statement, as well as the perceived benefits of enabling the
holders of ADSs to exercise their preemptive rights, and any other factors we
consider appropriate at the time. No assurance can be given that we would file
a registration statement under these circumstances. If we issue any such
securities in the future, such securities may be issued to the Depositary,
which may sell such securities for the benefit of the holders of the ADSs.
There can be no assurance as to the value, if any, the Depositary would receive
upon the sale of such securities. To the extent that holders of ADSs are unable
to exercise preemptive rights granted in respect of the equity shares
represented by their ADSs, their proportional interests in us would be reduced.

ADS holders may be restricted in their ability to exercise voting rights.

At our request, the Depositary will mail to you any notice of shareholders
meeting received from us together with information explaining how to instruct
the Depositary to exercise the voting rights of the securities represented by
ADSs. If the Depositary receives voting instructions from you in time, relating
to matters that have been forwarded to you, it will endeavor to vote the
securities represented by your ADSs in accordance with such voting
instructions. However, the ability of the Depositary to carry out voting
instructions may be limited by practical and legal limitations and the terms of
the securities on deposit. We cannot assure that you will receive voting
materials in time to enable you to return voting instructions to the Depositary
in a timely manner. Securities for which no voting instructions have been
received will not be voted. There may be other communications, notices or
offerings that we only make to holders of our equity shares, which will not be
forwarded to holders of ADSs. Accordingly, you may not be able to participate
in all offerings, transactions or votes that are made available to holders of
our equity shares.





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Item 4. Information on the Company

Company Overview

We are a leading global IT services firm. We provide end-to-end business
solutions that leverage technology for our clients across the entire software
life cycle: consulting, design, development, re-engineering, maintenance,
systems integration, and package evaluation and implementation. We also provide
software products to the banking industry, as well as business process
management services through our majority-owned subsidiary, Progeon. Our clients
rely on our solutions to enhance their own business performance.

Our IT professionals ensure the highest levels of client satisfaction by
delivering to our clients high quality solutions through our Global Delivery
Model. Using our Global Delivery Model, we divide projects into components that
we execute simultaneously at the client site and at our development centers in
India and around the world. We optimize our cost structure by having the
flexibility to execute project components where it is most cost effective.
Additionally, the flexibility to execute project components across time zones
around the clock and the easily scalable infrastructure of our Global Delivery
Model allows us to reduce project delivery times.

We have organized our sales, marketing and business development teams to focus
on specific geographies and industries, enabling us to customize our service
offerings to our clients markets. Our primary client markets are financial
services, manufacturing, telecommunications, and retail, as well as utilities
and logistics. As of March 31, 2003, Aetna, Inc., Cisco Systems, Inc., Fidelity
Employer Services Company, IKON Office Solutions, Inc. and Nordstrom, Inc. were
among our top 20 clients in the core industries we serve. Repeat business
represented 91.9% of our revenues for fiscal 2003.

We believe we have the best talent in the Indian IT services industry and we
are committed to remain among the industrys leading employers. In both 2002
and 2001, Hewitt Associates and Business Today voted us as the Best Employer
in India. The Dataquest IDC India Human Resources Survey 2002 selected us
ITs Best Employer. We were ranked among the top 50 companies in the world
that create the most value for their shareholders and demonstrate the most
integrity in a global survey conducted by PricewaterhouseCoopers for the
Financial Times in 2002.

We were incorporated in 1981 as Infosys Consultants Private Limited, as a
private limited company under the Indian Companies Act, 1956. We changed our
name to Infosys Technologies Private Limited in April 1992 and later to Infosys
Technologies Limited in June 1992, when we became a public limited company. The
address of our registered office is Electronics City, Hosur Road, Bangalore 
561 229, Karnataka, India. The telephone number of our registered office is +91
80 852 02 61. Our agent for service in the United States is CT Corporation
System, 818 West Seventeenth Street, Los Angeles, CA 90017.

We completed our initial public offering in India in 1993 and our initial
public offering of ADSs in the United States in 1999. From fiscal 1999 through
fiscal 2003, our revenues grew at a compound annual growth rate of 58.0%, from
$121.0 million to $753.8 million. During the same period, our net income grew
at a compound annual growth rate of 83.0%, from $17.5 million, after a one-time
stock compensation expense, to $194.9 million. Our total employees grew from
approximately 3,770 on March 31, 1999 to approximately 15,400 on March 31,
2003, representing a compound annual growth rate of 42.2%. In addition, Progeon
Limited, our majority-owned subsidiary, had approximately 540 employees as of March 31, 2003.

Industry Overview

Current Global Dynamics in IT

The role of IT has evolved from supporting enterprises to transforming them. To
succeed in this transformation, corporations must respond rapidly to market
trends, create new business models and drive productivity gains. In this
dynamic, competitive environment, decisions with respect to technology have
become increasingly important. Additionally, multiple technology platforms and
an enhanced emphasis on security and back-up facilities have increased the
complexity and cost of IT systems, resulting in greater IT-related risks for
corporations. This increased complexity, cost and risk has created a growing
need for specialists with experience in leveraging technology to help drive
business strategy.

Due to the global economic downturn in 2001 and 2002 corporations have reduced
their IT budgets. In October 2002, the Gartner 2002 IT Spending and Staffing
Survey estimated that worldwide IT spending would decline 7% in 2002 and remain
constant in 2003. Chief information officers are increasingly focused on
closely managing discretionary IT spending. Corporations are redirecting their
IT spending towards upgrading and leveraging prior IT investments and are
increasingly outsourcing their IT requirements which allows them to optimize
their IT cost structure by converting a portion of their fixed costs to
variable costs.

However, even during this difficult economic environment, corporations view
technology as a critical source of competitive advantage and the longer-term
growth prospects for outsourced IT services remain positive. In November 2002,
Gartner Dataquest projected that the global IT services market will grow from
$557 billion in 2002 to $737 billion in 2006, representing a compound annual
growth rate of approximately 7%.

Increasing Trend Towards Offshore
IT Services

Amidst this difficult economic environment, corporations have become reliant on
IT as a strategic advantage. To acquire the high quality IT services needed at
a more cost-competitive level, corporations are increasingly using alternatives
such as offshore IT services that deliver a definitive cost-value benefit.
Offshore vendors are becoming mainstream and are growing in recognition and
sophistication. For example, an increasing number of requests for proposals
require significant detail about the IT services providers offshore
capabilities. As a result, a large number of global technology and IT services
companies have begun to incorporate offshore operations into their own business
models over the last few years.

According to a Gartner report in August 2002, 79% of large U.S. corporations
are currently engaged in offshore outsourcing while the remaining 21% plan to
engage in offshore outsourcing within the subsequent 12 months. The report
cited the following criteria for selecting service providers as their offshore
outsourcing partner: maturity of offshore services process and methodology,
cost, quality of resources, speed to delivery, project management capabilities,
business process expertise and certifications.

The India Advantage

India has consolidated its position as the premier destination for offshore
services. In August 2002, a Gartner report indicated that India was





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ranked as the primary country for supplying offshore IT services by more than
70% of large U.S. corporations surveyed, while the next highest ranked country
was preferred by 10% of the corporations surveyed. Additionally, the Indian IT
services export, as well as the product and technology services, markets are
expected to grow from approximately $6 billion in 2002, as estimated by
NASSCOM, to $36 billion in 2008, as estimated by the NASSCOM-McKinsey Report
2002, or the NASSCOM-McKinsey Report.

There are several key factors contributing to this growth.

High Quality Delivery.According to Carnegie Mellon Software Engineering
Institutes Survey of High Maturity Organizations and High Maturity Workshop
Research, as of October 2002, 50 of 74 high-maturity organizations choosing to
list themselves as organizations with SEI-CMM Level 5 certification, the
highest level of certification, are based in India. SEI-CMM is the Software
Engineering Institute Capability Maturity Model, which assesses the quality of
organizations management system processes and methodologies.

Significant Cost Benefits.Based on the NASSCOM-McKinsey Report 2002, or the
NASSCOM-McKinsey Report, in 2002 U.S. and U.K. companies could expect total
savings of 40% to 60% by utilizing offshore processes due to the differential
in wages paid by U.S. and U.K. companies as compared to their Indian
counterparts.

Abundant Skilled Resources.According to the NASSCOM-McKinsey Report, India
graduates approximately 167,000 engineering students annually from its
educational institutions across the country.

The factors listed above also make India a premier destination for other
services such as IT-enabled services, which we refer to as business process
management. Industry analysts have observed that business process management
services of leading offshore IT service providers have strong prospects for
growth given the providers experience, proven track record and breadth of
client relationships. According to the NASSCOM-McKinsey Report, the IT-enabled
services export market is expected to grow to over $21 billion by 2008.

While these advantages apply to a majority of companies that operate with
offshore capabilities in India, we believe that there are additional factors
critical to the successful creation of a sustainable and scalable IT services
business. These include abilities to:



| |  | effectively integrate onsite and offshore execution capabilities to deliver
seamless, scalable services;                                                                          
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | increase depth and breadth of service offerings to provide a one-stop
solution in an environment where corporations are increasingly reducing their
number of IT services vendors;
| 
| |  | leverage in-house industry expertise to
customize business solutions for clients;                                                                                                 
| 
| |  | attract and retain high quality IT
professionals; and                                                                                                                             
| 
| |  | maintain financial strength to make strategic investments
in human resources and physical infrastructure throughout business cycles.                                              

Furthermore, clients are requesting that IT services firms provide a full range
of services to minimize the risk of technology implementation in meeting their
business objectives. Firms that provide individual components of solutions
typically have less meaningful client relationships and are vulnerable to
shifts in technology or client preferences.

Our Competitive Strengths

We believe our competitive strengths include:

Innovation and Leadership. We are a pioneer in the Indian IT services industry.
In addition to being rated as the employer of choice in India, we have been the
first to achieve a number of significant milestones that have solidified our
reputation in the marketplace. For example, we were one of the first Indian
companies to develop and deploy a global delivery model, attain SEI-CMMI Level
5 certification, the highest level of certification available, for both
offshore and onsite operations, comply with the quarterly certification
requirements of the U.S. Sarbanes-Oxley Act of 2002, introduce campus-style
development centers, list on a U.S. stock exchange, report Indian GAAP
quarterly audited financial statements and report audited U.S. GAAP financial
statements.

Mature Global Delivery Model.We believe our highly evolved Global Delivery
Model represents a key competitive advantage. Over the past decade, we have
developed our onsite and offshore execution capabilities to deliver high
quality, scalable services. In doing so, we have made substantial investments
in our process, infrastructure and systems, and refined our Global Delivery
Model to effectively integrate onsite and offshore services. Our Global
Delivery Model provides clients with seamless, high quality solutions in
reduced timeframes which enables our clients to achieve operating efficiencies
and realize significant cost savings.

Comprehensive and Sophisticated End-to-End Solutions.We offer a suite of
comprehensive, end-to-end technology-based solutions that span the entire
software life cycle. These comprehensive offerings enable us to capture a
greater share of our clients IT budgets, extend our network of relationships,
broaden our dialogue with key decision makers within each client, increase the
points of sale for developing new clients and reduce our service-mix
concentration. Our suite of solutions encompass consulting, design,
development, re-engineering, maintenance, systems integration and package
evaluation and implementation. Through our domain competency group and software
engineering and technology lab, we research and engineer new solutions for our
clients. We have a well-defined methodology to update and extend our service
offerings to meet the evolving needs of the global marketplace.

Commitment to Superior Quality and Process Execution.We have developed a
sophisticated project management methodology to ensure timely, consistent and
accurate delivery of superior quality solutions to maintain a high level of
client satisfaction. We are certified at SEI-CMMI Level 5.

Long-Standing Direct Client Relationships.We have long-standing direct
relationships with large multi-national corporations and we typically do not
accept subcontracted assignments from other IT services providers. Our track
record of delivering high quality solutions across the entire software life
cycle and our strong industry expertise helps us to solidify these
relationships and gain increased business from our existing clients. As a
result, we have a history of client retention and derive a significant
proportion of revenues from repeat clients. Approximately 46.6% of our top 100
clients by revenue in fiscal 2003 have been clients in successive years since
fiscal 1998.

Ability to Scale.We have successfully managed our growth by investing in
infrastructure and by recruiting, training and rapidly deploying new
professionals. Our strong financial position allows us to make the required
investments in infrastructure and personnel to continue to grow our business.
We can rapidly deploy resources and execute new projects through the scalable
network of our global delivery centers. These factors allow us to execute
large-scale, long-term projects in an efficient and cost-competitive manner.





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Employer of Choice.We believe we have the best talent in the Indian IT
services industry and we are committed to remain among the industrys leading
employers. We have a presence in eight major cities throughout the country,
which allows us to recruit IT professionals with specific geographic
preferences. Our training programs ensure that new hires enhance their skills
in alignment with our requirements and are readily deployable upon completion
of their training programs. Our lean organizational structure and strong
unifying culture facilitate the sharing of knowledge and best practices among
our employees.

Our Strategy

We seek to further enhance our position as a leading global IT services
company. To achieve this goal, we focus on the following key elements of our
strategy:

Continue to Enhance our Solution Set.We seek to continually enhance our
portfolio of solutions as a means of developing and growing our business. To
differentiate our services and achieve recognition as a leading provider of
comprehensive solutions we focus on emerging trends, new technologies, specific
industries and pervasive business issues that confront our clients. This
enables us to better service our clients, thereby increasing our penetration of
existing clients and gaining new clients. Over the past three years we have
added new service offerings such as IT consulting, business process management,
systems integration and IT outsourcing.

Increase Business from Existing and New Clients.Our goal is to build enduring
relationships with both existing and new clients. With existing clients, we aim
to expand the nature and scope of our engagements by increasing the size and
number of projects and extending the breadth of our service offerings. For new
clients, we seek to provide value-added solutions by leveraging our in-depth
industry expertise. We manage first-time engagements by educating clients about
the offshore model, taking on smaller projects to minimize client risk and
showcasing our superior execution capabilities. We also plan to increase our
recurring business with our existing and new clients by selling re-engineering,
maintenance, IT outsourcing and business process management services which are
long-term in nature and require frequent client contact.

Expand Into New Regions.We seek to diversify our presence in select geographic
locations throughout North America, Europe and the Asia Pacific region in order
to enhance our ability to service client needs on a global basis. We plan to
accomplish this by establishing new sales and marketing offices, representative
offices and global development centers and by providing services to existing
clients in new geographies. We intend to increase our presence in China through
our recently established representative office in Beijing and use our
operations there to eventually support clients in the local market, our global
clients and clients in the Asia Pacific region. All of our development centers
are also used as business continuity or disaster recovery centers, if
necessary. Additionally, as a means of mitigating geographic risks, we expect
to establish a dedicated business continuity and disaster recovery center in
Mauritius by the third calendar quarter of 2003.

Enhance Brand Visibility.We intend to continue to invest in the development of
our premium brand identity in the marketplace. Such efforts include media and
industry analyst events, sponsorship of and participation in targeted industry
conferences, trade shows, recruiting efforts, community outreach and investor
relations. We plan to expand the use of Milan,our annual multi-client retreat
in North America and Europe. We have also instituted the Wharton Infosys
Business Transformation Award, offered jointly with the Wharton School at the
University of Pennsylvania. We believe that a strong Infosys brand will
continue to facilitate the lead generation process and enhance our ability to
attract talented personnel globally.

Pursue Alliances and Strategic Acquisitions.We intend to continue to develop
alliances that complement our core competencies. Our alliance strategy is
targeted at leading technology providers, which allows us to take advantage of
emerging technologies in a mutually beneficial and cost-competitive manner. We
also intend to pursue selective acquisitions that augment our existing skill
sets, industry expertise, client base or geographical presence.

While we continue to pursue our business strategies, we intend to maintain our
focus on scaling our operations by investing in physical and technological
infrastructure, retaining our status as a preferred employer by continuing to
invest in recruiting, training and maintaining a challenging work environment
and by increasing productivity.

Our Global Delivery Model

One of our significant competitive strengths is our Global Delivery Model that
enables us to derive maximum benefit from:

     access to our large pool of highly skilled IT professionals;

     a 24-hour execution capability across multiple time zones;

     the ability to accelerate delivery times of large projects by
simultaneously processing project components;

     physical and operational separation of client projects to provide
enhanced security;

     cost competitiveness across geographic regions;

     built-in redundancy to ensure uninterrupted services; and

     a knowledge management system that enables us to reuse solutions where
appropriate.

Our Global Delivery Model allows us to produce where it is most cost effective
and sell services where it is most profitable. In a typical offshore
development project, we assign a team of IT professionals to visit a clients
site to determine the scope and requirements of the project. Once the initial
specifications of the project have been established, our project managers
return to the relevant global development center to supervise a larger team of
IT professionals dedicated to the development or implementation of the
solution. Typically, a small team remains at the clients site to manage
project coordination and address changes in requirements as the project
progresses. Teams return to the clients site when necessary to ensure seamless
integration. To the extent required, a dedicated team provides ongoing
maintenance from our global development centers. The clients systems are
linked to our facilities enabling simultaneous processing in our global
development centers. Our model ensures that project managers remain in control
of execution throughout the life of the project regardless of location. For the
past 11 years, we have successfully executed projects at our global development
centers for our clients located in North America, Europe and Asia.
Approximately 66.9% of the total billed person months during fiscal 2003 was
performed at our global development centers in India, and the balance of the
work was performed at client sites and our global development centers located
outside India.

We have two types of global development centers: proximity development centers
and offshore software development centers. Our proximity development centers
are typically located regionally for projects that require proximity to the
client for execution. We currently have nine proximity





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development centers, six located in the United States and three located
internationally in London, Melbourne and Tokyo. We have 17 offshore development
centers, 16 of which are located in eight cities in India and the remaining
offshore development center is located in Toronto.

Our quality control processes and programs are designed to minimize defects and
ensure adherence to pre-determined project parameters. Additionally, software
quality advisors help individual teams establish appropriate processes for
projects and adhere to multi-level testing plans. The project manager is
responsible for tracking metrics including actual effort spent versus initial
estimates, project budgeting and estimating the remainder of efforts required
on a project.

Our GDM mitigates client risks associated with offshore IT services. For our
communications needs we use multiple service providers and a mix of satellite
and optical fiber links with alternate routing. In India, we rely on two
telecommunications carriers to provide high-speed links interconnecting our
GDCs. Internationally, we rely on multiple satellite links to connect our
Indian GDCs with network hubs in other parts of the world. Our significant
investment in redundant infrastructure permits us to provide uninterrupted
service to our clients. We are also in the process of establishing a business
continuity and disaster recovery center in Mauritius. Once this facility is
fully operational, we expect to be able to transfer the execution of a portion
of our business activities rapidly from our Indian GDCs to Mauritius.

Our End-to-End Solutions

We provide end-to-end complex business solutions that leverage technology. Our
service offerings include custom application development, maintenance and
production support, software re-engineering, package evaluation and
implementation, IT consulting, and other solutions, including testing services,
engineering services, business process management, systems integration and IT
outsourcing. We also provide banking software products for the banking
industry.

When required, we complement our industry expertise with specialist support for
our clients using our domain competency group who have specialties in financial
securities, insurance, banking and cash management, supply chain management and
manufacturing, retail and distribution, energy and utilities, healthcare, and
travel and tourism. We also use our software engineering group and technology
lab to create customized solutions for our clients. In addition, we continually
evaluate and train our professionals in new technologies and methodologies.
Finally, we ensure the integrity of our service delivery by utilizing our
scalable, redundant and secure infrastructure.

In each of our solution offerings we assume full project management
responsibility and do not accept subcontracted assignments from providers of
other IT services. We strictly adhere to our SEI-CMMI Level 5, internal quality
and project management processes. We have a knowledge management system to
enable reuse of solutions across our company where appropriate and have
developed in-house tools for project management and software life cycle
support. These processes, methodologies, knowledge management systems and tools
reduce the overall cost to the client and enhance the quality and speed of
delivery.

Our engagements generally include more than one of the solutions listed below.
Revenues attributable to custom application development, maintenance and
production support, software re-engineering, package evaluation and
implementation and IT consulting services represented a majority of our total
revenues for fiscal 2003.

Custom Application Development

Our custom application development services offer customized software solutions
for our clients. We create new applications and enhance the functionalities of
our clients existing software applications. Our projects vary in size and
duration and are increasingly entered into on a fixed-price, fixed-timeframe
basis.

Each project typically involves all aspects of the software development
process, including defining, designing, prototyping, programming, module
integration and installation of the custom application. We perform system
design, software coding, and run pilots primarily at our global development
centers, while transition planning, user training and deployment activities are
performed at the clients site. Our application development services span the
entire range of mainframe, client server and Internet technologies. An
increasing proportion of our applications development engagements are related
to emerging platforms such as Microsofts .NET or open platforms such as J2EE.

As an example, a client in the insurance industry, due to multiple
acquisitions, had several disparate legacy systems that created inconsistencies
in its customer and product data. Over a 20-month period, our team of over 80
professionals replaced these systems with a new commercial brokerage policy
management and accounting software solution. This solution provides an
integrated unified view for over 10,000 users across all of our clients 70
offices in the United States.

Maintenance and Production Support

We provide maintenance services for our clients large legacy software systems
that cover a wide range of technologies and businesses, and are typically
essential to a clients business. Our consultants take a proactive approach to
software maintenance, by focusing on long-term functionality, stability and
preventive maintenance to avoid problems that typically arise from incomplete
or short-term solutions. This approach, coupled with our quality processes,
allows our clients to continually reduce recurring maintenance costs.

While we perform most of the maintenance work at our global development centers
using secure and redundant communication links to our clients systems, we also
maintain a team at the clients facility to coordinate certain key interface
and support functions.

As an example, another client in the insurance industry was facing difficulties
in maintaining its existing legacy systems while simultaneously developing its
new Internet-based system. We rapidly assumed the clients in-house
responsibilities and currently have over 350 professionals across several
projects providing maintenance, enhancement and support services for over 50
applications and 20,000 users covering mainframe, client server and Internet
technologies.

Software Re-engineering

Our re-engineering services assist our clients in converting their existing IT
systems to newer technologies and platforms developed by third party vendors.
Our re-engineering services include: web enabling our clients existing legacy
systems; database migration; implementing product upgrades; and platform
migrations, such as mainframe to client-server and client-server to Internet
platforms.





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As an example, a client in the computer manufacturing industry had a large,
disparate installed base of legacy systems which needed to be re-engineered to
open systems with newer technologies. Our team of over 150 professionals
re-engineered a suite of applications from several legacy systems such as
VAX/VMS, AS/400 and IBM mainframes running on Ingres, Sybase and DB2 databases,
to new generation systems such as RS6000/ AIX running on Oracle database and
Holos OLAP tool. Our solution provides a unified, enterprise-wide platform for
over 50 applications for 10,000 users spread across North America, Europe and
Asia.

Package Evaluation and Implementation

We assist our clients in the evaluation and implementation of software packages
developed by third party vendors, as well as provide training and support
services in the course of their implementation. We specialize in enterprise
resource planning packages developed by several vendors including: JD Edwards,
Oracle, PeopleSoft, Retek and SAP; supply chain management packages developed
by vendors including i2, Manugistics and Oracle; customer relationship
management packages developed by vendors including PeopleSoft (Vantive) and
Siebel; and enterprise application integration, packages including MQ Series,
SeeBeyond and TIBCO.

Our engagements cover a broad range of industries such as automotive,
beverages, financial services, food, healthcare, manufacturing, media,
pharmaceuticals, retail, technology and telecommunications.

As an example, a client in semiconductor manufacturing required greater
operational flexibility and improved supply chain visibility. Over a period of
18 months we implemented a global order management and material planning
solution that provided our client with visibility into orders from subsidiaries
across the world and enabled our client to respond in real time. This solution
was implemented using i2 for supply chain planning and Oracle applications for
supply chain execution. We implemented our solution using over 100
professionals across Asia, Europe and the United States.

IT Consulting

We offer IT consulting services that focus on defining, optimizing and aligning
our clients business objectives with their IT strategies. We assist our
clients by first understanding their business objectives and then analyzing and
recommending the appropriate hardware and software specifications that would
deliver a system that would meet these objectives. Our consultants have a broad
mix of functional and industry expertise. They lead engagements by working
together with client executives to develop innovative e-commerce and technology
related strategies and solutions. These solutions enable our clients to benefit
from emerging technologies to offer new products and services to their
customers.

We offer IT consulting in the following areas:



| |  | e-business, which includes e-business strategies and solutions and
e-commerce road-map definition;                                                                                           
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | program management, which includes migration planning, institutionalized
implementation and overall project management involving multiple
vendors under a common architecture; and           
| 
| |  | IT infrastructure assessment, which includes assessing our clients IT
capabilities against current and future business requirements, and
recommending appropriate technology infrastructure.

As an example, a client in mortgage services needed assistance in
restructuring its processes and systems for loan origination and servicing
operations. Over an 11-month period, our team of over 70 professionals made
several recommendations and redesigned the clients core business processes
and systems architecture for these operations. As a result of having
closely understood its core operations, we were engaged by the client for
developing a custom application for its new post-funding system and have
recently announced a five-year business process management contract for
providing the client with outsourced mortgage loan processing services.

Other Solutions

We have been expanding the nature and scope of our engagements by extending
the breadth of services we offer. We have recently added new service
offerings including testing services, engineering services, business
process management, systems integration and IT outsourcing. These services
are expected to represent a growing percentage of our total revenues, but
currently represent a less significant percentage of our total revenues. We
cannot be certain that these service offerings will effectively meet client
needs or that these services will grow as a percentage of our revenues.

Testing Services. We offer independent testing and validation services that
include functional, usability, compatibility, internationalization and
compliance testing. This testing is designed to evaluate the efficiency of
our clients IT systems against criteria specified by our clients, and are
provided from our offshore based centers. Our team members are well trained
in several test management tools such as Win Runner and Load Runner from
Mercury Interactive, WebLoad from RadView and Rational Softwares (IBM)
suite of products. Solutions are delivered from our testing lab based in
Bangalore. These services are extensively automated to address our clients
key objectives of increasing independence of their testing and validation
process at a reduced cost.

As an example, a client in retailing needed to migrate its systems to new
point-of-sale networks, applications and devices. Our team of professionals
spent over 50 person-months and developed and executed a performance test
strategy for the clients new systems that had a complex heterogeneous
architecture involving mainframe, client server, Internet and point-of-sale
devices. Our solution required enterprise-wide modeling of performance and
the testing of over 20 applications for the clients network of 150 retail
stores with over 14,000 point-of-sale devices across the United States.

Engineering Services. We offer engineering services that primarily assist
our clients in the manufacturing sector, in their new product development
process and in managing the life cycles of their existing product lines. We
focus on the following areas:



| |  | for the automotive, aerospace and heavy equipment industries
applications involving computer aided design, computer aided manufacturing
and computer aided engineering technologies; and
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | for the automotive, electronics, aerospace and industrial automation
industries design and development of software that is embedded in
various hardware components.                     

As an example, a client in automotive seating system and interior supplies
needed to reduce cost and cycle time in the design of automotive seating
systems. Our team of professionals employed advanced techniques in
mathematics, structural mechanics, finite element analysis, iterative
design and simulation.





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##### Table of Contents



Business Process Management. We offer business process management services
through our majority-owned subsidiary, Progeon Limited.

Progeon enables its clients to outsource several of their IT-intensive
processes related to customer relationship management, finance and accounting,
administration and sales order processing, and its service offerings include
the following:



| |  | for the banking industry credit and debt services, check processing,
loan servicing, collections, customer account management and treasury
operations management;                                                       
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | for the insurance and health care industries policy owner services,
claims processing, transaction and reinsurance accounting, statutory and
regulatory reporting, annuities processing and benefits administration;
and
| 
| |  | for the securities and brokerage industry client account management
services and corporate action services.                                                                                                             

As an example, we deliver extensive sales order processing services for a
client in telecommunications equipment manufacturing. Our services include
order capture and validation, performing credit checks and monitoring credit
utilization, determining discount levels, order finalization and entry as well
as monitoring and updating orders for rejections, cancellations and amendments.
Our operations as well as our 200 professionals on this engagement are fully
integrated with our clients data and fax server networks on a real-time,
24-hour basis.

In June 2002, we and Citicorp International Finance Corporation invested an
aggregate of $12.5 million in Progeon. We purchased 12,250,000 equity shares
for $2.5 million and Citicorp purchased 4,375,000 preference shares for $10.0
million. A second tranche investment by both us and Citicorp of an additional
$12.5 million is expected to occur by June 2003. With these investments,
Progeon intends to become a global company which will leverage our client
relationships and existing expertise in providing remote managed services.

Systems Integration. Our services include the integration of disparate IT
solutions and software systems, and often include procurement of various
hardware and software products, development of software that enhances the
compatibility between various components of the overall IT infrastructure, and
management of programs, vendors and consortia during this process.

As an example, a client in affinity programming needed an affordable,
customized, secure and scalable system to provide online access to its
customers. This system required real-time integration for seamless transfer of
complete and current customer information. Over a period of 18 months, our team
of over 20 professionals provided a solution that included strategy and process
consulting, product evaluation, architecture design and development and
environment design to address security, performance testing and redundancy
issues. In addition, we designed and implemented the optimal hosting model,
selected the hosting vendor, formulated service level agreements and the
infrastructure change management process, and provided post implementation
support.

IT Outsourcing. Through IT outsourcing, we take over the management and
operations of our clients IT infrastructure. This service offering enables our
clients to focus on their core business areas. Our IT outsourcing service
offerings including data center management, technical support services and
application and management services and are delivered primarily from our global
management network and data operations center in Bangalore, India and our
proximity development centers in the United States. We have a sophisticated
system that monitors and manages these services through recorded system agent
alerts, telephone calls, e-mails and faxes.

As an example, a client in network products wanted to outsource its complete IT
infrastructure management services. We took over the responsibilities of
network and security management, server and desktop management and enterprise
application management and currently provide several services including system
administration, database management, network management and desktop support.
The systems are managed from a centralized location and cover a large network
of 17 locations across the United States.

Banking Software Products

We also develop, market and license proprietary software products for the
banking industry. Our principal banking products and solutions are the Finacle
suite of products and professional services.

Finacle Suite of Products. Our suite of software products include Finacle Core
Banking, Finacle eChannels, Finacle eCorporate, Finacle CRM and Finacle
Treasury. This product suite is a fully web-enabled, integrated core banking
solution, that addresses the retail, corporate and trade finance activities of
banks. We granted 22 licenses to 14 clients for our products in fiscal
2003.

Professional Services. Our services complement our product suite and include
implementation, customization, support, consulting, training and documentation.

Our Clients

We market our services to large corporations in North America, Europe and the
Asia Pacific Region. We have a strong market presence in North America and a
growing presence in Europe. Our revenues for the last three fiscal years by
geographic area are as follows:

|                  |  |      |       |      |  |        |       |   |  |  |       |  
|----------------- |  | ---- | ----- | ---- |  | ------ | ----- | - |  |  | ----- | -
|                  |  |      |       |      |  | Fiscal |       |   |  | 
|                  |  | 2001 |       | 2002 |  | 2003  
|                  |  |      |       |      |  |       
|North America     |  |      | 73.5  | %    |  |        | 71.2  | % |  |  | 73.0  | %
|Europe            |  |      | 18.8  | %    |  |        | 19.5  | % |  |  | 17.7  | %
|India             |  |      | 1.4   | %    |  |        | 2.0   | % |  |  | 2.1   | %
|Rest of the World |  |      | 6.3   | %    |  |        | 7.3   | % |  |  | 7.2   | %
|                  |  |      |       |      |  |        |       |   |  |  |       |  
|Total             |  |      | 100.0 | %    |  |        | 100.0 | % |  |  | 100.0 | %
|                  |  |      |       |      |  |        |       |   |  |  |       |  

We have in-depth expertise in the financial services, manufacturing,
telecommunications, and retail industries, as well as, to a lesser extent, the
utilities and logistics industries. Our revenues for the last three fiscal
years by market segment are as follows:





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|                                           |  |      |       |      |  |        |       |   |  |  |       |  
|------------------------------------------ |  | ---- | ----- | ---- |  | ------ | ----- | - |  |  | ----- | -
|                                           |  |      |       |      |  | Fiscal |       |   |  | 
|                                           |  | 2001 |       | 2002 |  | 2003  
|                                           |  |      |       |      |  |       
|Financial Services                         |  |      | 33.7  | %    |  |        | 36.6  | % |  |  | 37.6  | %
|Manufacturing                              |  |      | 17.9  | %    |  |        | 17.2  | % |  |  | 16.4  | %
|Telecommunications                         |  |      | 18.5  | %    |  |        | 15.6  | % |  |  | 15.2  | %
|Retail                                     |  |      | 9.1   | %    |  |        | 12.3  | % |  |  | 11.4  | %
|Others (primarily Utilities and Logistics) |  |      | 20.8  | %    |  |        | 18.3  | % |  |  | 19.4  | %
|                                           |  |      |       |      |  |        |       |   |  |  |       |  
|Total                                      |  |      | 100.0 | %    |  |        | 100.0 | % |  |  | 100.0 | %
|                                           |  |      |       |      |  |        |       |   |  |  |       |  

For fiscal 2003, the following clients were among our top 20 by revenue:

|                                                       |  |                                   
|------------------------------------------------------ |  | ----------------------------------
|Aetna Inc.                                             |  | Fidelity Employer Services Company
|American Express Financial Advisors, Inc.              |  | Goldman, Sachs & Co.              
|American Express Travel Related Services Company, Inc. |  | IKON Office Solutions, Inc.       
|Belgacom SA                                            |  | Nordstrom, Inc.                   
|Cisco Systems, Inc.                                    |  |                                   

Our top 20 clients represented 54.1% of our revenues for fiscal 2003. For
fiscal 2003, 2002 and 2001, our largest client accounted for approximately
5.8%, 6.1% and 7.3%, respectively, of our total revenues. The volume of work we
perform for specific clients is likely to vary from year to year, particularly
since we are not the exclusive external IT services provider for our clients.
Thus, a major client in one year may not provide the same level of revenues in
a subsequent year. However, in any given year, a limited number of clients tend
to contribute a significant portion of our revenues.

Sales and Marketing

Our sales and marketing strategy seeks to increase awareness and gain new
business from target clients and promote client loyalty and repeat business
among existing clients. Members of our executive management team are actively
involved in business development and in managing key client relationships
through targeted interaction with our clients senior management.

New Business Development. We use a cross-functional, integrated sales approach
where our account managers, together with our sales personnel and project
managers, analyze potential projects and collaboratively develop strategies to
sell our expertise to potential clients. This approach allows for a smooth
transition to execution once the sale is completed. Our sales professionals
located throughout the world proactively contact potential clients. For larger
projects, we typically bid against other IT services providers in response to
requests for proposals. Clients often cite the following as reasons for
awarding us contracts: our Global Delivery Model, comprehensive end-to-end
solutions, ability to scale, superior quality and process execution, industry
expertise, experienced management team, talented professionals, track record
and competitive pricing. In addition, client references and endorsements
provide objective validation of our competitive strengths.

Promoting Client Loyalty.We constantly seek to expand the nature and scope of
our engagements with existing clients by increasing the volume of our business
and extending the breadth of services offered. For existing clients, our onsite
project and account managers proactively identify client needs and work with
our sales team to structure solutions to address those needs. For fiscal 2003,
91.9% of our revenue came from repeat business. We promote client loyalty
through a sales and marketing program that includes media and industry analyst
events, sponsorship of and participation in targeted industry conferences,
trade shows, recruiting efforts, community outreach and investor relations. We
also intend to expand the use of Milan, our annual multi-client retreat in
North America and Europe to gain additional visibility among our client base.

Sales and Marketing Organization. We sell and market our services from 30 sales
offices located in 17 countries. With our global sales headquarters in Fremont,
California and our corporate marketing group in Bangalore, India, we target our
efforts towards Global 1000 corporations. Our sales efforts are complemented by
our marketing team, which assists in brand building and other corporate level
marketing efforts. As of March 31, 2003, we had 259 sales and marketing
employees outside of India and 21 in India.

Competition

We operate in a highly competitive and rapidly changing market and compete
with:



| |  | consulting firms such as Accenture Ltd., BearingPoint, Inc., Cap
Gemini Ernst & Young, and Deloitte Consulting/ Braxton Associates;                     
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | divisions of large multinational technology firms such as
Hewlett-Packard Company and International Business Machines Corporation;                      
| 
| |  | IT outsourcing firms such as Computer Sciences Corporation,
Electronic Data Systems Corporation, Keane, Inc., Logica Plc, and Perot
Systems Corporation;
| 
| |  | Indian IT services firms such as Satyam Computer Services
Limited, Tata Consultancy Services and Wipro Limited;                                         
| 
| |  | software firms such as Oracle Corporation and SAP AG; and                                                                                               
| 
| |  | in-house IT departments of large corporations.                                                                                                          

In the future we also expect competition from firms in countries with lower
personnel costs than those prevailing in India. However, we recognize that
price alone cannot constitute sustainable competitive advantage. We believe
that the principal competitive factors in our business include the ability to:



| |  | effectively integrate onsite and offshore execution capabilities
to deliver seamless, scalable services;                                                                          
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | increase scale and breadth of service offerings to provide a one
stop solution in an environment where corporations are increasingly
reducing their number of IT services vendors;
| 
| |  | provide industry expertise to clients business solutions;                                                                                                                        
| 
| |  | attract and retain high quality IT professionals; and                                                                                                                             
| 
| |  | maintain financial strength to make strategic investments in
human resources and physical infrastructure through business cycles.                                                 

We believe we compete favorably with respect to these factors.





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Human Capital

Our employees are our most important assets. We believe that the quality and
level of service that our professionals deliver are among the highest in the
global IT services industry. We are committed to remaining among the industrys
leading employers. In recognition of our efforts, for the years 2001 and 2002,
Hewitt Associates and Business Today selected us as the Best Employer in
India and the Dataquest-IDC India Human Resources Survey 2002 ranked us ITs
Best Employer in India. Further, as reported in articles cited by NASSCOM, our
attrition rates are lower than average industry attrition rates.

As of March 31, 2003, we employed approximately 15,400 employees, including
approximately 14,000 IT professionals and additionally Progeon employed
approximately 540 employees. During fiscal 2003, we recorded approximately
4,600 net hires. Our culture and reputation as a leader in the IT industry
enables us to recruit and retain the best available talent in India. The key
elements that define our culture include:

Recruiting

We have built our global talent pool by recruiting new students from premier
universities, colleges and institutes in India and through need-based hiring of
project leaders and middle managers. We typically recruit only the top twenty
percent of students in India who have consistently shown high levels of
achievement. We also rely on a rigorous selection process involving a series of
aptitude tests and interviews to identify the best applicants. This selection
process is continually assessed and refined based on performance tracking of
past recruits.

Our reputation as a premier employer enables us to select from a large pool of
qualified applicants. For example, for fiscal 2003, we received approximately
614,700 applications, interviewed approximately 22,778 applicants and extended
job offers to approximately 6,200 applicants.

Training and Development

Our training, continuing education and career development programs are
primarily designed to ensure our IT professionals enhance their skill-sets in
alignment with their respective roles. Most new student hires complete
approximately three months of integrated on-the-job training before becoming
billable to our clients. We continually provide our IT professionals with
challenging assignments, exposure to new skills, technologies and global
opportunities. We have instituted an appraisal program that incorporates a
360-degree feedback system recognizing high performers and providing
constructive feedback and coaching to under-performers.

We employ approximately 80 faculty members in our training division, including
approximately 60 with doctorate or masters degrees. Our faculty conducts the
integrated training for new employees, as well as approximately 160 two-week
continuing education courses in technology and management skills for all
employees.

Leadership development is also a key part of our training program. We recently
established the Infosys Leadership Institute, a 230-acre campus at Mysore,
India, to enhance leadership skills that are required to manage the
complexities of the rapidly changing marketplace and to further instill our
culture through leadership training. We provide a challenging, entrepreneurial
and empowering work environment that demands dedication and a strong work
ethic.

Compensation

Our IT professionals receive competitive salaries and benefits and are eligible
to participate in our stock option plans. We have also adopted a
performance-linked compensation program which links compensation to individual
performance, as well as our performance.

Intellectual Property

Our intellectual property rights are important to our business. We rely on a
combination of patent, copyright, trademark and design laws, trade secrets,
confidentiality procedures and contractual provisions to protect our
intellectual property. We currently have no issued patents. Four of our patent
applications are pending in the U.S. Patent and Trademark Office. We have two
registered trademarks and three unregistered trademarks. We require employees,
independent contractors and, whenever possible, vendors to enter into
confidentiality agreements upon the commencement of their relationships with
us. These agreements generally provide that any confidential or proprietary
information developed by us or on our behalf be kept confidential. These
agreements also provide that any confidential or proprietary information
disclosed to third parties in the course of our business be kept confidential
by such third parties. However, our clients usually own the intellectual
property in the software we develop for them.

Our efforts to protect our intellectual property may not be adequate. Our
competitors may independently develop similar technology or duplicate our
products and/or services. Unauthorized parties may infringe upon or
misappropriate our products, services or proprietary information. In addition,
the laws of India do not protect intellectual property rights to the same
extent as laws in the United States. For example, India does not grant patents
for software applications or products. In the future, litigation may be
necessary to enforce our intellectual property rights or to determine the
validity and scope of the proprietary rights of others. Any such litigation
could be time-consuming and expensive.

We could be subject to intellectual property infringement claims as the number
of our competitors grows and our product or service offerings overlap with
competitive offerings. In addition, we may become subject to such claims since
we may not always be able to verify the intellectual property rights of third
parties from which we license a variety of technologies. Defending against
these claims, even if not meritorious, could be expensive and divert our
attention from operating our company. If we become liable to third parties for
infringing their intellectual property rights, we could be required to pay
substantial damage awards and be forced to develop non-infringing technology,
obtain a license or cease selling the applications that contain the infringing
technology. The loss of some of our existing licenses could delay the
introduction of software enhancements, interactive tools and other new products
and services until equivalent technology could be licensed or developed. We may
be unable to develop non-infringing technology or obtain a license on
commercially reasonable terms, or at all.

We regard our trade name, trademarks, service marks and domain names as
important to our success. We rely on the law to protect our proprietary rights
to them, and we have taken steps to enhance our rights by filing trademark
applications where appropriate. We have obtained registration of our key brand
INFOSYS as a trademark in both India and in the United States. We also
aggressively protect these names and marks from infringement by others.





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Research and Development

Our research and development efforts focus on developing and refining our
methodologies, tools and techniques, implementing metrics, improving
estimation processes, and adopting new technologies. We have several groups
engaged in our research and development activities. These groups are listed
below.

Education and Research Group. This group conducts short-term and long-term
research in the areas of knowledge management, performance testing,
e-commerce, and education and training methodologies.

Software Engineering and Technology Labs.This group monitors advances in
technologies that could impact the business of our clients such as
knowledge management, collaborative technologies, convergence technologies
and web services. They also develop new methodologies and software tools
that assist us in our execution of IT services projects.

Domain Competency Group. This group monitors emerging business trends in
particular domains that are relevant to our client base and seeks to
understand and develop solutions that are highly specific to an individual
industry.
We have also established concept centers for several advanced technologies
and have a performance-testing center to develop solutions for a number of
our development projects.

Our research and development expenses for the fiscal years ended March 31,
2003, 2002 and 2001 were $2.9 million, $3.1 million and $3.6 million.

Effect of Government Regulation of our Business

Regulation of our business by the Indian government affects our business in
several ways. We benefit from certain tax incentives promulgated by the
Government of India, including a ten-year tax holiday from Indian corporate
income taxes for the operation of most of our Indian facilities and a
partial taxable income deduction for profits derived from exported IT
services under Indian tax laws. As a result of these incentives, our
operations have been subject to relatively insignificant Indian tax
liabilities. We have also benefited from the liberalization and
deregulation of the Indian economy by the successive Indian governments
since 1991, including the current Indian government. Further, there are
restrictive parts of Indian law that affect our business, including the
fact that we are generally required to obtain approval from the Reserve
Bank of India and/or the Ministry of Finance of the Government of India to
acquire companies organized outside India, and we are generally required,
subject to some exceptions, to obtain approval from relevant government
authorities in India in order to raise capital outside India. Finally, the
conversion of our equity shares into ADSs is governed by guidelines issued
by the Reserve Bank of India.

Please see the section entitled Risk Factors in Item 3, Key Information,
as well as Item 10. Additional information, for more information on the
effects of governmental regulation of our business.

Legal Proceedings

On December 17, 2001, Reka Maximovitch filed an action in the Superior
Court of the State of California, Alameda County, against us and our former
officer and director, Phaneesh Murthy. The complaint alleged that we and
Phaneesh Murthy sexually harassed her and terminated her employment in
violation of public policy, specifically Californias public policy against
sex discrimination. The complaint also asserted claims against Phaneesh
Murthy for stalking and intentional infliction of emotional distress. The
complaint sought unspecified damages, as well as punitive damages and
attorneys fees and costs. We filed an answer denying the allegations of
the complaint, and asserted what we believe were various meritorious
defenses to the claims. Recently, we and Phaneesh Murthy reached a
settlement with Ms. Maximovitch, and we expect the matter will soon be dismissed with
prejudice. The settlement amount is for US $3 million, of which
we will contribute US $1.5 million. This amount is not
material to our operations.

Organizational structure

We hold a majority interest in the following company:



| |  | Progeon.We established Progeon Limited in April 2002,
under the laws of India. Progeon issued 12,250,000 equity shares of
par value $0.20 per share to its holding company, Infosys, in
exchange for an aggregate consideration of $2,500,000 (First
Tranche subscription). In terms of the stock subscription
agreement between Infosys, Citicorp International Finance
Corporation (CIFC) and Progeon, Infosys is also required to
subscribe to an additional 12,250,000 equity shares of par value
$0.20 each in Progeon on or before the date of the first
anniversary of the First Tranche Subscription.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | On June 14, 2002, Progeon issued 4,375,000 0.0005% cumulative
convertible preference shares of par value $2.0 per share to CIFC at an
issue price of $2.28 (equivalent to Rs. 112) per share, in exchange for
an aggregate consideration of $10,000,000. Unless earlier converted,
pursuant to an agreement between the company and CIFC, these cumulative
convertible preference shares shall automatically be converted into
equity shares, (i) one year prior to the Initial Public Offering (IPO)
date or (ii) September 30, 2005 or (iii) at the holders option,
immediately upon the occurrence of any Liquidity Event; whichever is
earlier. The term Liquidity Event includes any of a decision of the
Board of Directors of the company to make an IPO, merger,
reconstruction, capital
reorganization or other event which, in the sole opinion of the holder
of the convertible preference shares, amounts to an alteration in the
capital structure of the company. Each preference share is convertible
into one equity share, par value $0.20 each. The dividend on the
preference shares for the period ended March 31, 2003 is payable.

We have also made a number of strategic investments in private venture
financed companies. We typically make these investments based on the
valuable experience our IT professionals will gain in the niche
technologies that these investee companies work on. The aggregate value of
such investments is $4.6 million. During the year ended March 31, 2003, we
invested $54,378 in such companies.

Property, plants and equipment

Our principal campus, Infosys City is located at Electronics City,
Bangalore, India. Infosys City consists of approximately 2.45 million
square feet of land and 1.35 million square feet of operational facilities.
The campus features:



| |  | 900,000 square feet of landscaped area;
|- |  | ---------------------------------------
| 
| |  | 162 conference rooms;                  





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| |  | An Education and Research unit consisting of 115,000 square feet of
facilities space, including a library, six class rooms and six training
rooms, computer-based learning and audio-visual aids, and over 70
faculty rooms;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | A Management Development Center consisting of 75,500 square feet of
facilities space, with 21 class rooms and 22 faculty rooms;                                                                                             
| 
| |  | A world-class conference room with the capacity to simultaneously
video-conference 24 locations across the globe;                                                                                                           
| 
| |  | Leisure facilities, including cafeterias, tennis courts, a miniature
golf course, a basketball court, a swimming pool, and a health club; and                                                                               
| 
| |  | A store selling Infosys branded merchandise and a grocery store.                                                                                                                                                            

Our software development facilities are equipped with a world-class technology
infrastructure that includes networked workstations, servers, data
communication links, video-conferencing and captive generators.

We have acquired some land parcels for various facilities, pursuant to
long-term leases with a purchase option, by entering into conditional purchase
agreements which are used by the State of Karnataka to make land available to
private companies for specific purposes. Under the conditional purchase
agreements, property is sold subject to a long-term (typically 25-years),
rental-free lease that transfers ownership to the buyer at the end of the
period provided that the buyer uses the land for specified purposes. These
agreements require us to use the various parcels for software development
facilities. Typically, we pay 99% of the purchase price at the time the
agreement is signed and pay the remaining 1% when the term is concluded. Land
so acquired is shown as a conditional purchase in the table below.

We have ten sales and marketing offices in the United States, four in India,
two in Australia and one each in Argentina, Belgium, Canada, China, Germany,
France, Hong Kong, Japan, Netherlands, Singapore, Sweden, Switzerland, the UAE
and the United Kingdom. We believe our facilities are optimally utilized.
Appropriate expansion plans are being planned and undertaken to meet our future
growth.

Material plans to construct, expand and improve facilities

On November 15, 2002, we leased about 27,000 square feet of space for a planned
business continuity and disaster recovery facility in Mauritius. We are in the
process of completing the interior design, which we expect will be ready for
occupancy by the third quarter of the current fiscal year. As of March 31,
2003, we have spent approximately $ 140,000 on the facility. We estimate the
total cost of completing this facility to be $ 10.5 million, all of which will
be paid in cash. Once complete, we expect this facility to provide continuity
of business to our clients in case of any disaster in India.

Our most significant leased and owned properties are listed in the table below:

|                                                  |  |                 |           |                |  |           |            |  |  |                      |  | 
|------------------------------------------------- |  | --------------- | --------- | -------------- |  | --------- | ---------- |  |  | -------------------- |  | 
|                                                  |  | Building        |           | Land           |  |           |            | 
|                                                  |  |                 |           |                |  |           |            | 
|Location                                          |  | Approx. Sq. ft. |           | Approx Sq. ft. |  | Ownership
|                                                  |  |                 |           |                |  |          
|Software Development Facilities                   |  |                 |           |                |  |           |            |  |  |                      |  | 
|Bangalore (Infosys City), Karnataka               |  |                 | 1,346,536 |                |  |           | 2,152,582  |  |  | Conditional Purchase
|                                                  |  |                 |           |                |  |           | 305,139    |  |  | Owned               
|Bangalore (B.T.M. Layout), Karnataka              |  |                 | 11,300    |                |  |           |           |  |  | Leased              
|Bangalore (Koramangala), Karnataka                |  |                 | 22,000    |                |  |           |           |  |  | Leased              
|Bangalore (Dickenson Road), Karnataka             |  |                 | 7,000     |                |  |           |           |  |  | Owned               
|Bangalore (J.P. Nagar), Karnataka                 |  |                 | 59,500    |                |  |           |           |  |  | Leased              
|Bhubaneswar (Chandaka Industrial Park), Orissa    |  |                 | 189,000   |                |  |           | 1,089,004  |  |  | Conditional Purchase
|Chennai (Sholinganallur), Tamil Nadu              |  |                 | 345,629   |                |  |           | 577,608    |  |  | Conditional Purchase
|Hyderabad (Manikonda Village), Andhra Pradesh     |  |                 | 317,000   |                |  |           | 1,306,805  |  |  | Owned               
|Mangalore (Kottara), Karnataka                    |  |                 | 198,000   |                |  |           | 119,790    |  |  | Owned               
|Mohali (S.A.S. Nagar Industrial Area),
Chandigarh |  |                 | 21,000    |                |  |           |           |  |  | Leased              
|Mysore (Hebbal Electronic City), Karnataka        |  |                 | 418,450   |                |  |           | 9,934,294  |  |  | Conditional Purchase
|Pune (Hinjewadi), Maharashtra                     |  |                 | 502,937   |                |  |           | 1,089,004  |  |  | Conditional Purchase
|                                                  |  |                 |           |                |  |           |            |  |  |                      |  | 
|                                                  |  |                 | 3,438,352 |                |  |           | 16,574,226 |  |  |                      |  | 
|                                                  |  |                 |           |                |  |           |            |  |  |                      |  | 
|Proposed Software Development Facilities          |  |                 |           |                |  |           |            |  |  |                     
|Bangalore (Infosys City), Karnataka               |  |                 | 245,000   |                |  |           |           |  |  | Conditional Purchase
|Chennai (Sholinganallur), Tamil Nadu              |  |                 | 75,688    |                |  |           |           |  |  | Conditional Purchase
|Pune (Hinjewadi), Maharashtra                     |  |                 | 86,710    |                |  |           |           |  |  | Conditional Purchase
|Mauritius                                         |  |                 | 27,000    |                |  |           | 1,135,417  |  |  | Leased              
|                                                  |  |                 |           |                |  |           |            |  |  |                      |  | 
|                                                  |  |                 | 434,398   |                |  |           | 1,135,417  |  |  |                      |  | 
|                                                  |  |                 |           |                |  |           |            |  |  |                      |  | 
|Proximity and Global Development Facilities       |  |                 |           |                |  |           |            |  |  |                      |  | 
|Berkeley Heights, New Jersey                      |  |                 | 17,000    |                |  |           |           |  |  | Leased              
|Boston, Massachussetts                            |  |                 | 33,600    |                |  |           |           |  |  | Leased              
|Chicago, Illinois                                 |  |                 | 17,000    |                |  |           |           |  |  | Leased              
|Croydon, England                                  |  |                 | 10,000    |                |  |           |           |  |  | Leased              
|Fremont, California                               |  |                 | 17,700    |                |  |           |           |  |  | Leased              
|Phoenix, Arizona                                  |  |                 | 4,000     |                |  |           |           |  |  | Leased              
|Toronto, Ontario                                  |  |                 | 20,500    |                |  |           |           |  |  | Leased              
|Melbourne, Australia                              |  |                 | 9,114     |                |  |           |           |  |  | Leased              
|Tokyo, Japan                                      |  |                 | 6,894     |                |  |           |           |  |  | Leased              
|Charlotte,
North Carolina                         |  |                 | 11,057    |                |  |           |           |  |  | Leased              
|                                                  |  |                 |           |                |  |           |            |  |  |                      |  | 
|                                                  |  |                 | 146,865   |                |  |           |            |  |  |                      |  | 
|                                                  |  |                 |           |                |  |           |            |  |  |                      |  | 





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##### Table of Contents



|                                               |  |                 |         |                |  |           |         |  |  |                      |  | 
|---------------------------------------------- |  | --------------- | ------- | -------------- |  | --------- | ------- |  |  | -------------------- |  | 
|                                               |  | Building        |         | Land           |  |           |         | 
|                                               |  |                 |         |                |  |           |         | 
|Location                                       |  | Approx. Sq. ft. |         | Approx Sq. ft. |  | Ownership
|                                               |  |                 |         |                |  |          
|Other                                          |  |                 |         |                |  |           |         |  |  |                      |  | 
|Bangalore (J.P. Nagar Sarakki), Karnataka      |  |                 |        |                |  |           | 16,553  |  |  | Owned               
|Bangalore (Adarsh Gardens), Karnataka          |  |                 | 78,700  |                |  |           |        |  |  | Owned               
|Bhubaneswar (Jayadev Vihar Mouza), Orissa      |  |                 |        |                |  |           | 293,334 |  |  | Conditional Purchase
|Mangalore (Kadri Kambala Crossroad), Karnataka |  |                 | 5,100   |                |  |           |        |  |  | Owned               
|Mumbai (Vallabhai Patel Road), Maharashtra     |  |                 | 13,620  |                |  |           |        |  |  | Owned               
|Pune (Shanti Sadan Erandawane), Maharashtra    |  |                 | 3,300   |                |  |           |        |  |  | Owned               
|                                               |  |                 |         |                |  |           |         |  |  |                      |  | 
|                                               |  |                 | 100,720 |                |  |           | 309,887 |  |  |                      |  | 
|                                               |  |                 |         |                |  |           |         |  |  |                      |  | 




Item 5: Operating and Financial Review and Prospects

Operating results

This information is set forth under the caption Managements discussion and
analysis of financial condition and results of operations below and such
information is incorporated herein by reference.

Liquidity and Capital Resources

This information is set forth under the caption Managements discussion and
analysis of financial condition and results of operations below and such
information is hereby incorporated herein by reference.

Research and development, patents
and licenses, etc.

We have committed and expect to continue to commit in the future, a material
portion of resources to research and development. Efforts towards research and
development are focused on refinement of methodologies, tools and techniques,
implementation of metrics, improvement in estimation process and the adoption
of new technologies.

Our research and development expenses for the fiscal years ended March 31,
2003, 2002 and 2001 were $2.9 million, $3.1 million and $3.6 million,
respectively.

Trend information

Managements discussion and analysis of financial condition and results of
operations

Investors are cautioned that this discussion contains forward-looking
statements that involve risks and uncertainties. When used in this discussion,
the words anticipate, believe, estimate, expect, intend, project,
seek, should, will and other similar expressions as they relate to us or
our business are intended to identify such forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or
otherwise. Actual results, performances or achievements could differ materially
from those expressed or implied in such forward-looking statements. Factors
that could cause or contribute to such differences include those described
under the heading Risk Factors in this Annual Report. Readers are cautioned
not to place undue reliance on these forward-looking statements, as they speak
only as of the date of this Annual Report. The following discussion and
analysis should be read in conjunction with our financial statements included
herein and the notes thereto.

Overview

We are a leading global IT services company founded in 1981, and headquartered
in Bangalore, India. We provide end-to-end business solutions that leverage
technology, thus enabling our clients to enhance business performance. Our
solutions span the entire software life cycle, encompassing consulting, design,
development, re-engineering, maintenance, systems integration, package
evaluation, and implementation. In addition, we offer software products for the
banking industry and we also offer business process management services through
our majority-owned subsidiary, Progeon Limited, which typically include offsite
customer relationship management, finance and accounting, administration and
sales order processing functions.

We completed our initial public offering of equity shares in India in 1993 and
our initial public offering of ADSs in the United States in 1999.

Our revenues
grew from $ 121.0 million in fiscal 1999 to $ 753.8 million in fiscal 2003,
representing a compound annual growth rate of 58.0%. Our net income grew from $
17.5 million, after a one-time stock compensation expense to $ 194.9 million
during the same period, representing a compound annual growth rate of
83.0%.
Our revenue growth is attributable to a number of factors, including an
increase in the size and number of projects for existing and new clients. For
fiscal 2003, 91.9% of our revenue came from repeat business, which we define as
revenue from a client who also contributed to our revenue during the prior
fiscal year. Between March 31, 1999 and March 31, 2003 our total employees grew
from approximately 3,770 to approximately 15,400, representing a compound
annual growth rate of 42.2%. In addition, Progeon Limited had approximately 540
employees as of March 31, 2003.

We use a distributed project management methodology that we refer to as our
Global Delivery Model. We divide projects into components that we execute
simultaneously at client sites and at our geographically dispersed development
centers in India and around the world. Our Global Delivery Model allows us to
efficiently execute projects across time zones and development centers, thereby
optimizing our cost structure. We also offer a secure and redundant
infrastructure for all client data. We
earned 73.0% of our total revenues from North America, 17.7% from Europe, 2.1%
from India and 7.2% from the rest of the world for fiscal 2003.

Our revenues are generated principally from IT services provided on either a
time-and-materials or a fixed-price, fixed-timeframe basis. Revenues from
services provided on a time-and-materials basis are recognized as the related
services are performed. Revenues from services provided on a fixed-price,
fixed-timeframe basis are recognized pursuant to the percentage of completion
method. Most of our client contracts, including those that are on a
fixed-price, fixed-timeframe, basis can be terminated with or without cause,
without penalties and with short notice periods between zero and 90 days. Since
we collect revenues on contracts as portions of the contracts are completed,
terminated contracts are only subject to collection for portions of the
contract completed through the time of termination. Our contracts do not
contain specific termination-related penalty provisions. In order to manage and
anticipate the risk of early or abrupt contract terminations, we monitor the
progress on all contracts





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##### Table of Contents



and change orders according to their characteristics and the circumstances in
which they occur. This includes a focused review of our ability and our
clients ability to perform on the contract, a review of extraordinary
conditions that may lead to a contract termination, as well as historical
client performance considerations. Since we also bear the risk of cost overruns
and inflation with respect to fixed-price, fixed-timeframe projects, our
operating results could be adversely affected by inaccurate estimates of
contract completion costs and dates, including wage inflation rates and
currency exchange rates that may affect cost projections. Losses on contracts,
if any, are provided for in full in the period when determined. Although we
revise our project completion estimates from time to time, such revisions have
not, to date, had a material adverse effect on our operating results or
financial condition. We also generate revenue from software application
products, including banking software. Such software products represented 4.6%
of our total revenues for fiscal 2003.

We have also experienced pricing pressure from our clients, especially during
the recent economic downturn, which has adversely affected our
revenues, margins and gross profits. For example, clients often expect that as we do more business with them, they
will receive volume discounts. Additionally, clients may ask for fixed-price
arrangements or reduced rates. We attempt to use fixed-price agreements for
work where the specifications are complete, so individual rates are not
negotiated. We are also adding new services at higher price points and where
more value is added for our clients.

Our cost of revenues primarily consists of salary and other compensation
expenses, depreciation, overseas travel expenses, cost of software purchased
for internal use, subcontracting costs, data communications expenses and
computer maintenance. We depreciate our personal computers and servers over two
years and mainframe computers over three years. Third party software is
written off over the estimated useful life. Cost of revenues also includes
amortization of deferred stock compensation expense arising from option grants
relating to the 1994 stock option plan which have been accounted for under the
intrinsic value method.

We typically assume full project management responsibility for each project
that we undertake. Approximately 66.9% of the total billed person months during
fiscal 2003 was performed at our global development centers in India, and the
balance of the work was performed at client sites and global development
centers located outside India. The proportion of work performed at our
facilities and at client sites varies from quarter to quarter. We charge higher
rates and incur higher compensation and other expenses for work performed at
client sites and global development centers located outside India. Services
performed at a client site or global development centers located outside India
typically generate higher revenues per-capita at a lower gross margin than the
same services performed at our facilities in India. As a result, our total
revenues, cost of revenues and gross profit in absolute terms and as a
percentage of revenues fluctuate from quarter to quarter based on the
proportion of work performed offshore. Additionally, any increase in work
performed at client sites or global development centers located outside India
can decrease our gross profits. We hire subcontractors on a limited basis from
time to time for our own IT development needs, and we do not perform
subcontracted work for other IT service providers. For fiscal 2003
approximately 3.8 % of our cost of revenues was attributable to subcontracting
costs. We do not anticipate that our subcontracting needs will increase
significantly as we expand our business.

Revenues and gross profits are also affected by employee utilization rates. We
define employee utilization as the proportion of total billed person months to
total available person months excluding support personnel. We manage
utilization by monitoring project requirements and timetables. The number of
consultants assigned to a project will vary according to size, complexity,
duration, and demands of the project. An unanticipated termination of a
significant project could also cause us to experience lower IT professional
utilization resulting in a higher than expected number of unassigned IT
professionals. In addition, we do not fully utilize our IT professionals when
they are enrolled in training programs, particularly our 14-week training
course for new employees. Because a large percentage of new hires begin their
initial training in the second fiscal quarter, our utilization rates have
historically been lower in the second and third quarters of our fiscal year.

Selling and marketing expenses represent 5.0%, 5.0% and 7.4% of total revenues
for fiscal 2001, 2002 and 2003. Our selling and marketing expenses primarily
consist of expenses relating to salaries of sales and marketing personnel,
travel, brand building, sales and marketing offices and telecommunication. We
have recently decided to increase our selling and marketing expenses as a
percentage of revenues to increase brand awareness among target clients and
promote client loyalty and repeat business among existing clients. During
fiscal 2003, we redeployed certain employees from our delivery function to
sales and marketing. Our general and administrative expenses are comprised of
expenses relating to salaries of senior management and other support personnel,
legal and other professional fees, telecommunications, utilities and other
miscellaneous administrative costs.

Our amortization of stock compensation expense consists of the portion of
amortization expenses which have not been included in cost of revenues. The
non-cash compensation expense arises from option grants relating to the 1994
stock option plan which have been accounted for under the intrinsic value
method.

Our amortization of intangible assets consists of non-cash expenses arising
from the acquisition of intellectual property rights. We amortize intellectual
property rights over a period of one through five years.

Other income includes interest income, foreign currency exchange gains / losses
and provisions for losses on investments.

Our functional currency is the Indian rupee and the financial statements
included in this Annual Report are reported in U.S. dollars. The translation of
rupees to dollars is performed for the balance sheet accounts using the
exchange rate in effect at the balance sheet date, and for revenue and expense
accounts using a monthly average exchange rate for the respective periods. The
gains or losses resulting from such translation are reported as other
comprehensive income.

Generally, Indian law requires
residents of India to repatriate any foreign currency earnings to
India to control the exchange of foreign currency. More specifically,
Section 8 of the Foreign Exchange Management Act, or FEMA,
requires an Indian company to take all reasonable steps to realize
and repatriate into India all foreign exchange earned by the company
outside India, within such time periods and in the manner as
specified by the Reserve Bank of India, or RBI. The RBI has
promulgated guidelines that require the company to repatriate any
realized foreign exchange bank to India, and either:



| |  |  | sell it to an authorized dealer
for rupees within seven days from the date of receipt of the foreign
exchange;                      
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------
| |  |  | retain it in a foreign currency
account such as an Exchange Earners Foreign Currency; or EEFC,
account with an authorized dealer; or
| |  |  | use it for discharge of debt or
liabilities denominated in foreign exchange.                                                        

We typically collect our earnings and
pay expenses denominated in foreign currencies using a dedicated
foreign currency account located in the local country of operation.
In order to do this, we are required to, and have obtained, special
approval from the RBI to maintain a foreign currency account in
overseas countries like the United States. However, the RBI approval
is subject to limitations, including a requirement that we repatriate
all foreign currency in the account back to India within a reasonable
time, except an amount equal to our local monthly operational cost of
our overseas branch and personnel. We currently pay such expenses
and repatriate the remainder of the foreign currency to India on a
regular basis. We have the
option to retain those in an EEFC account (foreign currency
denominated) or an Indian-rupee-denominated account. We convert
substantially all of our foreign currency to rupees to fund
operations and expansion activities in India.

Our failure to comply with these
regulations could result in RBI enforcement actions against us.

Income Taxes

Our net income earned from providing services outside India is subject to tax
in the country where we perform the work. Most of our tax paid in countries
other than India can be applied as a credit against our Indian tax liability to
the extent that the same income is subject to tax in India.

Currently, we benefit from the tax holidays the Government of India gives to
the export of IT services from specially designated software technology parks
in India. As a result of these incentives, our operations have been subject to
relatively lower tax liabilities. These tax incentives include a 10-year tax
holiday from Indian corporate income taxes for the operation of most of our
Indian facilities and a partial taxable income deduction for profits derived
from exported IT services. We can use either of these two tax incentives. As a
result of these two tax exemptions, a substantial portion of our pre-tax income
has not been subject to significant tax in recent years. These tax incentives
resulted in a decrease in our income tax expense of $ 57.3 million, $ 67.3
million and $ 71.9 million for fiscal 2001, 2002 and 2003 compared to the
effective tax rates that we estimate would have applied if these incentives had
not been available, without accounting for double taxation treaty set-offs, if
any.





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##### Table of Contents



The Finance Act, 2000 phases out the
ten-year tax holiday over a ten-year period
from fiscal 2000 through fiscal 2009. Accordingly, facilities set up in India
on or before March 31, 2000 have a ten-year tax holiday, new facilities set up
on or before March 31, 2001 have a nine-year tax holiday and so forth until
March 31, 2009. After March 31, 2009, the tax holiday will no longer be
available to new facilities. Our current tax holidays expire in stages by 2009.
For companies opting for the partial taxable income deduction for profits
derived from exported IT services, the Finance Act, 2000 phases out the
deduction over five years beginning April 1, 2000.

When our tax holiday and taxable income deduction expire or terminate, our tax
expense will materially increase, reducing our profitability. As a result of
such tax incentives, our effective tax rate for fiscal 2003 was 17.7%
and our Indian statutory tax rate for
the same period was 36.8%.

Results of Operations

The following table sets forth certain financial information as a percentage of
revenues:

|                                                                       |                                             |  |      |      |      |  |        |      |   |  |      |      |  
|---------------------------------------------------------------------- | ------------------------------------------- |  | ---- | ---- | ---- |  | ------ | ---- | - |  | ---- | ---- | -
|                                                                       |                                             |  |      |      |      |  | Fiscal |      |   |  |     
|                                                                       |                                             |  | 2001 |      | 2002 |  | 2003  
|                                                                       |                                             |  |      |      |      |  |       
|Revenues                                                               |                                             |  | 100  | %    |      |  | 100    | %    |   |  | 100  | %   
|Cost of revenues including amortization of
stock compensation expenses |                                             |  | 52.4 | %    |      |  | 53.8   | %    |   |  | 55.4 | %   
|Gross profit                                                           |                                             |  | 47.6 | %    |      |  | 46.2   | %    |   |  | 44.6 | %   
|Operating Expenses:                                                    |                                             |  |      |      |      |  |        |      |   |  |      |     
|                                                                       | Selling and marketing expenses              |  |      | 5.0  | %    |  |        | 5.0  | % |  |      | 7.4  | %
|                                                                       | General and administrative expenses         |  |      | 8.9  | %    |  |        | 8.1  | % |  |      | 7.7  | %
|                                                                       | Amortization of stock compensation expenses |  |      | 0.4  | %    |  |        | 0.3  | % |  |      | 0.3  | %
|                                                                       | Amortization of intangible assets           |  |      |     |      |  |        |     |   |  |      | 0.3  | %
|                                                                       | Total operating expenses                    |  |      | 14.3 | %    |  |        | 13.4 | % |  |      | 15.7 | %
|Operating income                                                       |                                             |  | 33.3 | %    |      |  | 32.8   | %    |   |  | 28.9 | %   
|Other income, net                                                      |                                             |  | 2.3  | %    |      |  | 2.5    | %    |   |  | 2.4  | %   
|Income before income taxes                                             |                                             |  | 35.6 | %    |      |  | 35.3   | %    |   |  | 31.3 | %   
|Provision for income taxes                                             |                                             |  | 3.7  | %    |      |  | 5.1    | %    |   |  | 5.5  | %   
|                                                                       |                                             |  |      |      |      |  |        |      |   |  |      |     
|Net income                                                             |                                             |  | 31.9 | %    |      |  | 30.2   | %    |   |  | 25.8 | %   
|                                                                       |                                             |  |      |      |      |  |        |      |   |  |      |     

Results for fiscal 2003 compared to fiscal 2002

Revenues.Our revenues were $ 753.8 million in fiscal 2003, representing an
increase of $ 208.8 million, or 38.3% over revenues of $ 545 million for fiscal
2002. This increase was attributable to an increase in billed person months of
44.4%, offset by a 6.1% decrease in prices at which contracts were executed.
Revenues continued to increase in most segments of our services. The increase
in revenues was attributable, in part, to an increase in business from existing
clients and from certain new clients, particularly in the financial services
industries and to a lesser extent, from clients in other industries, including
utilities and logistics. Our financial services clients comprised 37.6% and
36.6% of revenues for each of fiscal 2003 and 2002, while our clients in other
industries comprised 19.4% and 18.3% of revenues for each of fiscal 2003 and
2002. Sales of our software products represented 4.6% of our total revenues for
fiscal 2003, as compared to 4.0% for fiscal 2002. Revenues from services
represented 95.4% of total revenues for fiscal 2003, as compared to 96% for
fiscal 2002. Revenues from fixed-price, fixed-timeframe contracts and from
time-and-materials contracts represented 36.7% and 63.3% of total revenues for
fiscal 2003, as compared to 31.6% and 68.4% for fiscal 2002. Revenues from
North America, Europe, India and the rest of the world represented 73.0%,
17.7%, 2.1% and 7.2% of total revenues for fiscal 2003 as compared to 71.2%,
19.5%, 2.0% and 7.3% for fiscal 2002.

Cost of Revenues.Our cost of revenues was $ 417.4 million for fiscal 2003,
representing an increase of $ 124.4 million, or 42.5%, over our cost of
revenues of $ 293.0 million for fiscal 2002. Cost of revenues represented 55.4%
and 53.8% of total revenues for fiscal 2003 and 2002. This increase in our cost
of revenues was partially attributable to an increase of approximately $ 10.7
million in compensation paid to our Indian employees working in the United
States to comply with new immigration regulations effective July 2001;
compensation of new hires of $ 18.9 million and increased personnel costs of
approximately $ 65.4 million; foreign travel costs of approximately $ 10.6
million; software purchased for own use approximately $ 4.4 million;
depreciation expenses of approximately $ 3.4 million and professional charges
of approximately $ 13.6 million paid to sub-contractors. This increase was
offset by a decrease of $ 2.4 million in our telecommunication expenses and $
2.1 million in the provision for post-sales client support. Cost of revenues
includes amortization of stock compensation expense of $ 2.8 million and $ 3.0
million for fiscal 2003 and 2002 respectively.

Gross Profit.As a result of the foregoing, our gross profit was $ 336.4
million for fiscal 2003, representing an increase of $ 84.4 million, or 33.5%,
over our gross profit of $ 252.0 million for fiscal 2002. As a percentage of
revenues, gross profit
decreased to 44.6% for fiscal 2003 from 46.2% for fiscal 2002. This decrease
was attributable to a 42.5% increase in cost of revenues from fiscal 2002 to
fiscal 2003, offset by a 38.3% increase in revenues in the same period.
As a result of the continued uncertainty and weakness in the global economic
and political environment, companies continue to seek to outsource their IT
spending offshore to companies like ours and therefore our client base and
revenues have continued to grow. However, we continue to experience erosion in
our gross profit with significant pricing pressures in our core service
offerings, as a result of clients needs to reduce their costs and the increased
competitive environment among IT companies. We expect these conditions to
continue in the next few quarters. In response to the continued pricing
pressures and increased competition for outsourcing clients, we continue to
focus on expanding our service offerings into areas with higher and sustainable
price margins, on managing our cost structure, and on anticipating and
correcting for decreased demand, and skill and pay level imbalances in our
personnel. Our immediate measures include increased management of compensation
expenses through headcount management and variable compensation plans, as well
as increasing utilization rates or reducing non-deployed or non-billable IT
professionals. We also seek to reduce infrastructure and corporate expenses
through deferral of certain non-critical expansion initiatives and reductions
in our third party vendor pricing plans.

Selling and Marketing Expenses.We incurred selling and marketing expenses of $
55.6 million in fiscal 2003, representing an increase of $ 28.5 million, or
105.2%, over the $ 27.1 million expended in fiscal 2002. As a percentage of
total revenues, selling and marketing expenses were 7.4% and 5.0% for fiscal
2003 and 2002. The number of our sales offices increased to 30 as of March 31,
2003 from 28 as of March 31, 2002, and the number of our sales and marketing
personnel increased to 280 as of March 31, 2003, from 143 as of March 31,
2002. This increase in personnel is attributable to the reclassification during
fiscal 2003 of 107 account managers and business support managers, which was
previously reported as cost of revenues into the sales and marketing group, and
30 new hires. Previously, the reclassified account managers primarily performed
delivery support and account management functions. They were billable resources
during this period and their costs were included in cost of revenues. Since the
beginning of the current fiscal year, the employees have been responsible for
account management and sales. This involves creating new opportunities with
clients, preparation of proposals, negotiation of contracts and collection of
accounts receivables. The resources are now in a support function and are no
longer billable. Accordingly, we have reclassified these expenses effective
April 1, 2002. This reclassification has resulted in an increase in our selling
and marketing expenses of approximately $ 8.8 million. The increase in selling
and marketing expenses is also attributable to increases of approximately $ 9.4
million in personnel costs of selling and marketing employees, $ 4.3 million on
travel, $ 3.3 million for brand building activities and $ 1.0 million on
professional fees.





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##### Table of Contents



General and Administrative Expenses.Our general and administrative expenses
were $ 57.8 million for fiscal 2003, representing an increase of $ 13.5
million, or 30.5%, over general and administrative expenses of $ 44.3 million
for fiscal 2002. General and administrative expenses were 7.7% and 8.1% of
total revenues for fiscal 2003 and 2002. This increase in general and
administrative expenses was primarily attributable to increases of
approximately $ 3.1 million for compensation costs, $ 4.6 million in
professional fees, $ 2.0 million for telecommunications, $ 1.3 million in
office maintenance costs, $ 0.8 million in power and fuel charges and $ 1.0
million for insurance expenses. The above increases have been offset by a
reduction in the provision for doubtful accounts receivable of $ 2.6 million.
The factors which affect the fluctuations in our provisions for bad debts and
write offs of uncollectible accounts include the financial health and economic
environment of our clients. We specifically identify the credit loss and then
make the provision. No one client has contributed significantly to a loss, and
we have had no significant changes in our collection policies or payment terms.

Amortization of Stock
Compensation Expenses.Amortization of stock compensation
expenses was $ 2.0 million for both fiscal 2003 and 2002.

Amortization of Intangible Assets.Amortization of intangible assets was $ 2.4
million for fiscal 2003, representing amortization of certain intellectual
property rights we acquired through purchases and licenses of software during
fiscal 2003. We recorded no amortization of intangible assets in fiscal 2002.

Operating Income.Our operating income was $ 218.6 million for fiscal 2003
representing an increase of $ 40.1 million, or 22.5%, over our operating income
of $ 178.5 million for fiscal 2002. As a percentage of revenues, operating
income decreased to 28.9% for fiscal 2003 from 32.8% for fiscal 2002. Excluding
the amortization of stock compensation expense, our operating margin decreased
to 29.5% for fiscal 2003 from 33.7% for fiscal 2002.

Other Income.Other income was $ 18.0 million for fiscal 2003 representing an
increase of $ 4.1 million, or 29.5%, over other income of $ 13.9 million for
fiscal 2002. Other income includes interest income of $ 16.7 million and $ 10.4
million for fiscal 2003 and 2002. Other income also includes foreign currency
exchange gains of $ 4.2 million and $ 2.7 million for fiscal 2003 and 2002. The
increase in other income was offset by a provision for loss on investments of
$3.2 million for fiscal 2003.

In fiscal 2003, we provided for write downs to our investments in the aggregate
amount of approximately $3.2 million. These included approximately $1.5 million
for Asia Net Media (BVI) Limited, $0.2 million for Jasdic Park Company, $1.5
million for Workadia Inc., and other miscellaneous investments. These
write-downs were required due to the non-temporary impact of adverse market
conditions on these entities business models and their inability to continue
operations. In addition, these entities are currently in liquidation. It is
unlikely that we will recover any significant additional funds on their
liquidation.

Provision for Income Taxes.Our provision for income taxes was $ 41.8 million
for fiscal 2003, representing an increase of $ 13.9 million, or 49.8%, over our
provision for income taxes of $ 27.9 million for fiscal 2002. Our effective tax
rate increased to 17.7% for fiscal 2003 from 14.5% for fiscal 2002. The
increase is primarily attributable to a one-time tax on 10% of the profits
generated by our operations located in software technology parks in fiscal
2003. These operations were subject to a 100% tax holiday in the previous
fiscal year.

Net Income.Our net income was
$ 194.9 million for fiscal 2003, representing an
increase of $ 30.4 million, or 18.5%, over our net income of $ 164.5 million
for fiscal 2002. As a percentage of total revenues, net income decreased to
25.8% for fiscal 2003 from 30.2% for fiscal 2002.

Results for fiscal 2002 compared to fiscal 2001

Revenues.Our total revenues were $545 million in fiscal 2002, representing an
increase of $131.2 million or 31.7% over total revenues of $413.8 million in
fiscal 2001. This increase was attributable to an increase of $141.6 million or
34.2%, in the number of projects executed, offset by a $10.4 million or 2.5%
decrease in prices at which contracts were executed. Revenues continued to
increase in most segments of our services. Custom software development,
re-engineering, maintenance and software development through offshore
development centers formed the majority of our revenues. The increase in
revenues was attributable, in part, to a steady increase in business from
existing clients and from new clients, particularly in the financial services
and retail industry segments. Our financial services clients comprised 36.6%
and 33.7% of revenues in fiscal 2002 and fiscal 2001, while our retail clients
comprised 12.3% and 9.1% of revenues in fiscal 2002 and fiscal 2001. Net sales
of Finacle and other products represented 4.0% of our total revenues in fiscal
2002, as compared to 2.5% for fiscal 2001. Revenues from services represented
96.0% of total revenues in fiscal 2002 as compared to 97.5% for fiscal 2001.
Revenues from fixed-price, fixed-timeframe contracts and from time-and-material
contracts represented 31.6% and 68.4% of total revenues for fiscal 2002, as
compared to 28.2% and 71.8% for fiscal 2001. Revenues from North America and
Europe represented 71.2% and 19.5% of total revenues for fiscal 2002, as
compared to 73.5% and 18.8% for fiscal 2001.

Cost of Revenues.Our cost of revenues was $ 293.0 million for fiscal 2002,
representing an increase of 35.1 % over cost of revenues of $ 216.7 million in
fiscal 2001. Cost of revenues represented 53.8 % and 52.4 % of total revenues
in fiscal 2002 and 2001. This increase in our cost of revenues was attributable
to: (i) an increase of $ 46.3 million in our personnel costs; (ii) an increase
of $ 6.1 million in compensation paid to our U.S. based Indian employees to
comply with new immigration regulations introduced in the U.S. effective July
2001; (iii) increased personnel costs of $17.9 million for new hires; and (iv)
an increase in depreciation expenses of $9.0 million. This increase was offset
by a decrease in our foreign travel expenses of $ 5.5 million. Cost of revenues
includes amortization of stock compensation expenses of $ 3.0 million and $ 3.2
million for fiscal 2002 and 2001 respectively.

Gross Profit.As a result of the foregoing, our gross profit was $ 252.0
million for fiscal 2002, representing an increase of 27.9% over gross profit of
$ 197.1 million for fiscal 2001. As a percentage of total revenues, gross
profit decreased to 46.2% for fiscal 2002 from 47.6% for fiscal 2001. This
decrease was attributable to a 35.1% increase in cost of revenues from March
31, 2001 to March 31, 2002, offset by a 31.7% increase in revenues in the same
period.
As a result of recent uncertainty and weakness in the global economic and
political environment, we believe companies will increase their efforts to
outsource their IT spending to offshore companies like ours. Concurrently, we
continue to experience pricing pressures and erosions in our gross profit with
significant competition from larger companies. In response, we continue to
expand our service offerings into areas with higher and sustainable price
margins, on managing our cost structure and utilization rates.

Selling and Marketing Expenses.We incurred selling and marketing expenses of $
27.1 million in fiscal 2002, representing an increase of 31.1% over selling and
marketing expenses of $ 20.7 million for fiscal 2001. As a percentage of total
revenues, selling and marketing expenses were 5.0% in both fiscal 2002 and
2001. The increase in selling and marketing expenses is mainly attributable to
an increase of $ 3.0 million in salaries and $ 1.9 million in sales commission
charges. The number of our sales offices increased to 28 as of March 31, 2002
from 25 as of March 31, 2001, and the number of our sales and marketing
personnel increased to 143 as of March 31, 2002, up from 105 as of March 31,
2001 leading to the higher salary costs.





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General and Administrative Expenses.Our general and administrative
expenses were $ 44.3 million for fiscal 2002, representing an increase of
20.0% over general and administrative expenses of $ 37.0 million for fiscal
2001. General and administrative expenses were 8.1% and 8.9% of total
revenues for fiscal 2002 and 2001. The increase in general and
administrative expenses is attributable to increases in salaries of $ 3.8
million, power and fuel expenses of $ 1.4 million, rental expenses of $ 1.0
million, insurance charges of $ 0.5 million and property and other local
taxes (non-income-tax-related) of $ 0.6 million. These increases have been
offset by a decrease of $ 1.5 million in provision for doubtful accounts
receivable. The factors which affect the fluctuations in our provisions for
bad debts and write offs of uncollectible accounts include the financial
health and economic environment of our clients. We specifically identify
the credit loss and then make the provision. No one client has contributed
significantly to a loss, and we have had no significant changes in our
collection policies or payment terms.

Amortization of Stock
Compensation Expenses.Amortization of stock
compensation expense was $ 2.0 million and $ 1.9 million in fiscal 2002 and
2001.

Operating Income.Our operating income was $178.5 million for fiscal 2002,
representing an increase of 29.8% over the operating income of $137.5
million for fiscal 2001. As a percentage of revenues, operating income
decreased to 32.8% for fiscal 2002, from 33.3% for fiscal 2001. Excluding
the amortization of stock compensation expenses, the operating margin was
33.7% for fiscal 2002 as compared to 34.5% for fiscal 2001.

Other Income.Other income was $13.9 million for fiscal 2002 as compared to
$ 9.5 million for fiscal 2001. Other income in fiscal 2002 primarily
comprised of interest income of $ 10.4 million arising from the investment
of cash balances, and foreign currency exchange income of $ 2.7 million and
miscellaneous income of $ 0.7 million. Other income in fiscal 2001
primarily comprised of $8.5 million in interest income from the investment
of cash balances, and foreign currency exchange income of $ 4.4 million,
which were partially offset by a $ 3.5 million provision for investments in
EC Cubed Inc. and Alpha Thinx Mobile Services AG, two companies we made
strategic investments in. These write-downs were required due to the
permanent impact of adverse market conditions on these entities business
models and their inability to continue operations. In addition, these
entities are currently in liquidation. It is unlikely that we will recover
any significant additional funds on their liquidations.

Provision for Income Taxes.Our provision for income taxes was $ 27.9
million for fiscal 2002 compared to $15.1 million for fiscal 2001. Our
effective tax rate increased to 14.5% for fiscal 2002 as compared to 10.3%
for fiscal 2001. The increase in the effective tax rate was primarily
attributable to an increase in foreign taxes paid on our overseas
operations in fiscal 2002 as compared to fiscal 2001.

Net Income.Our net income was $164.5 million for fiscal 2002, representing
an increase of 24.6% over net income of $131.9 million for fiscal 2001. As
a percentage of total revenues, net income decreased to 30.2% for fiscal
2002 from 31.9% for fiscal 2001.

Liquidity and Capital Resources

Our growth has been financed largely by cash generated from operations and,
to a lesser extent, from the proceeds from the sale of equity. In 1993, we
raised approximately $4.4 million in gross aggregate proceeds from our
initial public offering of equity shares in India. In 1994, we raised an
additional $ 7.7 million through private placements of our equity shares
with foreign institutional investors, mutual funds, Indian domestic
financial institutions and corporations. On March 11, 1999 we raised $ 70.4
million in gross aggregate proceeds from our initial U.S. public offering
of ADSs.

As of March 31, 2003 we had $ 354.4 million in cash and cash equivalents, $
444.8 million in working capital and no outstanding bank borrowings or long
term debt. We believe that a sustained reduction in IT spending, a longer
sales cycle, and a continued economic downturn in any of the various
industry segments in which we operate, could result in a decline in our
revenue and negatively impact our liquidity and cash resources.

Net cash provided by operating activities was $ 211.2 million and $ 191.5
million for fiscal 2003 and 2002. Net cash provided by operations consisted
primarily of net income and increases in other accrued liabilities, offset
in part by an increase in accounts receivable. Accounts receivable as a
percentage of the last 12-month revenues represented 14.5% and 12.7% as
of March 31, 2003 and 2002.

Prepaid expenses and other current assets increased by $ 5.2 million during
fiscal 2003, as compared to a $1.1 million decrease during fiscal 2002. The
increase in fiscal 2003 is primarily due to an increase in loans to
employees. There has also been an increase in unbilled revenues by $ 15.4
million and $ 3.1 million during fiscal 2003 and 2002 respectively, as a
result of an increase in the proportion of fixed-price, fixed-timeframe
projects. Unbilled revenues represent revenues that are recognized but not
yet invoiced. Other accrued liabilities increased by $ 22.8 million and $
1.5 million during fiscal 2003 and 2002, primarily due to increases in our
accrued employee compensation, withholding taxes payable and provisions for
expenses.

The increase in unearned revenues was $ 9.5 million during fiscal 2003. We
had a decrease of $ 3.8 million during fiscal 2002. These changes resulted
primarily from advance client billings on fixed-price, fixed-timeframe
contracts
for which related costs were not yet incurred. The proportion of
fixed-price, fixed-timeframe contracts under which we were entitled to bill
clients in advance increased to 36.7% for fiscal 2003 from 31.6% for fiscal
2002.

Net cash used in investing activities was $ 53.9 million and $ 75.8 million
for fiscal 2003 and 2002. Net cash used in investing activities, relating
to our acquisition of additional property, plant and equipment for fiscal
2003 and 2002, was $ 43.2 million and $ 68.3 million. Additionally, we
acquired intangible assets in the amount of $ 3.6 million and made loans to
employees in the amount of $ 7.2 million during fiscal 2003. During fiscal
2002, cash used in investing activities also included loans made to
employees of $ 5.5 million and purchase of investments in the amount of $
2.2 million.

We provide various loans primarily to employees in India who are not
executive officers or directors, including car loans, home loans, personal
computer loans, telephone loans, medical loans, marriage loans, personal
loans, salary advances, education loans and loans for rental deposits. All
of these loans, except for the housing and car loans, are available to all
of our employees, who are not executive officers or directors, in India.
Housing and car loans are available only to middle level managers, senior
managers and non-executive officers. The loan program is designed to assist
our employees and increase employee satisfaction. These loans are generally
collateralized against the assets of the loan and the terms of the loans
range from 12 to 100 months. In the aggregate, these loans represented
approximately $ 28.7 million and $ 20.8 million as of March 31, 2003 and
2002.





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Net cash used in financing activities for fiscal 2003 was $ 21.1 million,
primarily comprised of $ 10.0 million of cash raised by the issuance of
preferred stock by our subsidiary, offset by dividend payments of $ 33.9
million. Net cash used in financing activities for fiscal 2002 was $ 21.9
million, primarily comprised of dividend payments. As of March 31, 2003, we had
contractual commitments for capital expenditures of $ 18.6 million. These
commitments include approximately $ 14.8 million in domestic purchases and $
3.8 million in imports and overseas commitments for hardware, supplies and
services to support our operations generally, which we expect to be completed
by November 2003. We estimate additional capital expenditure of approximately $
9.7 million will be made for the construction of a business continuity and
disaster recovery center to be located in Mauritius, which we expect to be
completed by the third calendar quarter of 2003.

We have provided information to the
public regarding forward looking guidance on our business
operations.  This information is consistent with market
expectations.

Reconciliation between Indian and U.S. GAAP

All financial information in this annual report is presented in U.S. GAAP,
although we also report for Indian statutory purposes under Indian GAAP. There
are material differences between financial statements prepared in Indian and
U.S. GAAP. The material differences that affect us are primarily attributable
to U.S. GAAP requirements for the:



| |  | accounting for stock-based compensation;                              
|- |  | ----------------------------------------------------------------------
| 
| |  | deferred taxes;                                                       
| 
| |  | consolidation of majority owned subsidiaries;                         
| 
| |  | provision for investments acquired through a non-cash transaction; and
| 
| |  | accounting for foreign exchange forward contracts.                    

Reconciliation of Net Income

|                                                        |  |                      |             |      |  |      |             |   |  |   |             |  
|------------------------------------------------------- |  | -------------------- | ----------- | ---- |  | ---- | ----------- | - |  | - | ----------- | -
|                                                        |  | Year ended March 31,
|                                                        |  | 2001                 |             | 2002 |  | 2003
|                                                        |  |                      |             |      |  |     
|Net profit as per Indian GAAP                           |  | $                    | 136,837,806 |      |  | $    | 169,102,534 |   |  | $ | 198,005,024 |  
|Amortization of stock compensation expense              |  |                      | (5,081,795  | )    |  |      | (5,009,772  | ) |  |   | (4,803,534  | )
|Loss of consolidated subsidiary                         |  |                      |            |      |  |      |            |   |  |   | (653,562    | )
|Forward contracts  marked to market                    |  |                      |            |      |  |      |            |   |  |   | 513,269     |  
|Deferred taxes                                          |  |                      | 769,304     |      |  |      | 373,547     |   |  |   | (191,156    | )
|Provision for retirement benefits to employees          |  |                      | 741,000     |      |  |      |            |   |  |   |            |  
|Provision for contingency/e-inventing the company
(net) |  |                      | (87,387     | )    |  |      |            |   |  |   |            |  
|Transfer of intellectual property rights (net of tax)   |  |                      | (1,230,824  | )    |  |      |            |   |  |   |            |  
|Provision for investments                               |  |                      |            |      |  |      |            |   |  |   | 2,000,000   |  
|                                                        |  |                      |             |      |  |      |             |   |  |   |             |  
|Net income as per U.S. GAAP                             |  | $                    | 131,948,104 |      |  | $    | 164,466,309 |   |  | $ | 194,870,041 |  
|                                                        |  |                      |             |      |  |      |             |   |  |   |             |  

Quantitative and Qualitative Disclosures About Market Risk

General

Market risk is the loss of future earnings, to fair values or to future cash
flows that may result from a change in the price of a financial instrument. The
value of a financial instrument may change as a result of changes in the
interest rates, foreign currency exchange rates, commodity prices, equity
prices and other market changes that affect market risk sensitive instruments.
Market risk is attributable to all market sensitive financial instruments
including foreign currency receivables and payables.

Our exposure to market risk is a function of our borrowing activities and
revenue generating activities in foreign currency. The objective of market risk
management is to avoid excessive exposure of our earnings and equity to loss.
Most of our exposure to market arises out of our foreign currency accounts
receivable.

Risk Management Procedures

We manage market risk through treasury operations. Treasury operations
objectives and policies are approved by senior management and our audit
committee. The activities of treasury operations include management of cash
resources, implementing hedging strategies for foreign currency exposures,
borrowing strategies, if any, and ensuring compliance with market risk limits
and policies.

Components of Market Risk

Exchange Rate Risk.Our exposure to market risk arises principally from
exchange rate risk. Even though our functional currency is the Indian rupee, we
transact a major portion of our business in foreign currencies, particularly
the U.S. dollar. The exchange rate between the rupee and the dollar has changed
substantially in recent years and may fluctuate substantially in the future.
Consequently, the results of our operations are adversely affected as the rupee
appreciates against dollar. For fiscal 2003, 2002 and 2001, our U.S. dollar
denominated revenues represented 89.0%, 87.7% and 89.6% of our total revenues.
Our exchange rate risk primarily arises from our foreign currency revenues,
receivables and payables. We have sought to reduce the effect of exchange rate
fluctuations on our operating results by purchasing foreign exchange forward
contracts to cover a portion of outstanding accounts receivable. As of March
31, 2003 and 2002, we had outstanding forward contracts in the amount of $88.0
million and $2.0 million. These contracts typically mature within three months,
must be settled on the day of maturity and may be cancelled subject to the
payment of any gains or losses in the difference between the contract exchange
rate and the market exchange rate on the date of cancellation. We use these
instruments only as a hedging mechanism and not for speculative purposes. We
may not purchase contracts adequate to insulate ourselves from foreign exchange
currency risks. In addition, any such contracts may not perform adequately as a
hedging mechanism. We may, in the future, adopt more active hedging policies,
and have done so in the past.

Fair Value.The fair value of our market rate risk sensitive instruments
approximates their carrying value.





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Recent Accounting Pronouncements

In November 2002, the Emerging Issues Task Force reached a consensus on
Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, applicable
for fiscal periods beginning after June 2003. This issue addresses when
and, if so, how an arrangement involving multiple deliverables should be
divided into separate units of accounting, where the deliverables (the
revenue generating activities) are sufficiently separable and have
standalone value to the customer. It is also necessary that there exists
sufficient evidence of fair value to separately account for some or all of
the deliverables. We believe that the adoption of the consensus will not
have a material impact on our revenue recognition policies as the
accounting for the revenue from a significant portion of our service
offerings is governed by higher level GAAP literature.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees Including Indirect
Guarantees of Indebtedness of Others.The adoption of the interpretation
did not have a material impact on our accounting or disclosure policies.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB 51, that applies to
variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that
date. We have assessed the implication of this interpretation and
do not have to consolidate or disclose information about variable
interest entities when the interpretation becomes applicable to existing
entities beginning July 1, 2003.

In April 2003, the FASB issued
Statement No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. The Statement amends
and clarifies accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and for
hedging activities under Statement 133. This Statement is
effective for contracts entered into or modified after June 30,
2003, except specific situations and for hedging relationships
designated after June 30, 2003. The guidance is to be applied
prospectively. We are currently evaluating the impact of the
Statement.

Critical Accounting Policies

We consider the policies discussed below to be critical to an understanding
of our financial statements as their application places the most
significant demands on managements judgment, with financial reporting
results relying on estimation about the effect of matters that are
inherently uncertain. Specific risks for these critical accounting policies
are described in the following paragraphs. For all of these policies,
future events rarely develop exactly as forecast, and the best estimates
routinely require adjustment.

We prepare financial statements in conformity with U.S. GAAP, which
requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities on the date of the financial statements and the reported
amounts of revenues and expenses during the financial reporting period. We
primarily make estimates related to contract costs expected to be incurred
to complete development of software, allowances for doubtful accounts
receivable, our future obligations under employee retirement and benefit
plans, useful lives of property, plant and equipment, future income tax
liabilities and contingencies and litigation.

We continually evaluate these estimates and assumptions based on the most
recently available information, our own historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Since the use of estimates is an integral
component of the financial reporting process, actual results could differ
from those estimates. Some of our accounting policies require higher
degrees of judgment than others in their application. These include revenue
recognition, as well as accounting for income taxes. Our accounting policy
and related procedures for revenue recognition on such contracts and on
income taxes are set out below.

Revenue Recognition

We derive our revenues primarily from software development and related
services, licensing of software products and from business process
management services. We make and use significant management judgments and
estimates in connection with the revenue that we recognize in any
accounting period. Material differences may result in the amount and timing
of our revenue for any period, if we made different judgments or utilized
different estimates.

Arrangements with customers for software development and related services
are either on a fixed price, fixed time frame or on a time and material
basis. Revenue on time-and-material contracts is recognized as the related
services are rendered. Revenue from the end of the last billing to the
balance sheet date is recognized as unbilled revenues. Maintenance revenues
are recognized ratably over the term of the underlying maintenance
arrangement. When the company receives advances for services and products,
such amounts are reported as client deposits until all conditions for
revenue recognition are met.

Revenue from our fixed price arrangements for software development and
related services that involves significant production, modification or
customization of the software, is accounted in conformity with ARB No. 45,
using the guidance in Statement of Position (SOP) 81-1, and AcSECs
conclusion in paragraph 95 of SOP 97-2. Fixed price arrangements, which are
similar to contracts to design, develop, manufacture, or modify complex
aerospace or electronic equipment to a buyers specification or to provide
services related to the performance of such contracts and contracts for
services performed by architects, engineers, or architectural or
engineering design firms,as laid out in Paragraph 13 of SOP 81-1, are
also accounted for in conformity with SOP 81-1.

In the above mentioned fixed price arrangements, revenue has been
recognized using the percentage-of-completion method. Costs and earnings in
excess of billings are classified as unbilled revenue while billings in
excess of costs and earnings are classified as unearned revenue. In
measuring progress towards completion, we have selected a method that is
reliable and that best approximates the progress to completion. The input
(efforts expended) method has been used to measure progress towards
completion as there is a direct relationship between labor hour input and
productivity and the method indicates the most reliable measure of
progress. However, we evaluate each contract and apply judgment to ensure
the existence of a relationship between labor hours input and productivity.

At the end of every fiscal reporting period, we evaluate each project for
estimated revenue and estimated efforts. Any revisions or updates to
existing estimates are made wherever required by obtaining approvals from
officers having the requisite authority. Management regularly reviews and
evaluates the status of each contract in progress to estimate the profit or
loss. As part of the review, detailed actual efforts and a realistic
estimate of efforts to complete all phases of the project is compared with
the details of the original estimate and the total contract price. To date,
we have not had any fixed-price, fixed-timeframe contracts that resulted in a material loss. However, our policy is to establish a
provision for losses on a contract as soon as losses become evident. We
evaluate change orders according to their characteristics and the
circumstances in which they occur. If such change orders are considered by
the parties to be a normal element within the original scope of the
contract, no change in the contract price is made. Otherwise, the
adjustment to the contract price may be routinely negotiated. Contract
revenue and costs are adjusted to reflect change orders approved by the
client and us, regarding both scope and price. Changes are reflected in
revenue recognition only after the





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change order has been approved by both parties. The same principle is also
followed for escalation clauses. Costs that are incurred for a specific
anticipated contract that will result in no future benefits unless the contract
is obtained are not included in contract costs or deferred costs before the
signing of the contract. Such costs are deferred only if the costs can be
directly associated with a specific anticipated contract and if their
recoverability from that contract is determined to be probable.

We provide our clients with a fixed-period warranty for corrections of errors
and telephone support on all their fixed-price, fixed-time frame contracts. Costs
associated with such support services are accrued at the time related revenues
are recorded and included in cost of revenues. We estimate such costs based on
historical experience and review estimates on a periodic basis for any
material changes in assumptions and likelihood of occurrence.

In accordance with SOP 97-2, Software Revenue Recognition, license fee revenues
are recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the license fee is fixed and determinable, and the collection of the
fee is probable. Arrangements to deliver our software product generally have
three elements: license, implementation and Annual Technical Services, or ATS.
The company has applied the principles in SOP 97-2 to account for revenue from
these multiple element arrangements. Vendor specific objective evidence of fair
value, or VSOE, has been established for ATS. VSOE is the price charged when the
element is sold separately. When other services are provided in conjunction
with the licensing arrangement, the revenue from such contracts are allocated
to each component of the contract using the residual method, whereby revenue is
deferred for the undelivered services and the residual amounts are recognized
as revenue for delivered elements. In the absence of an established VSOE for
implementation, the entire arrangement fee for license and implementation is
recognized as the implementation is performed. Revenue from client training,
support and other services arising due to the sale of software products is
recognized as the services are performed. ATS revenue is recognized ratably
over the period in which the services are rendered.

Revenues from business process management and other services are recognized on
both the time-and-material and fixed-price, fixed-time frame bases. Revenue on
time-and-material contracts is recognized as the related services are rendered.
Revenue from fixed-price, fixed-time frame contracts is recognized as per the
proportional performance method using an output measure of performance.

We recognize revenue only on collectibility being probable and hence credit
losses do not have an impact on our revenue recognition policy. Fluctuations in
our provisions for bad debts and write offs of uncollectible accounts depend on
the financial health and economic environment governing our clients. Our
provisions are based on specific identification of the credit loss. No one
client has contributed significantly to the loss. We have had no significant
changes in our collection policies or payment terms.

Income Taxes

As part of our financial reporting process, we are required to estimate our
liability for income taxes in each of the tax jurisdictions in which we
operate. This process requires us to estimate our actual current tax exposure
together with an assessment of temporary differences resulting from differing
treatment of items, such as depreciation on property, plant and equipment, for
tax and accounting purposes. These differences result in deferred tax assets
and liabilities, which are included within our balance sheet.

We face challenges from domestic and foreign tax authorities regarding the
amount of current taxes due. These challenges include questions regarding the
timing and amount of deductions and the allocation of income among various tax
jurisdictions. Based on our evaluation of our tax position and the information
presently available to us, we believe we have adequately accrued for probable
exposures as of March 31, 2003. To the extent we are able to prevail in matters
for which accruals have been established or are required to pay amounts in
excess of our reserves, our effective tax rate in a given financial statement
period may be materially impacted.

Our deferred tax assets comprise assets arising from basis differences in
depreciation on property, plant and equipment, investments for which the
ultimate realization of the tax asset may be dependent on the availability of
future capital gains, and provisions for doubtful accounts receivable. We
assess the likelihood that our deferred tax assets will be recovered from
future taxable income. This assessment takes into consideration tax planning
strategies, including levels of historical taxable income and assumptions
regarding the availability and character of future taxable income over the
periods in which the deferred tax assets are deductible. We believe it is more
likely than not that we will realize the benefits of those deductible
differences, net of the existing valuation differences at March 31, 2003. The
ultimate amount of deferred tax assets realized may be materially different
from those recorded, as influenced by potential changes in income tax laws in
the tax jurisdictions where we operate.

To the extent we believe that realization of a deferred tax asset is not
likely, we establish a valuation allowance or increase this allowance in an
accounting period and include an expense within the tax provision in our
statements of income. As of March 31, 2003 and 2002, we recorded valuation
allowances of $0.6 million and $0.7 million due to uncertainties related to our ability
to utilize some of our deferred tax assets comprising provisions for doubtful
accounts receivable. In the event that actual results differ from these
estimates of valuation allowance or if we adjust these estimates in future
periods, we may need to establish an additional valuation allowance, which
could materially impact our financial position and results of operations.

Off-balance sheet arrangements

None





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##### Table of Contents






Item 6: Directors, Senior Management and Employees

Directors and Executive Officers

Our policy in determining our executive officers for Securities and Exchange
Commission reporting purposes has traditionally been to include all statutory
officers and all members of our management council. As of April 1, 2003, in
line with our growth and strategic objectives, we divided our management
council into two levels, one comprised of senior executives and the other
comprised of directors and statutory officers. From time to time, we
re-evaluate who we consider to be senior executives. The respective ages and
positions of our directors and executive officers, which include only statutory
officers and independent directors, as of March 31, 2003 are as follows:

|                                |  |     |    |          |  |                                                                                                                              
|------------------------------- |  | --- | -- | -------- |  | -----------------------------------------------------------------------------------------------------------------------------
|Name                            |  | Age |    | Position
|                                |  |     |    |         
|N. R. Narayana Murthy           |  |     | 56 |          |  | Chairman of the Board and Chief Mentor                                                                                       
|Nandan M. Nilekani (1)          |  |     | 48 |          |  | Director, Chief
Executive Officer, President and Managing Director and Chairman Management Council                           
|S. Gopalakrishnan               |  |     | 48 |          |  | Director, Chief
Operating Officer, Head  Customer Service and Technology and Deputy Managing Director                       
|Deepak M Satwalekar (2)(3)(4)   |  |     | 54 |          |  | Director                                                                                                                     
|Marti G. Subrahmanyam (2)(3)(4) |  |     | 56 |          |  | Director                                                                                                                     
|Philip Yeo (1)(2)(4)(5)         |  |     | 56 |          |  | Director                                                                                                                     
|Jitendra Vir Singh * (2)(4)(5)  |  |     | 49 |          |  | Director                                                                                                                     
|Omkar Goswami(2)(3)(4)          |  |     | 46 |          |  | Director                                                                                                                     
|Larry Pressler(3)(4)(5)         |  |     | 61 |          |  | Director                                                                                                                     
|Rama Bijapurkar (1)(3)(4)       |  |     | 46 |          |  | Director                                                                                                                     
|Claude Smadja (3)(4)(5)         |  |     | 57 |          |  | Director                                                                                                                     
|K. Dinesh (1)                   |  |     | 48 |          |  | Director and Head
 Human Resources Development, Information Systems, Quality and Productivity and Communication Design Group
|S. D. Shibulal(1)               |  |     | 48 |          |  | Director and Head  Customer Delivery                                                                                        
|T. V. Mohandas Pai              |  |     | 44 |          |  | Director, Head  Finance and Administration and Chief                                                                        
|                                |  |     |    |          |  | Financial Officer                                                                                                            
|Srinath Batni                   |  |     | 48 |          |  | Director and Head  Delivery (GCARE)                                                                                         
|V. Balakrishnan                 |  |     | 38 |          |  | Company Secretary and Vice President  Finance                                                                               



---

|(1) |  | Member of the Investors Grievance Committee
|--- |  | -------------------------------------------
|   
|(2) |  | Member of the Compensation Committee       
|   
|(3) |  | Member of the Audit Committee              
|   
|(4) |  | Independent director                       
|   
|(5) |  | Member of the Nominations Committee        
|   
|*   |  | Resigned effective April 12, 2003          

N. R. Narayana Murthyis one of our co-founders and has served as one of our
directors since July 1981. He is currently the Chairman of our board of
directors and our Chief Mentor. Prior to March 2000, Mr. Murthy was our Chief
Executive Officer. Mr. Murthy has served as a director on the Board of the
Reserve Bank of India since 2000. Mr. Murthy also serves on the boards of
various other organizations. He serves on the Indian Prime Ministers Council
on Trade and Industry (India), the Board of Overseers at the Wharton School of
the University of Pennsylvania, the Cornell University Council, and the Board
of Advisors for the William F. Achtmeyer Center for Global Leadership at the
Tuck School of Business. Mr. Murthy received a Bachelor of Engineering, or
B.E., in Electrical Engineering from the University of Mysore and a Master of
Technology, or M.Tech., in Electrical Engineering from the Indian Institute of
Technology, or IIT, Kanpur.

Nandan M. Nilekaniis one of our co-founders and has served as one of our
directors since July 1981. He is currently our Chief Executive Officer,
President and Managing Director and Chairman Management Council. Prior to this,
Mr. Nilekani served in various capacities with the Company, including as our
Chief Operating Officer and Head  Banking Business Unit. Mr. Nilekani is a
co-founder of NASSCOM and the Bangalore chapter of The IndUS Entrepreneurs
(TiE). He also serves on the London Business Schools Asia Pacific Regional
Advisory Board and is a member of the Board of Trustees of the Conference
Board, an international research and business membership organization. Mr.
Nilekani served as a member of the sub-committee of the Securities and Exchange
Board of India that dealt with issues related to insider trading and as a
member of the Reserve Bank of Indias Advisory Group on Corporate Governance.
Mr. Nilekani received a Bachelor of Technology, or B.Tech., in Electrical
Engineering from IIT Bombay.

S. Gopalakrishnanis one of our co-founders and served as one of our directors
from 1981 to 1987, and since October 1994. Mr. Gopalakrishnan is currently our
Chief Operating Officer, Head  Customer Service and Technology and Deputy
Managing Director. From 1999 to 2002, he served as our Deputy Managing Director
and Head  Client Delivery and Technology. From 1996 to 1999, he served as our
Head  Customer Service and Technology. Between 1994 and 1996, he was Head 
Technical Support Services. Mr. Gopalakrishnan received an M.S. in Physics and
an M.Tech. in Computer Science from IIT Madras.

Deepak M. Satwalekarhas served as one of our directors since October 1997. He
is currently the Managing Director and Chief Executive Officer of HDFC Standard
Life Insurance Company Limited. From 1993 to 2002, he served as the Managing
Director of Housing Development Finance Corporation Limited, or HDFC. He
currently serves on the boards of several companies, including HDFC Limited,
Tube Investments of India Limited, and Asian Paints (India) Limited. Mr.
Satwalekar has served as a consultant to the World Bank and the Asian
Development Bank. He also serves on the Advisory Council of IIT Bombay. Mr.
Satwalekar received a B.Tech. in Mechanical Engineering from IIT Bombay and a
Master of Business
Administration, or M.B.A., in Finance from American University.

Marti G. Subrahmanyamhas served as one of our directors since April 1998. He
is currently the Charles E. Merrill Professor of Finance and Economics at the
Stern School of Business, New York University. Dr. Subrahmanyam has also been a
visiting professor at leading academic institutions in England, France, Germany
and India, including INSEAD and Churchill College at Cambridge University. He
serves as a director of ICICI Bank Limited and Nomura Asset Management (U.S.A.)
Incorporated. Dr. Subrahmanyam received a B.Tech. in Mechanical Engineering





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##### Table of Contents



from IIT Madras, a Post Graduate, or P.G., Diploma in Business Administration
from the Indian Institute of Management, or IIM Ahmedabad, as well as a Ph.D.
in Finance and Economics from the Massachusetts Institute of Technology.

Philip Yeohas served as one of our directors since October 1999. He is
currently the Chairman of the Singapore Agency for Science, Technology and
Research (A*STAR, formerly the National Science and Technology Board) and
Co-Chairman of Singapores Economic Development Board. From 1986 to 2001, he
served as the Chairman of Singapores Economic Development Board. Mr. Yeo is
also the Chairman of CapitaLand, one of the largest property groups in Asia,
and Singapore Precision Industries, which is involved in the engineering and
production of high value aircraft engine components and systems. Mr. Yeo
received a Bachelor of Science, or B.Sc., in Industrial Engineering from the
University of Toronto, a Master of Science, or M.S., in Systems Engineering
from the University of Singapore, and an M.B.A. from Harvard Business School,
Harvard University.

Jitendra Vir Singhhas served as one of our directors since October 2000. Dr.
Singh is currently the Saul P. Steinberg Professor of Management at the Wharton
School of the University of Pennsylvania. Dr. Singh has been a faculty member
at the Wharton School since 1987. Between 1998 and 2001, he served as the Vice
Dean  International Academic Affairs at the Wharton School. From 1996 to 1998,
Dr. Singh was a director of the Emerging Economies Program at the Wharton
School. From 1991 to 1995, he was the Research Director  Entrepreneurship at
the Sol C. Snider Entrepreneurial Center at the Wharton School. Dr. Singh also
serves as an advisor to Eurindia Limited, a London, and U.K. based venture
capital firm. He received a B.Sc. in Physics, Mathematics and Statistics from
Lucknow University, an M.B.A. from IIM Ahmedabad, a Master of Arts, or M.A., in
Sociology from Stanford University and a Ph.D. in Organization Theory and
Behavior from the Graduate School of Business, Stanford University.

Omkar Goswamihas served as one of our directors since November 2000. He is
currently the Chief Economist to the Confederation of Indian
Industry. Between 1997 and 1998, Dr. Goswami was the Editor of
Business India magazine. Between 1981 and 1997, he served as a
research professor at Oxford University, Delhi School of Economics,
Harvard University, Tufts University, Jawaharlal Nehru
University, Rutgers University and the Indian Statistical Institute
(New Delhi). Dr. Goswami also serves on the board of
Dr. Reddys Laboratories and DSP Merrill Lynch. Dr. Goswami
has served on several government committees and has also been a
consultant to the World Bank, the International Monetary Fund, the
Asian Development Bank and the Organization For Economic Co-operation
and Development. Dr. Goswami received his Master of Economics
from the Delhi School of Economics and his Ph.D in Economics from
Oxford University.

Larry Presslerhas
served as one of our directors since January 2001. He is
currently the President and Chairman of the Washington, D.C. law
firm, The Pressler Group, LLC. Between 1974 and 1997, he served as a
member of the U.S. Congress, with 18 years in the U.S. Senate.
While in the U.S. Senate, he chaired the Commerce, Science and
Transportation Committee and authored the Telecommunications Act of
1996, among other legislation. Senator Pressler serves on the board
of The Philadelphia Stock Exchange and Flight Safety Technologies,
Inc. He also serves on the board of advisors of several private
companies in the pharmaceutical, telecommunications and financial
sectors. Senator Pressler received a Bachelor of Arts in Government
from the University of South Dakota, a Diploma in Public and Social
Administration from Oxford University under a Rhodes Scholarship, as
well as a Juris Doctor from Harvard Law School, Harvard University.

Rama Bijapurkarhas
served as one of our directors since March 2001. She is currently an
independent consultant specializing in marketing strategy and is also
part of the visiting faculty at IIM Ahmedabad. From 1995 to 1997,
Ms. Bijapurkar worked with McKinsey &  Company as a Senior
Marketing Consultant. Between 1989 and 1995, she was the Deputy
Managing Director of Marketing and Research Group, a marketing and
consulting company. Ms. Bijapurkar serves on the boards of Titan
Industries Limited, Godrej Consumer Products Limited, Credit Rating
Information Services of India Limited, and Arvind Mills
Limited. She received her B.Sc in Physics from the Delhi University
and a P.G Diploma from IIM Ahmedabad.

Claude Smadjahas served as one of our directors since October 2001. He is
currently the President of Smadja & Associates, a firm advising global
corporations and governments on strategic issues. Between 1996 and 2001, he
served as the Managing Director of the World Economic Forum. Prior to
that, Mr. Smadja served as the director for the News and Current Affairs Department of
the Swiss Broadcasting Corporation. Mr. Smadja serves on the boards of
directors of the Edipresse and the Kudeslki Groups, as well as several private
corporations. He is also the Chairman of the International Board of Overseers
at the Illinois Institute of Technology. Mr. Smadja received a B.A. in
Political Science from the University of Lausanne.

K. Dineshis one of our co-founders and has served as one of our directors
since 1985. He is currently our Director and Head  Human Resources
Development, Information Systems, Quality and Productivity and Communication
Design Group. Between 1996 and 2001, he was our Head Quality, Productivity and
Management Information Systems. Mr. Dinesh received his M.S. in Mathematics
from Bangalore University.

S. D. Shibulalis one of our co-founders and served as one of our directors
from 1984 to 1991, and since 1997. Mr. Shibulal also serves as a director of
Progeon Limited, our majority-owned subsidiary. He is currently our Head 
Customer Delivery. From 1998 to 1999, he was our Head Manufacturing,
Distribution and Year 2000 Business Unit, as well as Head  Internet and
Intranet Business Unit. He received an M.S. in Physics from the University of
Kerala and an M.S. in Computer Science from Boston University.

T. V. Mohandas Paihas served as one of our directors since May 2000. He has
been our Head  Finance and Administration and Chief Financial Officer since
1996. From 1994 to 1996, he served as our Vice President of Finance. Mr. Pai is
also the Chairman of Progeon Limited, our majority-owned subsidiary. Mr. Pai
received his Bachelor of Commerce from St. Josephs College of Commerce,
Bangalore and his Bachelor of Laws from the University Law College, Bangalore.
Mr. Pai is also a Fellow Member of the Institute of Chartered Accountants of
India.

Srinath Batnihas served
as one of our directors since May 2000. He is currently our
Head-Delivery (GCARE). From 1996 to 2000 he served as
Senior Vice President and Head-Retail and Telecommunications Business
Unit. Mr. Batni received a B.E. in Mechanical Engineering from
Mysore University and an M.E. in
Mechanical Engineering from the Indian Institute of Science, Bangalore.

V. Balakrishnanis our
Company Secretary and Vice President  Finance. Between 1999 and
2001, he was our Associate Vice President 
Finance. Since he joined the Company in 1991, he has served in various capacities in our Finance department. Prior to that, Mr.
Balakrishnan was Senior Accounts Executive for Amco Batteries Limited. Mr. Balakrishnan received a B.Sc. from the University of
Madras. He is an Associate Member of the Institute of Chartered Accountants of India, an Associate Member of the Institute of Company
Secretaries of India and an Associate Member of the Institute of Cost & Works Accountants of India.





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##### Table of Contents



Compensation

In fiscal 2003, our eight non-employee directors were paid an aggregate of
$236,456. Directors who are also employees do not receive any additional
compensation for their service on the board of directors. Directors are also
reimbursed for certain expenses in connection with their attendance at board
and the committee meetings.

We operate in numerous countries around the world, and compensation for our
officers and employees may vary significantly from country to country. As a
general matter, we seek to pay competitive salaries in all the countries in
which we operate.

The table below describes the compensation for our officers and directors, for
the fiscal year ended March 31, 2003.

|                      |  |                            |         |               |  |         |         |             |  |        |         |             |  |         |       |          |  |          |    |            |  |           |   |  |  |  |   |         |  |              |   |  |   |   |       | 
|--------------------- |  | -------------------------- | ------- | ------------- |  | ------- | ------- | ----------- |  | ------ | ------- | ----------- |  | ------- | ----- | -------- |  | -------- | -- | ---------- |  | --------- | - |  |  |  | - | ------- |  | ------------ | - |  | - | - | ----- | 
|                      |  | Annual compensation awards |         | Stock options |  |         |         |             |  |        |         |            
|                      |  |                            |         |               |  |         |         |             |  |        |         |            
|                      |  |                            |         |               |  |         |         |             |  |        |         |             |  | No. of  |       |          |  |          |    | No. of     |  |           |   |  |  |  |   |         |  |              |   | 
|                      |  |                            |         |               |  |         |         |             |  |        |         |             |  | Options |       |          |  |          |    | Options    |  |           |   |  |  |  |   |         |  | Amount      
|                      |  |                            |         |               |  |         |         |             |  | Other  |         | granted     |  |         |       |          |  | granted  |    |            |  |           |   |  |  |  |   | accrued
|                      |  |                            |         |               |  |         |         |             |  | Annual |         | during      |  |         |       |          |  | during   |    |            |  |           |   |  |  |  |   | for    
|                      |  |                            |         |               |  |         |         |             |  | Compen |         | the year    |  | Grant   |       | the year |  | Grant    |    | Expiration |  | long term
|Name                  |  | Salary                     |         | Bonus         |  | -sation |         | (1999 ESOP) |  | price  |         | (1998 ESOP) |  | price   |       | date     |  | benefits
|                      |  |                            |         |               |  |         |         |             |  |        |         |             |  |         |       |          |  |         
|N. R. Narayana Murthy |  | $                          | 17,749  |               |  |         |        |             |  | $      | 23,617  |             |  |         |      |          |  |          |   |            |  |           |  |  |  |  |  |         |  |              |  |  |   | $ | 5,646 | 
|Nandan M. Nilekani    |  |                            | 17,749  |               |  |         |        |             |  |        | 22,008  |             |  |         |      |          |  |          |   |            |  |           |  |  |  |  |  |         |  |              |  |  |   |   | 5,646 | 
|S. Gopalakrishnan     |  |                            | 17,749  |               |  |         |        |             |  |        | 24,171  |             |  |         |      |          |  |          |   |            |  |           |  |  |  |  |  |         |  |              |  |  |   |   | 5,646 | 
|K. Dinesh             |  |                            | 17,749  |               |  |         |        |             |  |        | 21,731  |             |  |         |      |          |  |          |   |            |  |           |  |  |  |  |  |         |  |              |  |  |   |   | 5,646 | 
|S. D. Shibulal        |  |                            | 229,182 |               |  |         |        |             |  |        | 31,474  |             |  |         |      |          |  |          |   |            |  |           |  |  |  |  |  |         |  |              |  |  |   |   | 220   | 
|Deepak M. Satwalekar  |  |                            |        |               |  |         |        |             |  |        | 25,000  |             |  |         |      |          |  |          |   |            |  |           |  |  |  |  |  |         |  |              |  |  |   |   |      | 
|Marti G. Subrahmanyam |  |                            |        |               |  |         |        |             |  |        | 25,000  |             |  |         |      |          |  |          |   |            |  |           |  |  |  |  |  |         |  |              |  |  |   |   |      | 
|Philip Yeo            |  |                            |        |               |  |         |        |             |  |        | 25,000  |             |  |         |      |          |  |          |   |            |  |           |  |  |  |  |  |         |  |              |  |  |   |   |      | 
|Jitendra Vir Singh2   |  |                            |        |               |  |         |        |             |  |        | 61,456  |             |  |         |      |          |  |          |   |            |  |           |  |  |  |  |  |         |  |              |  |  |   |   |      | 
|Omkar Goswami         |  |                            |        |               |  |         |        |             |  |        | 25,000  |             |  |         |      |          |  |          |   |            |  |           |  |  |  |  |  |         |  |              |  |  |   |   |      | 
|Larry Pressler        |  |                            |        |               |  |         |        |             |  |        | 25,000  |             |  |         |      |          |  |          |   |            |  |           |  |  |  |  |  |         |  |              |  |  |   |   |      | 
|Rama Bijapurkar       |  |                            |        |               |  |         |        |             |  |        | 25,000  |             |  |         |      |          |  |          |   |            |  |           |  |  |  |  |  |         |  |              |  |  |   |   |      | 
|Claude Smadja         |  |                            |        |               |  |         |        |             |  |        | 25,000  |             |  |         | 2,000 |          |  | $        | 70 |            |  |           |  |  |  |  |  |         |  | July 9, 2012 |   |  |  |  
|T. V. Mohandas Pai    |  |                            | 20,049  |               |  |         |        |             |  |        | 16,928  |             |  |         |      |          |  |          |   |            |  |           |  |  |  |  |  |         |  |              |  |  |   |   | 6,378 | 
|Phaneesh Murthy 1     |  |                            | 208,952 |               |  | $       | 150,000 |             |  |        | 574,308 |             |  |         |      |          |  |          |   |            |  |           |  |  |  |  |  |         |  |              |  |  |   |   |      | 
|Srinath Batni         |  |                            | 18,016  |               |  |         |        |             |  |        | 15,686  |             |  |         |      |          |  |          |   |            |  |           |  |  |  |  |  |         |  |              |  |  |   |   | 5,731 | 
|V. Balakrishnan       |  | $                          | 12,252  |               |  |         |        |             |  | $      | 23,594  |             |  |         |      |          |  |          |   |            |  |           |  |  |  |  |  |         |  |              |  |  |   | $ | 5,898 | 

1 Resigned on July 23, 2002

2 Resigned effective April 12, 2003

Board composition

Our Articles of Association provide that the minimum number of directors shall
be three and the maximum number of directors shall be 18. Currently, we have 15
directors. Our Articles of Association and the Indian Companies Act require
that at least two-thirds of our directors be subject to retirement by rotation.
One-third of these directors must retire from office at each Annual General
Meeting of the shareholders. A retiring director is eligible for re-election.
Our executive directors are appointed for five-year terms by the shareholders.
They customarily retire every three years and are eligible for re-election at
that time. Our Articles of Association also provide that our Chairman, Mr. N.
R. Narayana Murthy, is not required to retire by rotation so long as he and his
family together hold at least 5% of our voting shares. Executive directors are required to retire at age 60 in
accordance with our employee retirement policies. Other board members must
retire from the board at age 65.

All executive directors are liable to retire by rotation. The terms of office
of the directors are given below

|                      |  |                       |   |                |                        |  |  | 
|--------------------- |  | --------------------- | - | -------------- | ---------------------- |  |  | 
|                      |  | Expiration of current
|Name                  |  | term of office        |   | Term of office
|                      |  |                       |   |               
|N. R. Narayana Murthy |  | April 30, 2007        |   | 5 years       
|Nandan M. Nilekani    |  | April 30, 2007        |   | 5 years       
|S. Gopalakrishnan     |  | October 17, 2004      |   | 5 years       
|K. Dinesh             |  | April 30, 2007        |   | 5 years       
|S. D. Shibulal        |  | January 09, 2007      |   | 5 years       
|T. V. Mohandas Pai    |  | May 26, 2005          |   | 5 years       
|Srinath Batni 1       |  | May 26, 2005          |   | 5 years       
|Deepak M. Satwalekar  |  |                       |  |                | Retirement by rotation
|Marti G. Subrahmanyam |  |                       |  |                | Retirement by rotation
|Philip Yeo            |  |                       |  |                | Retirement by rotation
|Jitendra Vir Singh2   |  |                       |  |                | Retirement by rotation
|Omkar Goswami1        |  |                       |  |                | Retirement by rotation
|Larry Pressler 1      |  |                       |  |                | Retirement by rotation
|Rama Bijapurkar 1     |  |                       |  |                | Retirement by rotation
|Claude Smadja         |  |                       |  |                | Retirement by rotation
|Sridar Iyengar3       |  |                       |  |                | Retirement by rotation

|  |  |                                                                                                                                                              
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|1 |  | Directors who are retiring by rotation and are seeking re-election at our
Annual General Meeting of our stockholders scheduled to take place on June 14, 2003
|  |  |                                                                                                                                                              
|2 |  | Resigned effective April 12, 2003                                                                                                                            
|  |  |                                                                                                                                                              
|3 |  | Co-opted on April 10, 2003, subject to shareholders approval                                                                                                 





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##### Table of Contents



Option Grants

There were no option grants to our Chairman, CEO, or our COO in the fiscal
years ended March 31, 2003, 2002 and 2001. Details of options granted to other
senior executives are reported elsewhere in Item 6 in the section titled
Compensation.

Option Exercises and Holdings

Our Chairman, CEO and COO did not exercise or hold any options during the
fiscal year ended March 31, 2003. The details of stock options held and
exercised with respect to other senior executives are reported elsewhere in
Item 6 in the section titled Share Ownership.

Employment and Indemnification Contracts

Under the Indian Companies Act, our shareholders must approve the salary, bonus
and benefits of all employee directors at an Annual General Meeting of
shareholders. Each of our employee directors has signed an agreement containing
the terms and conditions of employment, including a monthly salary, performance
bonus and benefits including vacation, medical reimbursement and pension fund
contributions. There are no benefits payable upon termination of this
agreement. These agreements are made for a five-year period, but either we or
the employee director may terminate the agreement upon six months notice to the
other party.

We also have entered into agreements to indemnify our directors and officers
for claims brought under U.S. laws to the fullest extent permitted by Indian
law. These agreements, among other things, indemnify our directors and officers
for certain expenses, judgments, fines and settlement amounts incurred by any
such person in any action or proceeding, including any action by or in the
right of Infosys Technologies Limited, arising out of such persons services as
our director or officer.

Board committee information

Details relating to the Audit, Compensation and Nomination committees of our
board are provided below.

Audit committee

Our audit committee is comprised of six independent
directors. They are:

|                                   
|-----------------------------------
|Mr. Deepak M. Satwalekar, Chairman;
|Mr. Marti G. Subrahmanyam;         
|Mr. Omkar Goswami;                 
|Mr. Larry Pressler;                
|Ms. Rama Bijapurkar; and           
|Mr. Claude Smadja.                 

The primary objective of the audit committee is to monitor and provide
effective supervision of our financial reporting process with a view towards
ensuring accurate, timely and proper disclosures and the transparency,
integrity and quality of financial reporting. Our audit committee oversees the
work carried out in the financial reporting process  by our management,
including the internal auditors and the independent auditor  and reviews the
processes and safeguards employed by each.

The audit committee has adopted a charter. The charter is attached as Exhibit
99.7.

Mr. Sridar Iyengar joined our board on April 10, 2003. Mr. Iyengar has been
nominated to the Audit Committee. Mr. Sridar Iyengar is an audit committee
financial expert.

Compensation committee

Our compensation committee consists entirely of non-executive, independent
directors, and consists of:

|                                    
|------------------------------------
|Mr. Marti G. Subrahmanyam, Chairman;
|Mr. Deepak M. Satwalekar;           
|Mr. Philip Yeo;                     
|Mr. Jitendra Vir Singh; and         
|Mr. Omkar Goswami.                  

The purpose of our compensation committee is to discharge the Boards
responsibilities relating to compensation of our executive directors and senior
management. The compensation committee has overall responsibility for approving
and evaluating our compensation plans, policies and programs for executive
directors and senior management.

The compensation committee is also responsible for producing an annual report
on executive compensation for inclusion in our proxy statement.

The compensation committee has adopted a charter. The charter is attached as
Exhibit 99.8.

Mr. Jitendra Vir Singh has resigned effective April 12, 2003.

Nominations committee

The nominations committee of the board consists exclusively of the following
non-executive, independent directors:

|                            
|----------------------------
|Mr. Claude Smadja, Chairman;
|Mr. Philip Yeo;             
|Mr. Jitendra Vir Singh; and 
|Mr. Larry Pressler.         

The purpose of our nominations committee is to ensure that our board is
properly constituted to meet its fiduciary obligations to Infosys and our
shareholders. To carry out this purpose, the nominations committee assists the
board by identifying prospective director nominees and selecting and
recommending to our board the director nominees for the next annual meeting of
our shareholders, overseeing the evaluation of the board and
management, and
recommending to the board director nominees for each committee.





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##### Table of Contents



The nominations committee has adopted a charter. The charter is attached as
Exhibit 99.9.

Jitendra Vir Singh has resigned effective April 12, 2003.

Employees

As of March 31, 2003, we had approximately 15,400 employees, including 14,000
IT professionals and additionally Progeon employed approximately 540 employees.
We seek to attract and motivate IT professionals by offering:



| |  |  | an entrepreneurial environment that empowers IT professionals;             
| | - |  | ---------------------------------------------------------------------------
|
| |  |  | programs that recognize and reward performance;                            
|
| |  |  | challenging assignments;                                                   
|
| |  |  | constant exposure to new skills and technologies;
and                      
|
| |  |  | a culture that emphasizes openness,
integrity and respect for the employee.

Recruiting

We focus our recruiting on the top 20% of students from engineering departments
of Indian schools and rely on a rigorous selection process involving a series
of tests and interviews to identify the best applicants. Our reputation as a
premier employer enables us to select from a large pool of qualified
applicants. For example, in fiscal 2003, we received approximately 614,700
applications, interviewed approximately 22,700 applicants and extended job
offers to approximately 6,200.

Performance Appraisals

We use a 360-degree appraisal system in addition to our proprietary performance
appraisal methodology to appraise each employee and to provide him or her
feedback and set objectives for career development.

Training and Development

We spend significant resources on training and continuing education. We employ
80 faculty members, including 60 with doctorate or masters degrees. The
faculty conducts three-month training sessions for new recruits and a variety
of two-week continuing education courses in technology and management skills
for all employees. We have recently set up a 200-acre campus at Mysore, India,
which we call the Infosys Leadership Institute, to prepare our employees to
face the complexities of the rapidly changing marketplace, and to influence
work culture through leadership training.

Compensation

Our IT professionals receive competitive salaries and benefits and are eligible
to participate in our stock option plans. We have also adopted a performance
incentive plan to link our performance as a company and compensation for each
employee.

Share ownership

The following table sets forth as of March 31, 2003, for each director and
executive officer, the total number of equity shares, ADSs and options to
purchase equity shares and ADSs exercisable within 60 days from March 31, 2003.
Beneficial ownership is determined in accordance with rules of the Securities
and Exchange Commission. All information with respect to the beneficial
ownership of any principal shareholder has been furnished by such shareholder
and, unless otherwise indicated below, we believe 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. The shares beneficially owned by the directors include the equity
shares owned by their family members to which such directors disclaim
beneficial ownership.

The stock option grant price has been translated into U.S. dollars based on the
noon buying rate in the City of New York on March 31, 2003, for cable transfers
in Indian rupees as certified for customs purposes by the Federal Reserve Bank
of New York which was Rs. 47.53 per $1.00. The share numbers and percentages
listed below are based on 66,243,078 equity shares outstanding as of March 31,
2003. Amounts representing less than 1% are indicated with an *.

|                        |  |               |            |             |  |                            |       |          |  |            |   |  |  |  |   |  |  |  |   | 
|----------------------- |  | ------------- | ---------- | ----------- |  | -------------------------- | ----- | -------- |  | ---------- | - |  |  |  | - |  |  |  | - | 
|                        |  | Equity Shares |            |             |  |                            |       |          |  |            |   |  |  |  |   | 
|Name                    |  | shares        |            |             |  |                            |       |          |  |            |   |  |  |  |   | 
|beneficially            |  | beneficially  |            | % of equity |  | Equity
Shares              |       | Exercise |  | Date of   
|owned                   |  | owned         |            | shares      |  | underlying
options granted |       | price    |  | Expiration
|                        |  |               |            |             |  |                            |       |          |  |           
|N. R. Narayana Murthy 1 |  |               | 4,738,400  |             |  |                            | 7.15  |          |  |            |  |  |  |  |  |  |  |  |  | 
|Nandan M. Nilekani 2    |  |               | 3,290,400  |             |  |                            | 4.97  |          |  |            |  |  |  |  |  |  |  |  |  | 
|S. Gopalakrishnan 3     |  |               | 3,180,000  |             |  |                            | 4.80  |          |  |            |  |  |  |  |  |  |  |  |  | 
|K. Dinesh 4             |  |               | 2,333,400  |             |  |                            | 3.52  |          |  |            |  |  |  |  |  |  |  |  |  | 
|S. D. Shibulal 5        |  |               | 2,106,000  |             |  |                            | 3.18  |          |  |            |  |  |  |  |  |  |  |  |  | 
|T. V. Mohandas Pai      |  |               | *          |             |  |                            | *     |          |  |            |  |  |  |  |  |  |  |  |  | 
|Srinath Batni           |  |               | *          |             |  |                            | *     |          |  |            |  |  |  |  |  |  |  |  |  | 
|Deepak Satwalekar       |  |               | *          |             |  |                            | *     |          |  |            |  |  |  |  |  |  |  |  |  | 
|Marti G. Subrahmanyam   |  |               | *          |             |  |                            | *     |          |  |            |  |  |  |  |  |  |  |  |  | 
|Philip Yeo              |  |               | *          |             |  |                            | *     |          |  |            |  |  |  |  |  |  |  |  |  | 
|Jitendra Vir Singh6     |  |               | *          |             |  |                            | *     |          |  |            |  |  |  |  |  |  |  |  |  | 
|Omkar Goswami           |  |               | *          |             |  |                            | *     |          |  |            |  |  |  |  |  |  |  |  |  | 
|Larry Pressler          |  |               | *          |             |  |                            | *     |          |  |            |  |  |  |  |  |  |  |  |  | 
|Rama Bijapurkar         |  |               | *          |             |  |                            | *     |          |  |            |  |  |  |  |  |  |  |  |  | 
|Claude Smadja           |  |               | *          |             |  |                            | *     |          |  |            |  |  |  |  |  |  |  |  |  | 
|V. Balakrishnan         |  |               | *          |             |  |                            | *     |          |  |            |  |  |  |  |  |  |  |  |  | 
|                        |  |               |            |             |  |                            |       |          |  |            |   |  |  |  |   |  |  |  |   | 
|Total                   |  |               | 15,648,200 |             |  |                            | 23.62 |          |  |            |   |  |  |  |   |  |  |  |   | 
|                        |  |               |            |             |  |                            |       |          |  |            |   |  |  |  |   |  |  |  |   | 





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##### Table of Contents



|  |  |                                                                                                                                                                                                             
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1 |  | Shares beneficially owned by Mr. Murthy include 4,210,500 Equity
Shares owned by members of Mr. Murthys immediate family. Mr. Murthy
disclaims beneficial ownership of such shares.                        
|  |  |                                                                                                                                                                                                             
|2 |  | Shares beneficially owned by Mr. Nilekani include 1,899,500 Equity
Shares owned by members of Mr. Nilekanis immediate family. Mr. Nilekani
disclaims beneficial ownership of such shares.                  
|  |  |                                                                                                                                                                                                             
|3 |  | Shares beneficially owned by Mr. Gopalakrishnan
include 2,141,160 Equity Shares owned by members of
Mr. Gopalakrishnans immediate family.
Mr. Gopalakrishnan disclaims beneficial ownership of such shares.
|  |  |                                                                                                                                                                                                             
|4 |  | Shares beneficially owned by Mr. Dinesh include 1,570,200 Equity
Shares owned by members of Mr. Dineshs immediate family. Mr. Dinesh
disclaims beneficial ownership of such shares.                        
|  |  |                                                                                                                                                                                                             
|5 |  | Shares beneficially owned by Mr. Shibulal include 1,696,080 Equity
Shares owned by members of Mr. Shibulals immediate family. Mr. Shibulal
disclaims beneficial ownership of such shares.                  
|  |  |                                                                                                                                                                                                             
|6 |  | Resigned effective April 12, 2003                                                                                                                                                                           

The following table sets forth the options to purchase securities granted to
executive officers and directors that were outstanding as of March 31, 2003

|                           |  |                  |         |                |  |                  |       |  |  |                   |  | 
|-------------------------- |  | ---------------- | ------- | -------------- |  | ---------------- | ----- |  |  | ----------------- |  | 
|                           |  |                  |         |                |  | Weighted average |       |  |  |                  
|Class of securities        |  | Total securities |         | exercise price |  | Expiration dates
|                           |  |                  |         |                |  |                 
|Equity shares              |  |                  | 106,900 |                |  | $                | 70.98 |  |  | Nov 2003-Oct 2011
|American Depositary Shares |  |                  | 18,000  |                |  | $                | 26.03 |  |  | Nov 2003-Oct 2011

Option plans

1994 Employees Stock Offer Plan

In September 1994, we established our 1994 Employees Stock Offer Plan, or the
1994 Plan, which provided for the issue of 6,000,000 warrants, as adjusted, to
eligible employees. The warrants were issued to an employee welfare trust (the
Trust). In 1997, in anticipation of a share dividend to be declared by us,
the Trust exercised all warrants held by it and converted them into equity
shares. As and when the Trust issued options/stock to eligible employees, the
difference between the market price and the exercise price was accounted as
deferred stock compensation expense and amortized over the vesting period. Such
amortized deferred compensation expense was $5,081,795, $5,009,772 and
$4,803,534 and in the fiscal 2001, 2002 and 2003, respectively. The 1994 plan
lapsed in fiscal 2000 and, consequently, no further shares will be issued to
employees under this plan.

1998 Stock Option Plan

Our 1998 Stock Option Plan, or the 1998 stock plan, provides for the grant of
two types of options to our employees and directors: incentive stock options,
which may provide our employees with beneficial tax treatment, and
non-qualified stock options. The 1998 stock plan was approved by our board of
directors in December 1997, and by our shareholders in January 1998. Unless
terminated sooner by our board of directors, the 1998 stock plan will terminate
automatically in January 2008. A total of 1,600,000 ADSs, representing 800,000
equity shares, are currently reserved for issuance under the 1998 stock plan.
All options granted under the 1998 stock plan will be exercisable for our ADSs.

Our compensation committee administers the 1998 stock plan. The committee has
the power to determine the terms of the options granted, including exercise
prices, the number of ADSs subject to each option, the exercisability thereof,
and the form of consideration payable upon such exercise. In addition, the
committee has the authority to amend, suspend, or terminate the 1998 stock
plan, provided that no such action may affect any ADS previously issued and
sold or any option to purchase an ADS previously granted under the 1998 stock
plan.

The 1998 stock plan generally does not allow for transfer of options, and only
the optionee may exercise an option during his or her lifetime. An optionee
generally must exercise an option within three months of termination of
service. If an optionees termination is due to death or disability, his or her
option will fully vest and become exercisable and the option must be exercised
within twelve months after such termination. The exercise price of incentive
stock options granted under the 1998 stock plan must at least equal the fair
market value of the ADSs on the date of grant. The exercise price of
nonstatutory stock options granted under the 1998 stock plan must at least
equal 90% of the fair market value of the ADSs on the date of grant. The term
of options granted under the 1998 stock plan may not exceed 10 years.

The 1998 stock plan provides that in the event of our merger with or into
another corporation or a sale of substantially all of our assets, the successor
corporation shall either assume the outstanding options or grant equivalent
options to the holders. If the successor corporation neither assumes the
outstanding options nor grants equivalent options, such outstanding options
shall vest immediately, and become exercisable in full.

1999 Stock Option Plan

In fiscal 2000, we instituted the 1999 Stock Option Plan, or the 1999 Plan. Our
shareholders and board of directors approved the 1999 Plan in June 1999. The
1999 Plan provides for the issue of 6,600,000 equity shares to employees. The
1999 Plan is administered by our compensation committee. Under the 1999 Plan,
options will be issued to employees at an exercise price, which shall not be
less than the Fair Market Value, or FMV. Under the 1999 Plan, options may also
be issued to employees at exercise prices that are less than FMV only if
specifically approved by our members in a General Meeting. All options under
the 1999 plan are exercised for equity shares.

The 1999 Plan generally does not allow for transfer of options, and only the
optionee may exercise an option during his or her lifetime. An optionee
generally must exercise an option within three months of termination of
service. If an optionees termination is due to death or disability, his or her
option will fully vest and become exercisable and the option must be exercised
within twelve months after such termination. Unless a prior shareholder
approval has been obtained, the exercise price of stock options granted under
the 1999 Plan must at least equal the fair market value of the equity shares on
the date of grant.

The 1999 Plan provides that in the event of our merger with or into another
corporation or a sale of substantially all of our assets, the successor
corporation shall either assume the outstanding options or grant equivalent
options to the holders. If the successor corporation neither assumes the
outstanding options nor grants equivalent options, such outstanding options
shall vest immediately, and become exercisable in full.





---



##### Table of Contents






Item 7: Major Shareholders and Related Party Transactions

Major shareholders

The following table sets forth as of March 31, 2003, certain information with
respect to beneficial ownership of our equity shares by each shareholder or
group known by us to be the beneficial owner of 5% or more of our outstanding
equity shares.

Beneficial ownership is determined in accordance with rules of the Securities
and Exchange Commission, which generally attribute beneficial ownership of
securities to persons who possess sole or shared voting power or investment
power with respect to those securities and includes equity shares issuable
pursuant to the exercise of stock options or warrants that are immediately
exercisable or exercisable within 60 days of March 31, 2003. These shares are
deemed to be outstanding and to be beneficially owned by the person holding
those options or warrants for the purpose of computing the percentage ownership
of that person, but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person. Unless otherwise indicated, all
information with respect to the beneficial ownership of any principal
shareholder has been furnished by such shareholder and, unless otherwise
indicated, we believe that persons named in the table have sole voting and sole
investment power with respect to all the equity shares shown as beneficially
owned, subject to community property laws where applicable. Except as otherwise
noted below, the address for each person listed on the table is c/o Infosys
Technologies Limited, Electronics City, Hosur Road, Bangalore 561 229 India.
The shares beneficially owned by the directors include equity shares owned by
their family members to which such directors disclaim beneficial ownership.

The share numbers and percentages listed below are based on 66,243,078 equity
shares outstanding, as of March 31, 2003.

|                                                                     |  |               |  |              |           |                |            |                |      |                |       |              |           |       |  |  |      |              |  |  |           |  |  |  |      |  |  | 
|-------------------------------------------------------------------- |  | ------------- |  | ------------ | --------- | -------------- | ---------- | -------------- | ---- | -------------- | ----- | ------------ | --------- | ----- |  |  | ---- | ------------ |  |  | --------- |  |  |  | ---- |  |  | 
|                                                                     |  |               |  |              |           | No of shares   |            |                |      |                |       | No of shares |           |       |  |  |      | No of shares |  |  |           | 
|Name of the                                                          |  | Class of      |  | beneficially |           | % of           |            | beneficially   |      | % of           |       | beneficially |           | % of 
|beneficial owner                                                     |  | security      |  | held 1, 2    |           | class          |            | held 1, 2      |      | class          |       | held 1, 2    |           | class
|                                                                     |  |               |  |              |           |                |            |                |      |                |       |              |           |      
|                                                                     |  |               |  |              |           | March 31, 2003 |            | March 31, 2002 |      | March 31, 2001
|                                                                     |  |               |  |              |           |                |            |                |      |               
|N. R. Narayana Murthy 1                                              |  | Equity shares |  |              | 4,738,400 |                |            |                | 7.15 |                |       |              | 4,819,400 |       |  |  | 7.28 |              |  |  | 4,906,400 |  |  |  | 7.42 | 
|Nandan M. Nilekani 2                                                 |  | Equity shares |  |              | 3,290,400 |                |            |                | 4.97 |                |       |              | 3,295,900 |       |  |  | 4.98 |              |  |  | 3,331,900 |  |  |  | 5.04 | 
|Emerging Markets                                                     |  |               |  |              |           |                |            |                |      |                |       |              |           |       |  |  |      |              |  |  |           |  |  |  |      |  |  | 
|Growth Fund Inc. 3                                                   |  | Equity shares |  |              | 4,840,954 |                |            |                | 7.31 |                |       |              | 4,046,080 |       |  |  | 6.11 |              |  |  | 3,335,820 |  |  |  | 5.04 | 
|Government of Singapore                                              |  | Equity shares |  |              | 268,915   |                |            |                | 0.41 |                |       |              | 2,484,655 |       |  |  | 3.75 |              |  |  | 3,625,402 |  |  |  | 5.48 | 
|Shareholding of all
directors and officers as a group
(16 persons) 4 |  |               |  |              |           |                | 15,920,701 |                |      |                | 23.29 |              |           |       |  |  |      |              |  |  |           |  |  |  |      |  |  | 



|1. |  | Shares beneficially owned by Mr. Murthy include 4,210,500 Equity
Shares owned by members of Mr. Murthys immediate family. Mr. Murthy
disclaims beneficial ownership
of such shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Shares beneficially owned by Mr. Nilekani include 1,899,500 Equity
Shares owned by members of Mr. Nilekanis immediate family. Mr. Nilekani
disclaims beneficial
ownership of such shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|3. |  | Emerging Markets Growth Inc. is a US registered mutual fund                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|4. |  | Comprised of 221,801 shares owned by non-founder directors and
officers and 50,700 options that are currently exercisable or exercisable
within 60 days of March 31, 2003
by our various officers and directors. These have been deemed to be
outstanding and to be beneficially owned by the person holding such
options for calculating the total
shareholding of all directors and officers as a group. Accordingly, the
percentage ownership of the group is calculated on a base of 68,349,213 equity
shares which includes
2,106,135 options that are currently exercisable or exercisable by all
employees within 60 days of March 31, 2003.

Our American Depository Shares are listed on the NASDAQ National Market. Each
ADS represents one half of one equity share of par value Rs. 5/ - (or $ 0.16)
per share. Our ADSs are registered pursuant to section 12(g) of the Securities
Exchange Act, 1934 and, as of March 31, 2003 are held by approximately 11,673
holders of record in the United States.

Our equity shares can be held by Foreign Institutional Investors or FIIs,
Overseas Corporate Bodies or OCBs, and Non Resident Indians or NRIs, who are
registered with the Securities and Exchange Board of India, or SEBI, and the
Reserve Bank of India, or RBI. Currently over 37.24% of our equity shares are
held by these FIIs, OCBs and NRIs of which some of them
may be residents or bodies corporates registered in the United States and else
where. We are not aware of which FIIs, OCBs and NRIs hold our equity shares as
residents or as corporate entities registered in the United States.

Our major shareholders do not have differential voting rights with respect to
the equity shares. To the best of our knowledge, we are not owned or controlled
directly or indirectly by any government or by any other corporation. We are
not aware of any arrangement, the operation of which may at a subsequent date
result in a change in control.

Related party transactions

We believe that all transactions described in this section are on no less
favorable terms to us than on terms that could be obtained from disinterested
third parties.

Progeon

We established Progeon Limited in April 2002, under the laws of India. Progeon
issued 12,250,000 equity shares of par value $0.20 per share to its holding
company, Infosys, in exchange for an aggregate consideration of $2,500,000
(First Tranche subscription). In terms of the stock subscription agreement
between Infosys, Citicorp International Finance Corporation (CIFC) and
Progeon, Infosys is also required to subscribe to an additional 12,250,000
equity shares of par value $0.20 each in Progeon on or before the date of the
first anniversary of the First Tranche Subscription.

Yantra Corporation

We established Yantra as a company in
Delaware, U.S.A. in December 1996, by transferring the intellectual
property rights to the Eagle (subsequently renamed WMSYantra)
software application for warehouse management in exchange for the
common stock of Yantra. Yantra is based in Acton, Massachusetts and
provides enterprise software that gives companies control over
distributed orders and inventory. In this transaction, Yantra also
granted us a non-exclusive right to reproduce, distribute and service
the product to the extent necessary to fulfill our pre-existing
contractual obligations for the product. We received 7,500,000 shares
of common stock of Yantra, which had a fair market value of $0.20 per
share, in consideration for this transaction.

In September 1997, we purchased
2,000,000 shares of series A preferred stock of Yantra at $0.75
per share. On October 20, 1998, we sold 1,363,637 shares of
series A preferred stock of Yantra at $1.10 per share to an
unaffiliated purchaser. As a result of this sale, we reduced our
aggregate interest in Yantra to less than 50% of its voting stock. On
February 14, 2002, we entered into an agreement with Yantra to
exchange 5,500,000 shares of common stock of Yantra, that we held,
for a pre-paid warrant to purchase up to 5,500,000 shares of common
stock of Yantra at an exercise price of $0.01 per share. We currently
hold 16% of the total outstanding stock of Yantra. Venture investors
and management hold the remainder of the capital stock. We have not
recognized Yantra in our financial statements after October 20,
1998. The carrying value of this investment is nil as of
March 31, 2003.

OnMobile Systems

We established OnMobile Systems
Inc. (formerly Onscan) as a company in Delaware, U.S.A. in May, 2000,
by transferring the intellectual property rights, or IPR, to the
Onscan software application for web-enabled wireless notification
systems in exchange for 100,000 shares of common stock, 100,000
shares of preferred voting and 4,400,000 shares of preferred
non-voting stock of OnMobile valued at in an aggregate amount of
$2 million. This transfer was recorded as a historic cost, and
accordingly, no gain was recognized on this transaction as of the
date of transfer of the IPR. OnMobile is based in Los Altos,
California and provides wireless solutions to enterprises and
wireless carriers around the world. The OnMobile solution allows
wireless carriers to provide innovative services to their customers
and enterprises targeted at the mobile work force. We currently own a
voting interest of 9.7% in OnMobile. Venture investors and management
hold the remainder of the capital stock.

Our following directors and executive
officers have a financial interest in OnMobile:

|  |  |                                                                                                                                
|- |  | -------------------------------------------------------------------------------------------------------------------------------
| |  | S.D. Shibulal holds 500,000
shares of common stock of OnMobile, which he purchased for $0.0435
per share in cash;              
| 
| |  | S. Gopalakrishnan holds 200,000
shares of common stock of OnMobile, which he purchased for $0.435 per
share in cash; and       
| 
| |  | V. Balakrishnan holds options to
purchase 100,000 shares of common stock of OnMobile at an exercise
price of $0.0435 per share.





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##### Table of Contents



Employment and indemnification agreements

We have entered into agreements with our employee directors that provide for a
monthly salary, performance bonuses, and benefits including, vacation, medical
reimbursements and pension fund contributions. These agreements have a
five-year term and either party may terminate the agreement with six months
notice.

We have also entered into agreements to indemnify our directors and officers
for claims brought under U.S. laws to the fullest extent permitted by Indian
law. These agreements, among other things, indemnify our directors and officers
for certain expenses, judgments, fines and settlement amounts incurred by any
such person in any action or proceeding, including any action by or in the
right of Infosys Technologies Limited, arising out of such persons services as
our director or officer.

Loans to Employees

We provide various loans primarily to employees in India who are not executive
officers or directors, including car loans, home loans, personal computer
loans, telephone loans, medical loans, marriage loans, personal loans, salary
advances, education loans and loans for rental deposits. All of these loans,
except for the housing and car loans, are available to all of our employees,
who are not executive officers or directors, in India. Housing and car loans
are available only to middle level managers, senior managers and non-executive
officers. The loan program is designed to assist our employees and increase
employee satisfaction. These loans are generally collateralized against the
assets of the loan and the terms of the loans range from 12 to 100 months. In
the aggregate, these loans represented approximately $ 16.0 million, $ 20.8
million, and $ 28.7 million for fiscal 2001, 2002 and 2003.




Item 8: Financial Information

Consolidated statements and other financial information

The following financial statements and
auditors report appear under Item 18 in this Annual Report and are
incorporated herein by reference:



| |  |  | Independent auditors report                                                                                 
| | - |  | -------------------------------------------------------------------------------------------------------------
|
| |  |  | Balance sheets as of
March 31, 2002 and 2003                                                                 
|
| |  |  | Statements of Income for the years
ended March 31, 2001, 2002 and 2003                                       
|
| |  |  | Statements of Stockholders Equity and Comprehensive Income for
the years ended March 31, 2001, 2002 and 2003
|
| |  |  | Statements of Cash Flows for the
years ended March 31, 2001, 2002 and 2003                                   
|
| |  |  | Notes to the financial statements                                                                            
|
| |  |  | Financial Statement Schedule  Valuation and qualifying accounts                                             

Export Revenue

For the fiscal year ended March 31, 2003, we generated $738.1 million or 97.9%
of our total revenues, from the export of our products and services out of
India.

Legal Proceedings

This information is set forth under
Item 4 under the heading Legal Proceedings and such
information is incorporated herein by reference.

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. Dividends may be paid out of profits of an Indian
company in the year in which the dividend is declared or out of the
undistributed profits of previous fiscal years.

In fiscal 2003, we declared cash
dividends of approximately $0.51 per equity
share or $0.26 per ADS. Although we have no current intention to discontinue
dividend payments, future dividends may not be declared or paid and the amount,
if any, thereof may be decreased. Holders of ADSs will be entitled to receive
dividends payable on equity shares represented by such ADSs. Cash dividends on
equity shares represented by ADSs are paid to the Depositary in Indian rupees
and are generally converted by the Depositary into U.S. dollars and
distributed, net of Depositary fees, taxes, if any, and expenses, to the
holders of such ADSs.

Translations from Indian rupees to U.S. dollars are based on the average of the
monthly average of the noon buying rate in the City of New York during the
period for cable transfers in Indian rupees as certified for customs purposes
by the Federal Reserve Bank of New York.

|       |  |                    |       |                  |  |              |      |  |  |  |      | 
|------ |  | ------------------ | ----- | ---------------- |  | ------------ | ---- |  |  |  | ---- | 
|       |  | Dividend per       |       | Dividend per     |  | Dividend per
|Fiscal |  | Equity Share (Rs.) |       | Equity Share ($) |  | ADS ($)     
|       |  |                    |       |                  |  |             
|2003   |  |                    | 25.00 |                  |  |              | 0.51 |  |  |  | 0.26 | 
|2002   |  |                    | 15.00 |                  |  |              | 0.35 |  |  |  | 0.17 | 
|2001   |  |                    | 5.50  |                  |  |              | 0.14 |  |  |  | 0.07 | 





---



##### Table of Contents



Significant changes

None.




Item 9: The Offer and Listing

Price history

Our equity shares are traded in India on the Stock Exchange, Mumbai, formerly
known as the Bombay Stock Exchange, or BSE, the Bangalore Stock Exchange, or
BgSE, and the National Stock Exchange of India Limited, or NSE, or
collectively, the Indian stock exchanges. Our ADSs are traded on Nasdaq under
the ticker symbol INFY. Each ADS represents one-half of one equity share. Our
ADSs began trading on the Nasdaq on March 11, 1999.

As of March 31, 2003, we had 66,243,078 equity shares issued and outstanding.
As of March 31, 2003, there were approximately 11,670 record holders of ADSs
evidencing 4,321,740 ADRs (equivalent to 2,160,870 equity shares). As of March
31, 2003, there were approximately 77,010 record holders of our equity shares
listed and traded on the Indian stock exchanges.

The following tables set forth for the periods indicated the price history of
the equity shares and the ADSs on the Indian stock exchanges and the Nasdaq.
Stock prices have been restated to reflect our 2-for-1 stock splits in each of
fiscal 1999 and 2000. All translations from Indian rupees to U.S. dollars
are based on the noon buying rate in the City of New York on March 31, 2003 for
cable transfers in Indian rupees as certified for customs purposes by the
Federal Reserve Bank of New York which was Rs. 47.53 per $1.00.

|       |  |                  |        |                  |  |                  |       |               |  |      |        |     |  |      |       |     |  |   |        |  |  |   |       |  |  |   |        |  |  |   |       | 
|------ |  | ---------------- | ------ | ---------------- |  | ---------------- | ----- | ------------- |  | ---- | ------ | --- |  | ---- | ----- | --- |  | - | ------ |  |  | - | ----- |  |  | - | ------ |  |  | - | ----- | 
|       |  | BSE              |        | NSE              |  | BgSE             |       |               |  |      |        |     |  |     
|       |  | Price per Equity |        | Price per Equity |  | Price per Equity |       | Nasdaq       
|       |  | Share            |        | Share            |  | Share (1)        |       | Price per ADS
|       |  |                  |        |                  |  |                  |       |              
|Fiscal |  | High             |        | Low              |  | High             |       | Low           |  | High |        | Low |  | High |       | Low
|       |  |                  |        |                  |  |                  |       |               |  |      |        |     |  |      |       |    
|2003   |  | $                | 102.52 |                  |  | $                | 61.75 |               |  | $    | 102.50 |     |  | $    | 61.79 |     |  |   |       |  |  |   |      |  |  | $ | 86.83  |  |  | $ | 46.55 | 
|2002   |  |                  | 102.28 |                  |  |                  | 45.36 |               |  |      | 102.55 |     |  |      | 44.50 |     |  | $ | 90.47  |  |  | $ | 57.44 |  |  |   | 81.50  |  |  |   | 30.60 | 
|2001   |  |                  | 223.56 |                  |  |                  | 78.71 |               |  |      | 223.04 |     |  |      | 79.22 |     |  |   | 222.34 |  |  |   | 79.00 |  |  |   | 284.56 |  |  |   | 60.13 | 
|2000   |  |                  | 290.61 |                  |  |                  | 26.40 |               |  |      | 293.12 |     |  |      | 26.41 |     |  |   | 294.02 |  |  |   | 50.49 |  |  |   | 375.00 |  |  |   | 19.63 | 
|1999   |  |                  | 36.81  |                  |  |                  | 9.67  |               |  |      | 36.37  |     |  |      | 9.69  |     |  |   | 11.78  |  |  |   | 6.44  |  |  |   | 25.00  |  |  |   | 18.69 | 

(1)  There were no trades of our shares on the BgSE since August 2002.

|       |                                     |      |                  |        |                  |      |                  |        |               |      |   |        |  |      |   |        |  |  |   |        |  |  |   |        |  |  |   |        |  |  |   |        | 
|------ | ----------------------------------- | ---- | ---------------- | ------ | ---------------- | ---- | ---------------- | ------ | ------------- | ---- | - | ------ |  | ---- | - | ------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|       |                                     |      | BSE              |        | NSE              |      | BgSE             |        |               |      |   |        |  |      |  
|       |                                     |      | Price per Equity |        | Price per Equity |      | Price per Equity |        | Nasdaq       
|       |                                     |      | Share            |        | Share            |      | Share (1)        |        | Price per ADS
|       |                                     |      |                  |        |                  |      |                  |        |              
|Fiscal |                                     | High |                  | Low    |                  | High |                  | Low    |               | High |   | Low    |  | High |   | Low   
|       |                                     |      |                  |        |                  |      |                  |        |               |      |   |        |  |      |   |       
|2004   |                                     |      |                  |        |                  |      |                  |        |               |      |   |        |  |      |   |        |  |  |   |        |  |  |   |        |  |  |   |        |  |  |   |       
|       | First
Quarter (through May 9, 2003) |      | $                | 92.55  |                  |      | $                | 50.99  |               |      | $ | 92.57  |  |      | $ | 48.39  |  |  |   |       |  |  |   |       |  |  | $ | 65.50  |  |  | $ | 38.51  | 
|2003   |                                     |      |                  |        |                  |      |                  |        |               |      |   |        |  |      |   |        |  |  |   |        |  |  |   |        |  |  |   |        |  |  |   |       
|       | First Quarter                       |      | $                | 86.26  |                  |      | $                | 64.28  |               |      | $ | 84. 14 |  |      | $ | 64.22  |  |  |   |       |  |  |   |       |  |  | $ | 70.50  |  |  | $ | 46.55  | 
|       | Second Quarter                      |      |                  | 78.06  |                  |      |                  | 61.75  |               |      |   | 78.01  |  |      |   | 61.79  |  |  |   |       |  |  |   |       |  |  |   | 60.68  |  |  |   | 48.00  | 
|       | Third Quarter                       |      |                  | 102.04 |                  |      |                  | 70.48  |               |      |   | 101.87 |  |      |   | 70.48  |  |  |   |       |  |  |   |       |  |  |   | 86.83  |  |  |   | 50.84  | 
|       | Fourth Quarter                      |      |                  | 102.52 |                  |      |                  | 83.25  |               |      |   | 102.50 |  |      |   | 75.43  |  |  |   |       |  |  |   |       |  |  |   | 75.52  |  |  |   | 55.10  | 
|2002   |                                     |      |                  |        |                  |      |                  |        |               |      |   |        |  |      |   |        |  |  |   |        |  |  |   |        |  |  |   |        |  |  |   |       
|       | First Quarter                       |      | $                | 92.05  |                  |      | $                | 57.24  |               |      | $ | 91.04  |  |      | $ | 56.83  |  |  | $ | 90.47  |  |  | $ | 57.44  |  |  | $ | 81.50  |  |  | $ | 50.65  | 
|       | Second Quarter                      |      |                  | 84.75  |                  |      |                  | 46.50  |               |      |   | 83.94  |  |      |   | 44.50  |  |  |   | 75.74  |  |  |   | 69.43  |  |  |   | 69.90  |  |  |   | 30.60  | 
|       | Third Quarter                       |      |                  | 98.59  |                  |      |                  | 45.36  |               |      |   | 98.36  |  |      |   | 45.39  |  |  |   |       |  |  |   |       |  |  |   | 70.11  |  |  |   | 31.69  | 
|       | Fourth Quarter                      |      |                  | 102.28 |                  |      |                  | 73.43  |               |      |   | 102.55 |  |      |   | 73.41  |  |  |   |       |  |  |   |       |  |  |   | 76.20  |  |  |   | 51.15  | 
|2001   |                                     |      |                  |        |                  |      |                  |        |               |      |   |        |  |      |   |        |  |  |   |        |  |  |   |        |  |  |   |        |  |  |   |       
|       | First Quarter                       |      | $                | 223.56 |                  |      | $                | 117.82 |               |      | $ | 223.04 |  |      | $ | 116.24 |  |  | $ | 222.34 |  |  | $ | 115.74 |  |  | $ | 284.56 |  |  | $ | 130.75 | 
|       | Second Quarter                      |      |                  | 187.88 |                  |      |                  | 131.60 |               |      |   | 188.28 |  |      |   | 131.61 |  |  |   | 189.31 |  |  |   | 131.08 |  |  |   | 186.94 |  |  |   | 96.50  | 
|       | Third Quarter                       |      |                  | 169.19 |                  |      |                  | 113.95 |               |      |   | 169.20 |  |      |   | 114.08 |  |  |   | 168.84 |  |  |   | 113.84 |  |  |   | 147.25 |  |  |   | 90.06  | 
|       | Fourth Quarter                      |      |                  | 147.02 |                  |      |                  | 78.71  |               |      |   | 146.01 |  |      |   | 79.22  |  |  |   | 149.38 |  |  |   | 79.00  |  |  |   | 131.38 |  |  |   | 60.13  | 

|              |  |      |        |     |  |      |       |     |  |      |        |     |  |      |       |     |  |  |   |  |  |  |   |  |  |   |       |  |  |   |       | 
|------------- |  | ---- | ------ | --- |  | ---- | ----- | --- |  | ---- | ------ | --- |  | ---- | ----- | --- |  |  | - |  |  |  | - |  |  | - | ----- |  |  | - | ----- | 
|Month         |  | High |        | Low |  | High |       | Low |  | High |        | Low |  | High |       | Low
|              |  |      |        |     |  |      |       |     |  |      |        |     |  |      |       |    
|November 2002 |  | $    | 98.32  |     |  | $    | 79.93 |     |  | $    | 98.31  |     |  | $    | 79.95 |     |  |  |  |  |  |  |  |  |  | $ | 86.83 |  |  | $ | 68.70 | 
|December 2002 |  |      | 102.04 |     |  |      | 92.28 |     |  |      | 101.87 |     |  |      | 92.37 |     |  |  |  |  |  |  |  |  |  |   | 58.50 |  |  |   | 61.95 | 
|January 2003  |  |      | 102.52 |     |  |      | 87.92 |     |  |      | 102.50 |     |  |      | 87.94 |     |  |  |  |  |  |  |  |  |  |   | 75.52 |  |  |   | 59.89 | 
|February 2003 |  |      | 95.71  |     |  |      | 85.46 |     |  |      | 95.62  |     |  |      | 85.64 |     |  |  |  |  |  |  |  |  |  |   | 69.00 |  |  |   | 59.50 | 
|March 2003    |  |      | 94.02  |     |  |      | 83.25 |     |  |      | 94.02  |     |  |      | 75.43 |     |  |  |  |  |  |  |  |  |  |   | 67.25 |  |  |   | 55.10 | 
|April 2003    |  |      | 92.55  |     |  |      | 50.92 |     |  |      | 92.57  |     |  |      | 48.39 |     |  |  |  |  |  |  |  |  |  |   | 63.10 |  |  |   | 40.25 | 

(1)  There were no trades of our shares on the BgSE since August 2002.

Source for all tables above: Datastream and www.bseindia.com for BSE quotes,
finance.yahoo.com for Nasdaq quotes, Datastream, and www.nse-india.com for NSE
quotes and The Economic Times for BgSE quotes.

On May 9, 2003, the closing price of equity shares on the BSE was Rs.
2,928.60, equivalent to $61.62 per equity share ($30.81 per ADS on an imputed
basis).





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##### Table of Contents



The Indian Securities Trading Market

The information in this section has been extracted from publicly available
documents from various sources, including officially prepared materials from
the Securities and Exchange Board of India, the BSE, and the NSE.

The six major stock exchanges in India are the BSE, the stock exchanges at
Ahmedabad, Kolkata, Chennai and Delhi, and the NSE. These exchanges account for
more than 90% of the market capitalization of listed Indian companies. The BSE
and NSE together dominate the stock exchanges in India, in terms of the number
of listed companies, and the market capitalizations and trading activities of
those companies.

Until March 31, 2003, the stock
exchanges in India operated on a trading day plus three, or T+3,
rolling settlement system. At the end of the T+3 period, obligations
settled with buyers of securities paying for and receiving securities, while
sellers transfer and receive payment for securities. For example, trades
executed on a Monday would typically be settled on a Thursday. As of
April 1, 2003, the stock exchange in India now operate on a
trading day plus two, or T+2, rolling settlement system. The Securities
and Exchange Board of India, or SEBI, has proposed to move to a
T+1 settlement
system in the future.

In order to contain the risk arising out of the transactions entered into by
the members in various securities either on their own account or on behalf of
their clients, the largest exchanges have designed risk management procedures,
which include compulsory prescribed margins on the individual broker members,
based on their outstanding exposure in the market, as well as stock-specific
margins from the members. There are generally no restrictions on price
movements of any security on any given day. However, to restrict abnormal price
volatility, the SEBI has instructed the stock exchanges to apply the following
price bands, calculated at the previous days closing price (there are no
restrictions on price movements of index stocks, including ours):

Market Wide Circuit Breakers. Market wide circuit breakers are applied to the
market for movement by 10%, 15% and 20% for two prescribed market indices: the
Sensex for the BSE and the Nifty for the NSE. If any of these circuit breaker
thresholds are reached, trading on all equity and equity derivatives markets
nationwide is halted.

Price Bands. Price bands are circuit filters of 20% movements either up or
down, and are applied to most securities traded in the markets, excluding
securities included in the BSE Sensex and the NSE Nifty indices and derivatives
products.

The National Stock Exchange of India Limited

The estimated market capitalization of stocks traded on the NSE as of March 31,
2003 was approximately Rs. 5,371 billion. The clearing and settlement
operations of the NSE are managed by its wholly-owned subsidiary, the National
Securities Clearing Corporation. Funds settlement takes place through
designated clearing banks. The National Securities Clearing Corporation Limited
interfaces with the depositary on the one hand and the clearing banks on the
other to provide delivery versus payment settlement for depositary-enabled
trades.

The Stock Exchange, Mumbai

The BSE was established in 1875 and is the oldest exchange in India today. The
estimated market capitalization of stocks trading on the BSE as of March 31,
2003 was Rs. 5,462 billion. The BSE began allowing online trading in May 1995.
As of July 2002, the BSE had 711 members, comprising 212 individual members,
477 Indian companies and 22 foreign institutional investors. Only a member of
the exchange has the right to trade in the stocks listed on the exchange.

Trading on both the NSE and the BSE occurs Monday through Friday, between 9:55
a.m. and 3:30 p.m.

Depositories

The National Securities Depository Limited and Central Depository Services
(India) Limited are the two depositories that provide electronic depository
facilities for trading in equity and debt securities in India. The SEBI has
also provided that the issue and allotment of shares in initial public
offerings shall only be in electronic form.




Item 10: Additional Information

Share capital

Not applicable.

Memorandum and Articles of
Association

Set forth below is the material information concerning our share capital and a
brief summary of the material provisions of our Articles of Association,
Memorandum of Association and the Indian Companies Act, all as currently in
effect. The following description of our equity shares and the material
provisions of our Articles of Association and Memorandum of Association does
not purport to be complete and is qualified in its entirety by our Articles of
Association and Memorandum of Association that are included as exhibits or
incorporated by reference to the registration statement of which this Annual
Report forms a part and by the provisions of applicable law.

Our Articles of Association provide that the minimum number of directors shall
be three and the maximum number of directors shall be 18. Currently, we have 15
directors. Our Articles of Association provide that at least two-thirds of our
directors shall be subject to retirement by rotation. One third of these
directors must retire from office at each Annual General
Meeting of the shareholders. A retiring director is eligible for re-election.
Our Articles of Association also provide that our Chairman, Mr. N. R. Narayana
Murthy, is not required to retire by rotation, so long as he and his family
together hold at least 5% of our voting shares. The necessary resolution for
deleting this article is being placed in the shareholders meeting to be held
on June 14, 2003. Executive directors are required to retire at age 60 in
accordance with our employee retirement policies. Other board members must
retire from the board at age 65. Our Aricles of Association do not require that
our directors have to hold shares of our company in order to serve on our board
of directors.

Our Articles of Association provide that any director who has a personal
interest in a transaction must disclose such interest, must abstain from voting
on such a transaction and may not be counted for the purposes of determining
whether a quorum is present at the meeting. Such directors interest in any
such transaction shall be reported at the next meeting of shareholders. The
remuneration payable to our directors may be fixed by the board of directors in
accordance with provisions prescribed by the Government of India.





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##### Table of Contents



Objects and Purposes of our Memorandum of Association

The following is a summary of our Objects as set forth in Section 3 of our
Memorandum of Association:



| |  | To provide services of every kind including commercial,
statistical, financial, accountancy, medical, legal, management,
educational, engineering, data processing, communication and other
technological, social or other services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | To carry on all kinds of business as importer, exporter, buyers,
sellers and lessors of and dealers in all types of components and
equipments necessary to provide the services our objects enlist.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| 
| |  | To manufacture, export, import, buy, sell, rent, hire or lease
or otherwise acquire or dispose or deal in all kinds of digital
equipments, numerical controller, flexible manufacturing systems,
robots, communication systems, computers, computer peripherals, computer
software, computer hardware, computer technology, machines, computer
software, computer hardware, computer technology, machines, computer
aided teaching aids, energy saving devices, alternative sources of
energy, electrical and electronics components, devices, instruments,
equipments and controls for any engineering applications, and all other
related components, parts and products used in communication and
computers.
| 
| |  | To conduct or otherwise subsidise or promote research and
experiments for scientific, industrial, commercial economic, statistical
and technical purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| 
| |  | To carry on any other trade or business whatsoever as can in our
opinion can be advantageously or conveniently carried on by us.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Description of Equity Shares

Our authorized share capital is 100,000,000 equity shares, par value Rs. 5 per
share. As of March 31, 2003, 66,243,078 equity shares were issued, outstanding
and fully paid. The equity shares are our only class of share capital. We
currently have no convertible debentures or warrants outstanding. As of March
31, 2003, we had outstanding options to purchase 5,061,171 equity shares and
2,503,406 ADSs. For the purposes of this Annual Report, shareholder means a
shareholder who is registered as a member in our register of members.

Dividends

Under the Indian Companies Act, unless our board of directors recommends the
payment of a dividend, we may not declare a dividend. Similarly, under our
Articles of Association and the Indian Companies Act, although the shareholders
may, at the Annual General Meeting, approve a dividend in an amount less than
that recommended by the board of directors, they cannot increase the amount of
the dividend. In India, dividends generally are declared as a percentage of the
par value of a companys equity shares. The dividend recommended by the board,
if any, and subject to the limitations described above, is distributed and paid
to shareholders in proportion to the paid up value of their shares within 30
days of the approval by the shareholders at the Annual General Meeting.
Pursuant to our Articles of Association, our board of directors has discretion
to declare and pay interim dividends without shareholder approval. With respect
to equity shares issued during a particular fiscal year, including any equity
shares underlying ADSs issued to the Depositary or in the future, unless
otherwise determined by shareholders, cash dividends declared and paid for such
fiscal year generally will be prorated from the date of issuance to the end of
such fiscal year. Under the Indian Companies Act, dividends can only be paid in
cash to the registered shareholder at a record date fixed on or prior to the
Annual General Meeting or to his order or his bankers order.

The Indian Companies Act provides that any dividends that remain unpaid or
unclaimed after the 30-day period are to be transferred to a special bank
account. We transfer any dividends that remain unclaimed for seven years from
the date of the transfer to a fund created by the Government of India. After
the transfer to this fund, such unclaimed dividends may not be claimed.

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 after providing for
depreciation. Before declaring a dividend greater than 10% of the par value of
its equity shares, a company is required to transfer to its reserves a minimum
percentage of its profits for that year, ranging from 2.5% to 10% depending
upon the dividend percentage to be declared in such year.

The Indian Companies Act further provides that, in the event of an 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 the following conditions:



| |  | the rate of dividend to be declared may not exceed 10% of its paid
up capital or the average of the rate at which dividends were declared
by the company in the prior five years, whichever is less;                                                                                                                                                                                      
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the total amount to be drawn from the accumulated profits earned in
the previous years and transferred to the reserves may not exceed an
amount equivalent to 10% of its paid up capital and free reserves, and
the amount so drawn is to be used first to set off the losses incurred
in the fiscal year before any dividends in respect of preference or
equity shares are declared; and
| 
| |  | the balance of reserves after withdrawals shall not fall below 15%
of its paid up capital.                                                                                                                                                                                                                                                                                                

Bonus Shares

In addition to permitting dividends to be paid out of current or retained
earnings as described above, the Indian Companies Act permits a company to
distribute an amount transferred from the general reserve or surplus in the
companys profit and loss account to its shareholders in the form of bonus
shares (similar to a stock dividend). The Indian Companies Act also permits the
issuance of bonus shares from a securities premium account. Bonus shares are
distributed to shareholders in the proportion recommended by the board of
directors. Shareholders of record on a fixed record date are entitled to
receive such bonus shares.

Consolidation and Subdivision of
Shares

The Indian Companies Act permits a company to split or combine the par value of
its shares, provided such split or combination is not made in fractions.
Shareholders of record on a fixed record date are entitled to receive the split
or combination.





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##### Table of Contents



Preemptive Rights and Issue of Additional Shares

The Indian Companies Act gives shareholders the right to subscribe for new
shares in proportion to their respective existing shareholdings unless
otherwise determined by a special resolution passed by a General Meeting of the
shareholders. Under the Indian Companies Act, in the event of an issuance of
securities, subject to the limitations set forth above, a company must first
offer the new shares to the shareholders on a fixed record date. The offer must
include: (i) the right, exercisable by the shareholders of record, to renounce
the shares offered in favor of any other person; and (ii) the number of shares
offered and the period of the offer, which may not be less than 15 days from
the date of offer. If the offer is not accepted it is deemed to have been
declined. The board of directors is authorized under the Indian Companies Act
to distribute any new shares not purchased by the preemptive rights holders in
the manner that it deems most beneficial to the company.

Meetings of Shareholders

We must convene an Annual General Meeting of 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 at least 10% of our paid up capital carrying voting
rights. The Annual General Meeting of the shareholders is generally convened by
our Secretary pursuant to a resolution of the board of directors. Written
notice setting out the agenda of the meeting must be given at least 21 days,
excluding the days of mailing and date of the meeting, prior to the date of the
General Meeting to the shareholders of record. Shareholders who are registered
as shareholders on the date of the general meeting are entitled to attend or
vote at such meeting. The Annual General Meeting of shareholders must be held
at our registered office or at such other place within the city in which the
registered office is located; meetings other than the Annual General Meeting
may be held at any other place if so determined by the board of directors. Our
Articles of Association provide that a quorum for a General Meeting is the
presence of at least five shareholders in person.

Voting Rights

At any General Meeting, voting is by show of hands unless a poll is demanded by
a shareholder or shareholders present in person or by proxy holding at least
ten percent of the total shares entitled to vote on the resolution or by those
holding shares with an aggregate paid up capital of at least Rs. 50,000. Upon a
show of hands, every shareholder entitled to vote and present in person has one
vote and, on a poll, every shareholder entitled to vote and present in person
or by proxy has voting rights in proportion to the paid up capital held by such
shareholders. 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 delivered to the company at least 48 hours prior to
the meeting. A proxy may not vote except on a poll. A corporate shareholder may
appoint an authorized representative who can vote on behalf of the shareholder,
both upon 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 amendments of the Articles and the
Memorandum of Association, commencement of a new line of business, the waiver
of preemptive rights for the issuance of any new shares and a reduction of
share capital, require that votes cast in favor of the resolution (whether by
show of hands or poll) are not less than three times the number of votes, if
any, cast against the resolution. As per the Indian Companies Act, not less
than two-third of the directors of a public company must retire by rotation,
while the remaining one-third may remain on the board until they resign or are
removed. One-third of the directors who are subject to retirement by rotation
must retire each year. Further, the Indian Companies Act requires certain
resolutions such as those listed below to be voted on only by a postal ballot:



| |  | amendments of the Memorandum of Association to alter the objects
of the company and changing the registered office of the company;           
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the issuance of shares with differential voting rights;                                                                                      
| 
| |  | the sale of the whole or substantially the whole of an undertaking or facilities of the company;                                             
| 
| |  | providing loans, extending guarantees or providing a security in
excess of the limits allowed under Section 372A of the Indian Companies
Act;
| 
| |  | varying the rights of the holders of any class of shares or debentures;                                                                      
| 
| |  | the election of a small shareholders director; and                                                                                          
| 
| |  | buy back of shares.                                                                                                                          

Register of Shareholders; Record Dates; Transfer of Shares

We maintain a register of shareholders held in electronic form through National
Securities Depository Limited. For the purpose of determining the shares
entitled to annual dividends, the register is closed for a specified period
prior to the Annual General Meeting. The date on which this period begins is
the record date.

To determine which shareholders are entitled to specified shareholder rights,
we may close the register of shareholders. The Indian Companies Act requires us
to give at least seven days prior notice to the public before such closure. We
may not close the register of shareholders for more than thirty consecutive
days, and in no event for more than forty-five days in a year. Trading of our
equity shares, however, may continue while the register of shareholders is
closed.

Following the 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 some circumstances, the
equity shares of a public company are freely transferable, subject only to the
provisions of Section 111A of the Indian Companies Act. Since we are a public
company, the provisions of Section 111A will apply to us. Our Articles of
Association currently contain provisions which give our board of directors
discretion to refuse to register a transfer of shares in some circumstances.
Furthermore, in accordance with the provisions of Section 111A(2) of the Indian
Companies Act, our board of directors may refuse to register a transfer of
shares if they have sufficient cause to do so. If our board of directors
refuses to register a transfer of shares, the shareholder wishing to transfer
his, her or its shares may file a civil suit or an appeal with the Company Law
Board.

Pursuant to Section 111A(3), if a transfer of shares contravenes any of the
provisions of the Indian Companies Act, 1956 and Securities and Exchange Board
of India Act, 1992 or the regulations issued thereunder or any other Indian
laws, the Company Law Board may, on application made by the company, a
depository incorporated in India, an investor, a participant, the Securities
and Exchange Board of India or other parties, direct the rectification of the
register of members. The Company Law Board may, in its discretion, issue an
interim order suspending the voting rights attached to the relevant shares
before making or completing its investigation into the alleged contravention.





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Under the Indian Companies Act, unless the shares of a company are held in a
dematerialized form, a transfer of shares is effected by an instrument of
transfer in the form prescribed by the Indian Companies Act and the rules
thereunder together with delivery of the share certificates. Our transfer agent
for our equity shares is Karvy Consultants Limited located in Bangalore,
Karnataka, India.

Disclosure of Ownership Interest

Section 187C of the Indian Companies Act 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 the holder of record to declare details of
the beneficial owner. Any person who fails to make the required declaration
within 30 days may be liable for a fine of up to Rs. 1,000 for each day the
declaration is not made. Any lien, promissory note or other collateral
agreement created, executed or entered into with respect to any share by the
registered owner thereof, or any hypothecation by the registered owner of any
share, pursuant to which a declaration is required to be made under Section
187C, shall not be enforceable by the beneficial owner or any person claiming
through the beneficial owner if such declaration is not made. Failure to comply
with Section 187C will not affect the obligation of the company to register a
transfer of shares or to pay any dividends to the registered holder of any
shares pursuant to which such declaration has not been made. While it is
unclear under Indian law whether Section 187C applies to holders of ADSs of the
company, investors who exchange ADSs for the underlying Equity Shares of the
company will be subject to the restrictions of Section 187C. Additionally,
holders of ADSs may be required to comply with such notification and disclosure
obligations pursuant to the provisions of the Deposit Agreement to be entered
into by such holders, the company and a depositary.

Audit and Annual Report

At least 21 days before the Annual General Meeting of shareholders, a company
must distribute 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. Under the Indian Companies Act, a company must file the
balance sheet and annual profit and loss account presented to the shareholders
within 30 days of the conclusion of the Annual General Meeting with the
Registrar of Companies.

A company must also file an annual return containing a list of the companys
shareholders and other company information, within 60 days of the conclusion of
the Annual General Meeting.

Company Acquisition of Equity Shares

Under the Indian Companies Act, approval of at least 75% of a companys
shareholders voting on the matter and approval of the High Court of the state
in which the registered office of the company is situated is required to reduce
a companys share capital. A company may, under some circumstances, acquire its
own equity shares without seeking the approval of the High Court. However, a
company would have to extinguish the shares it has so acquired within the
prescribed time period. A company is not permitted to acquire its own shares
for treasury operations.

An acquisition by a company of its own shares that does not rely on an approval
of the High Court must comply with prescribed rules, regulations and conditions
of the Indian Companies Act. In addition, public companies which are listed on
a recognized stock exchange in India must comply with the provisions of the
Securities and Exchange Board of India (Buy-back of Securities) Regulations,
1998, or Buy-back Regulations. Since we are a public company listed on several
recognized stock exchanges in India, we would have to comply with the relevant
provisions of the Indian Companies Act and the provisions of the Buy-back
Regulations. Any ADS holder may participate in a Companys purchase of its own
shares by withdrawing his or her ADSs from the depository facility, acquiring equity shares
upon the withdrawal and then selling those shares back to the company.

There can be no assurance that equity shares offered by an ADS investor in any
buy-back of shares by us will be accepted by us. The regulatory approvals
required for ADS holders to participate in a buyback is not entirely clear. ADS
investors are advised to consult their legal advisors prior to participating in
any buyback by us, including any related regulatory approvals and tax issues.

Liquidation Rights

Subject to the rights of creditors, employees and the holders of any shares
entitled by their terms to preferential repayment over the equity shares, if
any, in the event of our winding-up, the holders of the equity shares are
entitled to be repaid the amounts of paid up capital or credited as paid upon
those equity shares. All surplus assets after payments to the holders of any
preference shares at the commencement of the winding-up shall be paid to
holders of equity shares in proportion to their shareholdings.

Redemption of Equity Shares

Under the Indian Companies Act, unlike preference shares, equity shares are not
redeemable.

Discriminatory Provisions in Articles

There are no provisions in the Articles of Association discriminating against
any existing or prospective holder of such securities as a result of such
shareholder owning a substantial number of shares. Our Articles of Association
currently provide that our Chairman, Mr. N.R. Narayana Murthy, is not required
to retire as our Managing Director so long as he and his family
together hold at least 5% of our voting shares.

Alteration of Shareholder Rights

Under the Indian Companies Act, the rights of any class of shareholders can be
altered or varied with the consent in writing of the holder of not less than
three-fourths of the issued shares of that class or with the sanction of a
special resolution passed at a separate meeting of the holders of the issued
shares of that class if the provisions with respect to such variation are
contained in the memorandum or articles of association of the company, or in
the absence of any such provision in the memorandum or articles of association,
if such variation is not prohibited by the terms of issue of the shares of that
class.

Under the Indian Companies Act, the Articles may be altered by a special
resolution of the shareholders.





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Limitations on the Rights to Own Securities

The limitations on the rights to own securities of Indian companies, including
the rights of non-resident or foreign shareholders to hold securities, imposed
by Indian law are discussed in the Risk Factors elsewhere in this filing.

Provisions on Changes in Capital

Our authorized capital can be altered by an ordinary resolution of the
shareholders in a General Meeting. The additional issue of shares is subject to
the preemptive rights of the shareholders. In addition a company may increase
its share capital, consolidate its share capital into shares of larger face
value than its existing shares or sub-divide its shares by reducing their par
value, subject to an ordinary resolution of the shareholders in a General
Meeting.

Takeover Code and Listing Agreements

Under the Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997, or Takeover Code, upon the acquisition
of more than 5% or 10% or 14% of the outstanding shares or voting rights of a
publicly-listed Indian company, a purchaser is required to notify the company,
and the company and the purchaser are required to notify all the stock
exchanges on which the shares of such company are listed. Further, the Takeover
Code requires that any person holding more than 15% and less than 75% of the
shares or voting rights in a company, upon the sale or purchase of 2% or more
of the shares or voting rights of the company, is required to notify the
company and all the stock exchanges where the shares are listed. A holder of
ADSs would be subject to these notification requirements.

Upon the acquisition of 15% or more of such shares or voting rights, 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 determined pursuant
to the Takeover Code. Since we are a listed company in India, the provisions of
the Takeover Code will apply to us and to any person acquiring our equity
shares or voting rights in our company. However, the Takeover Code provides for
a specific exemption from this provision to a holder of ADSs and states that
this provision will apply to a holder of ADSs only once he or she converts the
ADSs into the underlying equity shares.

We have entered into listing agreements with each of the Indian stock exchanges
on which our equity shares are listed. Each of the listing agreements provides
that if a purchase of our equity shares results in the purchaser and its
affiliates holding more than 5% of our outstanding equity shares or voting
rights, the purchaser and we must, in accordance with the provisions of the
Takeover Code, report its holding to us and the relevant stock exchange(s). The
agreements also provide that if an acquisition results in the purchaser and its
affiliates holding equity shares representing more than 15% of our outstanding
voting rights, then the purchaser must, in accordance with the provisions of
the Takeover Code, before acquiring such equity shares, make an offer on a
uniform basis to all of our remaining shareholders to acquire equity shares
that have at least an additional 20% of the voting rights of our total
outstanding equity shares at a prescribed price.

Although the provisions of the listing agreements entered into between us and
the Indian stock exchanges on which our equity shares are listed will not apply
to equity shares represented by ADSs, holders of ADSs may be required to comply
with such notification and disclosure obligations pursuant to the provisions of
the Deposit Agreement to be entered into by such holders, our company and a
depositary.

Voting Rights of Deposited Equity Shares Represented by ADSs

Under Indian law, voting of the equity shares is by show of hands unless a poll
is demanded by a member or members present in person or by proxy holding at
least one-tenth of the total shares entitled to vote on the resolution or by
those holding an aggregate paid up capital of at least Rs. 50,000. A proxy may
not vote except on a poll.

As soon as practicable after receipt of notice of any meetings or solicitation
of consents or proxies of holders of shares or other deposited securities, our
Depositary shall fix a record date for determining the holders entitled to give
instructions for the exercise of voting rights. The Depositary shall then mail
to the holders of ADSs a notice stating (i) such information as is contained in
such notice of meeting and any solicitation materials, (ii) that each holder on
the record date set by the Depositary therefore will be entitled to instruct
the Depositary as to the exercise of the voting rights, if any pertaining to
the deposited securities represented by the ADSs evidenced by such holders
ADRs, (iii) the manner in which such instruction may be given, including
instructions to give discretionary proxy to a person designated by us, and (iv)
if the Depositary does not receive instructions from a holder, he would be
deemed to have instructed the Depositary to give a discretionary proxy to the
person designated by us to vote for such deposited securities.

On receipt of the aforesaid notice from the Depositary, our ADS holders may
instruct the Depositary on how to exercise the voting rights for the shares
that underlie their ADSs. For such instructions to be valid, the Depositary
must receive them on or before a specified date.

The Depositary will try, as far as is practical, and subject to the provisions
of Indian law and our Memorandum of Association and our Articles of
Association, to vote or to have its agents vote the shares or other deposited
securities as per our ADS
holders instructions. The Depositary will only vote or attempt to vote as per
an ADS holders instructions. The Depositary will not itself exercise any
voting discretion.

Neither the Depositary nor its agents are responsible for any failure to carry
out any voting instructions, for the manner in which any vote is cast, or for
the effect of any vote. There is no guarantee that our shareholders will
receive voting materials in time to instruct the Depositary to vote and it is
possible that ADS holders, or persons who hold their ADSs through brokers,
dealers or other third parties, will not have the opportunity to exercise a
right to vote.

Material Contracts

Not applicable.

Currency Exchange Controls

Foreign investment in Indian securities is governed by the Foreign Exchange
Management Act, 1999 or the FEMA, which replaced the more stringent Foreign
Exchange Regulation Act, 1973, effective as of June 1, 2000. The Foreign Direct Investment





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Policy under the Reserve Bank of Indias Automatic Route enables Indian
companies (other than those specifically excluded in the scheme) to issue
shares to persons resident outside India without prior permission from the
Reserve Bank of India, subject to certain conditions. General permission has
been granted for the transfer of shares and convertible debentures by a person
resident outside India as follows: (i) for transfers of shares or convertible
debentures held by a person resident outside India other than non-resident
Indians, or NRIs, or overseas corporate bodies, or OCBs, to any person resident outside
India, provided that the transferee has obtained permission of the Central
Government and if that person had any previous venture or tie-up in India
through investment in any manner or a technical collaboration or trademark
agreement in the same field or allied field in which the Indian company whose
shares are being transferred is engaged, (ii) NRIs or OCBs are permitted to
sell shares or convertible debentures of an Indian company to other NRIs or
OCBs and (iii) a person resident outside India may gift securities of an Indian
company to a person resident in India. In all other cases, prior approval of
the Reserve Bank of India is necessary. For the sale of existing shares or
convertible debentures of an Indian company by a resident to a non resident the
transferor should obtain approval of the Central Government (Govt. of India)
and thereafter make an application to Reserve Bank of India for permission. In
such cases the Reserve Bank of India may permit the transfer subject to such
terms and conditions, including the price at which the sale may be made.

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 Ordinary Shares (Through Depositary Receipt
Mechanism) Scheme, 1993, or the 1993 Regulations, as modified from time to
time, promulgated by the Government of India. The 1993 Regulations are in
addition but without prejudice to the other policies or facilities, as
described below, relating to investments in Indian companies by foreign
investors. The issuance of ADSs pursuant to the 1993 Regulations also affords
to holders of the ADSs the benefits of Section 115AC of the Income Tax Act,
1961 for purposes of the application of Indian tax law. In March 2001, the Reserve Bank of India issued notifications permitting,
subject to certain conditions, two-way fungibility of ADSs. This would mean
that ADSs converted into Indian shares may be converted back into ADSs, subject
to compliance with certain requirements and the limits of sectoral caps as
applicable.

Fungibility of ADSs

In March 2001, the Reserve Bank of India amended the
Foreign Exchange Management (Transfer or Issue of Securities by a Person
Resident Outside India) Regulations, 2000 and established two alternative
methods to allow equity shares converted into and sold as ADSs.

Pursuant to this amendment, a registered broker in India can purchase shares of
an Indian company that has issued ADSs, on behalf of a person resident outside
India, for the purposes of converting the shares into ADSs. However, such
conversion of equity shares into ADSs is possible only if the following
conditions are satisfied:



| |  | the shares are purchased on a recognized stock exchange;                                                                                                                                                                                                                                                         
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the shares are purchased with the permission of the Custodian to
the ADS offering of the Indian company and are deposited with the
Custodian;                                                                                                                                                                    
| 
| |  | the shares purchased for conversion into ADSs do not exceed the
number of shares that were released by the Custodian pursuant to
conversions of ADSs into equity shares under the Depositary Agreement;
and                                                                                                      
| 
| |  | a non-resident investor, broker, the Custodian and the
Depository comply with the provisions of the Scheme for Issue of Foreign
Currency Convertible Bonds and Ordinary Shares (Through Depository
Receipt Mechanism) Scheme, 1993 and the related guidelines issued by the
Central Government from time to time.

Alternatively, the amendment to the regulations permit an issuer in India to
sponsor the issue of ADSs through an overseas depositary against underlying
equity shares accepted from holders of its equity shares in India at a price to
be determined by the managing underwriters for the offering. However, the
sponsored issue of ADSs is possible only if the following conditions are
satisfied:



| |  | the ADS offering is approved by the Foreign Investment Promotion
Board and the shareholders of the issuer in an extraordinary general
meeting;                                      
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the facility is available to all the shareholders of the issuer;                                                                                                                    
| 
| |  | the proceeds of the offering are repatriated into India within one month;                                                                                                           
| 
| |  | the sale of the existing shares by the Indian shareholders are
made in compliance with the Foreign Direct Investment policy in India;                                               
| 
| |  | the number of shares offered by the Indian shareholders are
subject to limits in proportion to the existing holdings of the Indian
shareholders when the sale is oversubscribed; and
| 
| |  | the offering expenses do not exceed 7% of the offering proceeds
and are paid by shareholders on a pro-rata basis.                                                                   

The issuer company is also required to furnish a report to the Reserve Bank of
India specifying the details of the offering including amount raised through
the offering, number of ADSs issued, underlying shares offered and percentage
of equity in the issuer.

Foreign Direct Investment

In July 1991, the Government of India issued a New Industrial Policy, and
raised the limit on foreign equity holdings in Indian companies from 40% to 51%
in certain high priority industries. The Reserve Bank of India gave automatic
approval for such foreign equity holdings within specified limits in certain
priority industries. The Foreign Investment Promotion Board currently under the
Ministry of Finance, but formerly under the Ministry of Industry, was
thereafter formed to approve proposals of foreign direct investment by foreign
companies wishing to make considerable long-term investments. Over a period of
time, the Government of India has relaxed the restrictions on foreign
investment considerably. Currently, subject to certain exceptions, foreign
direct investment by individuals of Indian nationality or origin residing
outside India, or NRIs or OCBs, up to 49% in most sectors of industry do not
require the prior approval of the Foreign Investment Promotion Board. Some
sectors of





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industry have recently been relaxed to
allow up to 74% investment. Currently, subject to industry specific
investment limits where applicable, foreign direct investment by
non-residents of up to 100% is permitted, subject to the fulfillment
of certain conditions. Foreign
equity participation in excess of 51% in certain high priority industries and
in excess of percentages prescribed by the Ministry of Industry is currently
allowed only with the approval of the Foreign Investment Promotion Board. So
also in cases which require Industrial Licenses under the Industries
Development and Regulation Act, 1951, compulsory Government approval is
required for foreign direct investment.

Proposals involving the public sector and other sensitive areas require
approval of the Cabinet Committee on Economic Affairs. 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, or the
Guidelines. Under the Guidelines, sector specific guidelines for foreign direct
investment and the levels of permitted equity participation have been
established. In February 2000, the Department of Industrial Policy and
Promotion, issued a notification that foreign ownership of up to 50%, 51%, 74%
or 100%, depending on the category, would be allowed without prior permission
of the Foreign Investment Promotion Board and, in certain cases, 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. These guidelines have been substantially modified/relaxed under the
current Foreign Exchange Management Act dispensation.

The basic objective of the Guidelines is to enhance the transparency and
provide for objectivity of the Foreign Investment Promotion Boards
consideration of proposals. However, since these are administrative guidelines
issued in the form or press notes/releases by the Department of Industrial
Policy and Promotion, Government of India 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 of India announced that purchases by foreign
investors of ADSs as evidenced by ADSs and foreign currency convertible bonds
of Indian companies would 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, offerings by Indian companies of any such securities to foreign
investors require approval of the Foreign Investment Promotion Board whether or
not the stipulated percentage limit would be reached if the proceeds will be
used for investment in specified industries. In August 2000, the Department of
Industrial Policy and Promotion removed all limitations on Foreign Direct
Investment in the IT industry.

Investment by Non-Resident Indians and Overseas Corporate Bodies

A variety of facilities for making investments in shares of Indian companies
are available to non-residents, being persons of Indian nationality (NRI) or
persons of Indian origin (PIO) residing outside India, and to Overseas
Corporate Bodies or OCBs. Overseas corporate bodies are those wherein not less
than sixty percent of the beneficial interest in the concern incorporated or
set up outside India is held by persons of Indian origin or by non-resident
Indians. Generally all facilities available to natural persons, i.e. NRIs and
PIOs are made available to OCBs too. These facilities permit NRIs, PIOs and
OCBs to make portfolio investments in shares and other securities of Indian
companies on a basis that is not generally available to other foreign
investors. These facilities are somewhat distinguishable from investments by
Foreign Direct Investors (i.e. investment by companies or concerns which are
not OCBs or persons who are not NRIs or PIOs) as described above. Investments
may be made on repatriation or non-repatriation basis. However, in either case,
income earned from such investments is repatriable after payment of income tax
as applicable since such remittance would be treated as a current account
transaction under the FEMA.

Investment by Foreign Institutional Investors

In September 1992, the Government of India issued guidelines which enable
Foreign Institutional Investors, or FIIs, including institutions such as
pension funds, investment trusts, asset management companies, nominee companies
and incorporated/institutional portfolio managers, to invest in all the
securities traded on the primary and secondary markets in India. Under the
guidelines, FIIs are required to obtain an initial registration from the
Securities and Exchange Board of India, or SEBI, and a general permission from
the Reserve Bank of India to engage in transactions regulated under the Foreign
Exchange Management Act. FIIs must also comply with the provisions of the SEBI
Foreign Institutional Investors Regulations, 1995. When it receives the initial
registration, the FII also obtains general permission from the Reserve Bank of
India to engage in transactions regulated under the Foreign Exchange Management
Act. Together, the initial registration and the Reserve Bank of Indias general
permission enable the registered FII to: (i) buy (subject to the ownership
restrictions discussed below) and sell unrestricted securities issued by Indian
companies; (ii) realize capital gains on investments made through the initial
amount invested in India; (iii) participate in rights offerings for shares;
(iv) appoint a domestic custodian for custody of investments held; and (v)
repatriate the capital, capital gains, dividends, interest income and any other
compensation received pursuant to rights offerings of shares. The current
policy with respect to purchase/sale of securities of an Indian company by an
FII is enshrined in Schedule 2 and Regulation 5(2) of the FEM (Transfer or
Issue of Securities by a Person Resident Outside India) Regulations, 2000.

Ownership Restrictions

The SEBI and Reserve Bank of India regulations restrict investments in Indian
companies by FIIs, NRIs and OCBs or collectively, Foreign Direct Investors.
Under the current SEBI regulations applicable to us, subject to the requisite
approvals of the shareholders in a general meeting, Foreign Direct Investors in
aggregate may hold no more than 49% of a companys equity shares, excluding the
equity shares underlying the ADSs. Pursuant to Notification No. FEMA.45/2001-RB
dated September 20, 2001 under Foreign Exchange Management (Transfer or Issue
of Securities by a Person Resident Outside India) (Amendment) Regulations,
2001, upon obtaining the approval of the shareholders by a special resolution,
the limit of FII investment in a company may be increased to 100% for companies
in the IT industry.

Furthermore, SEBI regulations provide that no single FII may hold more than 10%
of a companys total equity shares.

There is uncertainty under Indian law about the tax regime applicable to FIIs,
which hold and trade ADSs. FIIs are urged to consult with their Indian legal
and tax advisers about the relationship between the FII guidelines and the ADSs
and any equity shares withdrawn upon surrender of the ADSs.



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Detailed provisions relating to FII 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 FIIs,
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% of the aggregate of all investments of an FII in India. The SEBI has
also permitted private placements of shares by listed companies with FIIs,
subject to the prior approval of the Reserve Bank of India under the
Foreign Exchange Management Act. Such private placements must be made at
the average of the weekly highs and lows of the closing price over the
preceding six months or the preceding two weeks, whichever is higher.

Under the Takeover Code, which replaced the 1994 Takeover Code (as defined
herein), upon the acquisition of more than 5% or 10% or 14% of the outstanding
shares of a public Indian company, a purchaser is required to notify the
company and the company and the purchasers are required to notify all the stock exchanges on which the shares of the company are
listed. Upon the acquisition of 15% 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, a holder of ADSs will be subject to the Takeover Code.

Open market purchases of securities of Indian companies in India by Foreign
Direct Investors above the ownership levels set forth above require
Government of India approval on a case-by-case basis.

Government of India Approvals

Foreign direct investment by
non-residents requires approval from the Foreign Investment Promotion
Board unless it results in an issuance of securities excepted by the
FEMA. Additionally, Reserve Bank of India
approval is required for:



| |  | any holder of the underlying equity shares to transfer
rights in the underlying equity shares in favor of a person
resident in India; and
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the sale of the underlying equity shares held by a person
resident outside India to a person resident in India.                          

When the Reserve Bank of Indias approval is required the foreign investor
would have to apply to the Reserve Bank of India by submitting Form TS1,
which requires information as to the transferor, the transferee, the
shareholding structure of the company whose shares are to be sold, the
proposed price and other information. The Reserve Bank of India is not
required to respond to a Form TS1 application within any specific time
frame and may grant or deny the application at its discretion.

Examples of exceptions from the Reserve Bank of Indias approval
requirement include sales made in the stock market through a registered
Indian broker, through a recognized stock exchange in India at the
prevailing market rates, or if the shares are offered in accordance with
the terms of an offer under the Takeover Code.

The proceeds from any sale of the underlying equity shares by a person
resident outside India to a person resident in India may only be
transferred outside India after receipt of Reserve Bank of Indias
approval, and the payment of applicable taxes and stamp duties.

No approval is required for transfer of ADSs outside India between two
non-residents.

Shareholders resident outside India who intend to sell or otherwise
transfer equity shares within India should seek the advice of Indian
counsel to understand the requirements applicable at that time.

Taxation

Indian Taxation

General.The following summary is based on the law and practice of the
Indian Income-tax Act, 1961, or Income-tax Act, including the special tax
regime contained in Sections 115AC and 115ACA of the Income-tax Act read
with the Issue of Foreign Currency Convertible Bonds and Ordinary Shares
(through Depository Receipt Mechanism) Scheme, 1993, or the Scheme, as
amended on, January 19, 2000. The Income-tax Act is amended every year by
the Finance Act of the relevant year. Some or all of the tax consequences
of Sections 115AC and 115ACA may be amended or changed by future amendments
to the Income-tax Act.

We believe this information is materially complete as of the date hereof.
However, this summary is not intended to constitute a complete analysis of
the individual tax consequences to non-resident holders or employees under
Indian law for the acquisition, ownership and sale of ADSs and equity shares.

EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISORS
WITH RESPECT TO INDIAN AND LOCAL TAX CONSEQUENCES OF ACQUIRING, OWNING OR
DISPOSING OF EQUITY SHARES OR ADSs.

Residence.For purposes of the Income-tax Act, an individual is considered
to be a resident of India during any fiscal year if he or she is in India
in that year for:



| |  | a period or periods amounting to at least 182 days; or                                                                         
|- |  | -------------------------------------------------------------------------------------------------------------------------------
| 
| |  | at least 60 days and, within the four preceding years has
been in India for a period or periods amounting to at least 365
days.

The period of 60 days referred to above shall be read as 182 days or more
in case of a citizen of India or a PIO living abroad who visits India and
within the four preceding years has been in India for a period or periods
amounting to 365 days or more.

A company is a resident of India if it is incorporated in India or the
control and the management of its affairs is situated wholly in India.
Individuals and companies that are not residents of India would be treated
as non-residents for purposes of the Income-tax Act.

Taxation of Distributions.The Finance Bill, 2003 proposes that after April
1, 2003, dividend income will be exempt from tax for shareholders and that
domestic companies will be liable to pay a dividend distribution tax at the
rate of 12.5% plus a surcharge at the time of the distribution.

Any distributions of additional ADSs or equity shares to resident or
non-resident holders will not be subject to Indian tax.





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##### Table of Contents



Taxation of Capital Gains.The following is a brief summary of capital gains
taxation of non-resident holders and resident employees relating to the sale of
ADSs and equity shares received upon redemption of ADSs. The relevant
provisions are contained mainly in sections 45, 47(vii)(a), 115AC and 115ACA,
of the Income-tax Act, in conjunction with the Scheme. Effective April 1, 2002,
the Finance Act 2001 introduced a new section 115AC in place of the prevailing
section 115AC of the Income-tax Act. You should consult your own tax advisor
concerning the tax consequences of your particular situation.

Gains realized upon the sale of ADSs or shares that have been held for a period
of more than thirty-six months and twelve months, respectively, are considered
long-term capital gains. Gains realized upon the sale of ADSs or shares that
have been held for a period of thirty-six months or less and twelve months or
less, respectively, are considered short-term capital gains. Capital gains are
taxed as follows:



| |  | gains from a sale of ADSs outside India by a non-resident to
another non-resident are not taxable in India;                                                                                                                                                                                                                                                        
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | long-term capital gains realized by a resident from the transfer
of the ADSs will be subject to tax at the rate of 10% excluding the
applicable surcharge; short-term capital gains on such a transfer will
be taxed at graduated rates with a maximum of 30%, excluding the
applicable surcharge;                                                                 
| 
| |  | long-term capital gains realized by a nonresident individual
holder upon the sale of equity shares obtained from the redemption of
ADSs are subject to tax at a rate of 10% excluding the applicable
surcharge;                                                                                                                                                    
| 
| |  | long-term capital gains realized by a nonresident corporate
holders upon the sale of equity shares obtained through the redemption
of ADSs are subject to taxation at the rate of 10%, excluding the
applicable surcharge; and                                                                                                                                     
| 
| |  | short-term capital gains realized upon the sale of equity shares
obtained from the redemption of ADSs will be taxed at variable rates
with a maximum of 40% excluding the applicable surcharge, in case of
foreign companies, and 30% excluding the applicable surcharge in the
case of resident and non-resident individuals with taxable income over
Rs. 150,000.

The Finance Bill, 2003 proposes to exempt long-term capital gains from tax when
they are derived from the transfer of equity shares in a company listed on a
recognized stock exchange in India and acquired on or after March 1, 2003, but
before March 1, 2004.

The rates of surcharge levied at the
rate of tax vary in each situation.

The above rates may be offset by the applicable credit mechanism allowed under
double tax avoidance agreements in the case of non-residents. The capital gains
tax is computed by applying the appropriate tax rates to the difference between
the sale price and the purchase price of the equity shares or ADSs. Under the
Scheme, the purchase price of equity shares in an Indian listed company
received in exchange for ADSs will be the market price of the underlying shares
on the date that the Depositary gives notice to the custodian of the delivery
of the equity shares in exchange for the corresponding ADSs, or the stepped
up basis purchase price. The market price will be the price of the equity
shares prevailing on the Stock Exchange, Mumbai or the National Stock Exchange.
There is no corresponding provision under the Income-tax Act in relation to the
stepped up basis for the purchase price of equity shares. However the tax
department in India has not denied this benefit. In the event that the tax
department denies this benefit, the original purchase price of ADSs would be
considered the purchase price for computing the capital gains tax.

According to the Scheme, a non-resident holders holding period for the
purposes of determining the applicable Indian capital gains tax rate relating
to equity shares received in exchange for ADSs commences on the date of the
notice of the redemption by the Depositary to the custodian. However, the
Scheme does not address this issue in the case of resident employees, and it is
therefore unclear as to when the holding period for the purposes of determining
capital gains tax commences for such a resident employee.

The Scheme provides that if the equity shares are sold on a recognized stock
exchange in India against payment in Indian rupees, they will no longer be
eligible for the preferential tax treatment.

It is unclear as to whether section 115AC and the Scheme are applicable to a
non-resident who acquires equity shares outside India from a nonresident holder
of equity shares after receipt of the equity shares upon redemption of the
ADSs.

It is unclear as to whether capital gains derived from the sale of subscription
rights or other rights by a non-resident holder not entitled to an exemption
under a tax treaty will be subject to Indian capital gains tax. If such
subscription rights or other rights are deemed by the Indian tax authorities to
be situated within India, the gains realized on the sale of such subscription
rights or other rights will be subject to Indian taxation. The capital gains
realized on the sale of such subscription rights or other rights, which will
generally be in the nature of short-term capital gains, will be subject to tax
at variable rates with a maximum rate of 40%, excluding the applicable
surcharge, in case of a foreign company, and 30%, excluding the applicable
surcharge, in case of resident employees, and non-resident individuals with
taxable income over Rs. 150,000.

Withholding Tax on Capital Gains.Any gain realized by a non-resident or
resident employee on the sale of equity shares is subject to Indian capital
gains tax, which, in the case of a non-resident is to be withheld at the source
by the buyer.

Buy-back of Securities.Indian companies are not subject to any tax on the
buy-back of their shares. However, the shareholders will be taxed on any
resulting gains. We would be required to deduct tax at source according to the
capital gains tax liability of a non-resident shareholder.

Stamp Duty and Transfer Tax.Upon issuance of the equity shares underlying our
ADSs, we will be required to pay a stamp duty of 0.1% per share of the issue
price of the underlying equity shares. A transfer of ADSs is not subject to
Indian stamp duty. A sale of equity shares in physical form by a non-resident
holder will also be subject to Indian stamp duty at the rate of 0.5% of the
market value of the equity shares on the trade date, although customarily such
tax is borne by the transferee. Shares must be traded in dematerialized form.
The transfer of shares in dematerialized form is currently not subject to stamp
duty.

Wealth Tax.The holding of the ADSs and the holding of underlying equity shares
by resident and non-resident holders will be exempt from Indian wealth tax.
Non-resident holders are advised to consult their own tax advisors regarding
this issue.

Gift Tax and Estate Duty.Currently, there are no gift taxes or estate duties.
These taxes and duties could be restored in future. Non-resident holders are
advised to consult their own tax advisors regarding this issue.

Service Tax.Brokerage or commission paid to stock brokers in connection with
the sale or purchase of shares is subject to a service tax of 8%. The stock
broker is responsible for collecting the service tax from the shareholder and
paying it to the relevant authority.





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##### Table of Contents



United States Federal Taxation

The following is a summary of the material U.S. federal income and estate
tax consequences that may be relevant with respect to the acquisition,
ownership and disposition of equity shares or ADSs and is for general
information only. This summary addresses the U.S. federal income and estate
tax considerations of holders that are U.S. holders. U.S. holders are
beneficial holders of equity shares or ADSs who are citizens or residents
of the United States, or corporations created in or under the laws of the
United States or any political subdivision thereof or therein, estates, the
income of which is subject to U.S. federal income taxation regardless of
its source, and trusts for which a U.S. court exercises primary supervision
and a U.S. person has the authority to control all substantial decisions.
This summary is limited to U.S. holders who will hold equity shares or ADSs
as capital assets. In addition, this summary is limited to U.S. holders who
are not resident in India for purposes of the Convention Between the
Government of the United States of America and the Government of the
Republic of India for the Avoidance of Double Taxation and the Prevention
of Fiscal Evasion With Respect to Taxes on Income.

This summary does not address tax considerations applicable to holders that
may be subject to special tax rules, such as banks, insurance companies,
financial institutions, dealers in securities or currencies, tax-exempt
entities, persons that will hold equity shares or ADSs as a position in a
straddle or as part of a hedging or conversion transaction for tax
purposes, persons that have a functional currency other than the U.S.
dollar or holders of 10% or more, by voting power or value, of the shares
of our company. This summary is based on the tax laws of the United States
as in effect on the date of this Annual Report and on United States
Treasury Regulations in effect or, in some cases, proposed, as of the date
of this Annual Report, as well as judicial and administrative
interpretations thereof available on or before such date, and is based in
part on the assumption that each obligation in the deposit agreement and
any related agreement will be performed in accordance with its terms. All
of the foregoing are subject to change, which change could apply
retroactively and could affect the tax consequences described below.

EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISOR
WITH RESPECT TO THE U.S. FEDERAL, STATE; LOCAL AND FOREIGN TAX CONSEQUENCES
OF ACQUIRING, OWNING OR DISPOSING OF EQUITY SHARES OR ADSs.

Ownership of ADSs.For U.S. federal income tax purposes, holders of ADSs
will be treated as the holders of equity shares represented by such ADSs.

Dividends.Except for ADSs or equity shares, if any, distributed pro rata
to all shareholders of our company, including holders of ADSs, the gross
amount of any distributions of cash or property with respect to ADSs or
equity shares (before reduction for any Indian withholding taxes) will
generally be included in income by a U.S. holder as foreign source dividend
income at the time of receipt, which in the case of a U.S. holder of ADSs
generally should be the date of receipt by the Depositary, to the extent
such distributions are made from the current or accumulated earnings and
profits (as determined under U.S. federal income tax principles) of our
company. Such dividends will not be eligible for the dividends received
deduction generally allowed to corporate U.S. holders. To the extent, if
any, that the amount of any distribution by our company exceeds our
companys current and accumulated earnings and profits as determined under
U.S. federal income tax principles, it will be treated first as a tax-free
return of the U.S. holders tax basis in the equity shares or ADSs and
thereafter as capital gain.

Subject to certain conditions and limitations, any Indian withholding tax
imposed upon distributions paid to a U.S. holder with respect to ADSs or
equity shares will be eligible for credit against the U.S. holders federal
income tax liability. Alternatively, a U.S. holder may claim a deduction
for such amount, but only for a year in which a U.S. holder does not claim
a credit with respect to any foreign income taxes. The overall limitation
on foreign taxes eligible for credit is calculated separately with respect
to specific classes of income. For this purpose, dividends distributed by
us with respect to equity shares or ADSs will generally constitute foreign
source passive income (or, in the case of certain holders, financial
services income).

If dividends are paid in Indian rupees, the amount of the dividend
distribution included in the income of a U.S. holder will be in the U.S.
dollar value of the payments made in Indian rupees, determined at a spot
exchange rate between Indian rupees and U.S. dollars applicable to the date
such dividend is included in the income of the U.S. holder, regardless of
whether the payment is in fact converted into U.S. dollars. Generally, gain
or loss, if any, resulting from currency exchange fluctuations during the
period from the date the dividend is paid to the date such payment is
converted into U.S. dollars will be treated as U.S. source ordinary income
or loss.

Sale or Exchange of Equity Shares or ADSs.A U.S. holder generally will
recognize gain or loss on the sale or exchange of equity shares or ADSs
equal to the difference between the amount realized on such sale or
exchange and the U.S. holders tax basis in the equity shares or ADSs, as
the case may be. Such gain or loss will be capital gain or loss, and will
be long-term capital gain or loss if the equity shares or ADSs, as the case
may be, were held for more than one year. Gain or loss, if any, recognized
by a U.S. holder generally will be treated as U.S. source passive income or
loss for U.S. foreign tax credit purposes. Capital gains realized by a U.S.
holder upon the sale of equity shares (but not ADSs) may be subject to
certain tax in India. See Taxation  Indian Taxation  Taxation of Capital
Gains.
Due to limitations on foreign tax credits, however, a U.S. holder may not
be able to utilize any such taxes as a credit against the U.S. holders
federal income tax liability.

Estate Taxes.An individual shareholder who is a citizen or resident of the
United States for U.S. federal estate tax purposes will have the value of
the equity shares or ADSs held by such holder included in his or her gross
estate for U.S. federal estate tax purposes. An individual holder who
actually pays Indian estate tax with respect to the equity shares will,
however, be entitled to credit the amount of such tax against his or her
U.S. federal estate tax liability, subject to a number of conditions and
limitations.

Backup Withholding Tax and Information Reporting Requirements.Any
dividends paid, or proceeds on a sale of, equity shares or ADSs to or by a
U.S. holder may be subject to U.S. information reporting, and a backup
withholding tax (currently at a rate of 30% for 2003, 29% for 2004-2005,
28% for 2006-2010, and 31% thereafter) may apply unless the holder is an
exempt recipient or provides a U.S. taxpayer identification number,
certifies that such holder is not subject to backup withholding and
otherwise complies with any applicable backup withholding requirements. Any
amount withheld under the backup withholding rules will be allowed as a
refund or credit against the holders U.S. federal income tax, provided
that the required information is furnished to the Internal Revenue Service.

Passive Foreign Investment Company.A non-U.S. corporation will be
classified as a passive foreign investment company for U.S. Federal income
tax purposes if either:



| |  | 75% or more of its gross income for the taxable year is
passive income; or                                                                                                                                       
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | on average for the taxable year by value, or, if it is not
a publicly traded corporation and so elects, by adjusted basis, if
50% or more of its assets produce or are held for the production of
passive income.





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##### Table of Contents



We do not believe that we satisfy either of the tests for passive foreign
investment company status for our current taxable year. We will be required to
determine our status as a passive foreign investment company on an annual
basis. No assurance can be given that we will not be considered a passive
foreign investment company in future taxable years. If we were to be a passive
foreign investment company for any taxable year, U.S. holders would be required
to either:



| |  | pay an interest charge together with tax calculated at ordinary
income rates on excess distributions, as the term is defined in
relevant provisions of the U.S. tax laws and on any gain on a sale or
other disposition of equity shares;                                             
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | if a qualified electing fund election (as the term is defined
in relevant provisions of the U.S. tax laws) is made, include in their
taxable income their pro rata share of undistributed amounts of our
income; or                                                                   
| 
| |  | if the equity shares are marketable and a mark-to-market
election is made, mark-to-market the equity shares each taxable year
and recognize ordinary gain and, to the extent of prior ordinary gain,
ordinary loss for the increase or decrease in market value for such
taxable year.

If we are treated as a passive foreign investment company, we do not plan to
provide information necessary for the qualified electing fund election.

The above summary is not intended to constitute a complete analysis of all tax
consequences relating to ownership of equity shares or ADSs. You should consult
your own tax advisor concerning the tax consequences of your particular
situation.

Documents on Display

This report and other information filed or to be filed by Infosys Technologies
Limited can be inspected and copied at the public reference facilities
maintained by the SEC at:



| |  | Judiciary Plaza
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20529                     
|- |  | --------------------------------------------------------------------------------------------
| 
| |  | Northwestern Atrium Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661 - 2511

Copies of these materials can also be obtained from the Public Reference
Section of the SEC, 450th Street, N.W. Washington, D.C. 20549, at prescribed
rates.

The SEC maintains a web site 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.

Additionally, documents referred to in this Form 20-F may be inspected at our
corporate offices which are located at Electronics City, Hosur Road, Bangalore
- 561 229.

Subsidiary information

Not applicable.




Item 11: Quantitative and Qualitative Disclosure About Market Risk

This information is set forth under
the caption Operating and Financial Review and Prospects is as set out above
in this document for the fiscal year ended March 31, 2003 and such information
is incorporated herein by reference.




Item 12: Description of Securities Other than Equity Securities

Not applicable.




Part II




Item 13. Defaults, Dividend Arrearages and Delinquencies

None.




Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

None.




Item 15. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on their evaluation as of a date within 90 days of the filing of this
Annual Report on Form 20-F, our principal executive officer and principal
financial officer have concluded that our disclosure controls and procecdures
as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act
of 1934 (the Exchange Act) are effective to ensure that information required
to be disclosed by us in reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission rules and forms.





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Changes in Internal Controls

There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation. There were no significant deficiencies or material weaknesses, and
therefore there were no corrective actions taken.




Item 16 A. Audit Committee Financial Expert

As of March 31, 2003, our board does not have an audit committee financial
expert serving on its audit committee, as defined in Item 401(h) of Regulation
S-K.

Mr. Sridar Iyengar joined our
board of directors on April 10, 2003. On April 10,
2003, our Board nominated Mr. Sridar Iyengar as a member of its audit
committee. Mr. Sridar Iyengar is an audit committee financial expert as defined
in Item 401(h). Mr. Sridar Iyengars appointment is being placed for the
approval of the members in the ensuing annual general meeting on June 14, 2003.

Sridar Iyengar is the President of TiE (The Indus Entrepreneurs) in Silicon
Valley. Previously he was the Partner-in-Charge of KPMGs Emerging Business
Practice. He has had a number of leadership roles within KPMGs global
organization particularly in setting up and growing new practices. He has the
unique distinction of having worked as a partner in all three of KPMGs regions
- Europe, America and Asia Pacific - as well as in all four of KPMGs
functional disciplines - assurance, tax, consulting and financial advisory
services. He was Chairman and CEO of KPMGs India operations between 1997 and
2000 and during that period was a member of the Executive Board of KPMGs Asia
Pacific practice. Prior to that he headed up the International Services
practice in the West Coast. On his return from India in 2000 he was asked to
lead a major effort of KPMG focused on delivering audit and advisory services
to early stage companies. He served as a member of the Audit Strategy group of
KPMG LLP. He was with KPMG from 1968 until his retirement in March
2002. Mr. Iyengar has not personally worked on an audit for the
company for at least three years. Mr. Iyengar is the Fellow of the Institute of Chartered Accountants in England and Wales,
holds Bachelor Degree in Commerce (Honors) from University of Calcutta and has
attended the Executive Education course at Stanford.




Item 16 B. Code of Ethics

As of March 31, 2003, we had not adopted a written code of ethics applicable to
our principal executive officer, principal financial officer, principal
accounting officer and persons performing similar functions, as defined in Item
406 of Regulation S-K.

On April 9, 2003, our audit committee adopted a written code of ethics as
defined in Item 406 of Regulation S-K, applicable to its principal executive
officer, principal financial officer, principal accounting officer and all
officers working in its finance, accounting, treasury, internal audit, tax,
legal, purchase, financial analyst, investor relations functions, disclosure
committee members, senior management, members of the audit committee and the
board. The code of ethics is filed as an exhibit to this Annual Report and is
posted on our website at www.infosys.com. We will provide a copy of such code
of ethics to any person without charge, upon request.

On April 9, 2003, our audit committee also adopted a Whistleblower Policy
wherein it has established procedures for receiving, retaining and treating
complaints received, and procedures for the confidential, anonymous submission
by employees of complaints regarding questionable accounting or auditing
matters, conduct which results in a violation of law by Infosys or in a
substantial mismanagement of company resources. Under this policy our employees
are encouraged to report questionable accounting matters, any reporting of
fraudulent financial information to our shareholders, the government or the
financial markets any conduct that results in a violation of law by Infosys to
our management (on an anonymous basis, if employees so desire). Likewise, under
this policy, we have prohibited discrimination, retaliation or harassment of
any kind against any employee who, based on the employees reasonable belief
that such conduct or practices have occurred or are occurring, reports that
information or participates in an investigation. Our Whistleblower policy is
filed as an exhibit to this Annual Report.




Item 17

Not Applicable.





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##### Table of Contents






Part III




Item 18. Financial Statements

Consolidated statements and other financial information

Report of the audit committee

To the members of Infosys Technologies Limited

In connection with the March 31, 2003 consolidated financial statements
prepared under United States Generally Accepted Accounting Principles, the audit committee: (1) reviewed and
discussed the consolidated financial statements with management; (2) discussed with
the auditors the matters required by Statement on Auditing Standards No. 61;
and (3) reviewed and discussed with the auditors the matters required by
Independence Standards Board Statement No. 1. Based upon these reviews and
discussions, the audit committee recommended to the board of directors that the
audited consolidated financial statements be included in the Annual Report on
Form 20-F filed with the Securities and Exchange Commission of the United
States of America.

|                                              |                                                  |                                         
|--------------------------------------------- | ------------------------------------------------ | ----------------------------------------
|Deepak M. SatwalekarChairman, audit committee | Dr. Marti G. SubrahmanyamMember, audit committee | Dr. Omkar GoswamiMember, audit committee

|                                |                                                  |                                        |                                     
|------------------------------- | ------------------------------------------------ | -------------------------------------- | ------------------------------------
|Bangalore, India
April 10, 2003 | Senator Larry L. PresslerMember, audit committee | Rama BijapurkarMember, audit committee | Claude SmadjaMember, audit committee

Report of management

The management is responsible for preparing the companys consolidated
financial statements and related information that appears in this annual
report. The management believes that the consolidated financial statements
fairly reflect the form and substance of transactions, and reasonably present
the financial condition and results of operations of Infosys Technologies
Limited and subsidiary in conformity with United States Generally Accepted
Accounting Principles. The management has included, in the companys
consolidated financial statements, amounts that are based on estimates and
judgments, which it believes are reasonable under the circumstances.

The company maintains a system of internal procedures and controls intended to
provide reasonable assurance, at appropriate cost, that transactions are
executed in accordance with company authorization and are properly recorded and
reported in the consolidated financial statements, and that assets are
adequately safeguarded.

KPMG audits the companys consolidated financial statements in accordance with
the generally accepted auditing standards in the United States of America.

The board of directors has appointed an audit committee composed of outside
directors. The committee meets with the management, internal auditors, and the
independent auditors to review internal accounting controls and accounting,
auditing, and financial reporting matters.

|                                |                                                                                     |                                                                        |                                                                           
|------------------------------- | ----------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | --------------------------------------------------------------------------
|Bangalore, India
April 10, 2003 | T. V. Mohandas PaiDirector  Finance and Administration
and Chief Financial Officer | S. GopalakrishnanChief Operating Officer 
and Deputy Managing Director | Nandan M. NilekaniChief Executive Officer, President
and Managing Director

Independent auditors report

The Board of Directors and Stockholders
Infosys Technologies Limited

We have audited the accompanying consolidated balance sheets of Infosys
Technologies Limited and subsidiary as of March 31, 2003 and 2002, and the
related consolidated statements of income, stockholders equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended March 31, 2003. In connection with our audits of the consolidated
financial statements, we also have audited the Financial Statement Schedule.
These consolidated financial statements and the related Financial Statement
Schedule are the responsibility of the companys management. Our responsibility
is to express an opinion on these consolidated financial statements and the
Financial Statement Schedule, 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Infosys
Technologies Limited and subsidiary as of March 31, 2003 and 2002, and the
results of its operations and its cash flows for each of the years in the
three-year period ended March 31, 2003, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related Financial Statement Schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

|                 |  |     
|---------------- |  | ----
|Bangalore, India |  |     
|April 10, 2003   |  | KPMG





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##### Table of Contents



Infosys Technologies Limited and Subsidiary
Consolidated balance sheets as of March 31,

|                                             |                                                                                                                                                                                        |   |             |           |      |   |             |            | 
|-------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | --------- | ---- | - | ----------- | ---------- | 
|                                             |                                                                                                                                                                                        |   | 2002        |           | 2003
|                                             |                                                                                                                                                                                        |   |             |           |     
|ASSETS                                       |                                                                                                                                                                                        |   |             |           |      |   |             |           
|Current Assets                               |                                                                                                                                                                                        |   |             |           |      |   |             |           
|Cash and cash equivalents                    |                                                                                                                                                                                        | $ | 210,485,940 |           |      | $ | 354,362,918 |           
|Trade accounts receivable, net of allowances |                                                                                                                                                                                        |   | 69,017,110  |           |      |   | 109,119,856 |           
|Deferred tax assets                          |                                                                                                                                                                                        |   | 774,107     |           |      |   | 288,541     |           
|Prepaid expenses and other current assets    |                                                                                                                                                                                        |   | 15,239,915  |           |      |   | 24,384,316  |           
|Unbilled revenue                             |                                                                                                                                                                                        |   | 3,635,989   |           |      |   | 19,702,186  |           
|Total current assets                         |                                                                                                                                                                                        |   | 299,153,061 |           |      |   | 507,857,817 |           
|Property, plant and equipment, net           |                                                                                                                                                                                        |   | 147,211,731 |           |      |   | 157,194,190 |           
|Intangible assets, net                       |                                                                                                                                                                                        |   |            |           |      |   | 6,471,236   |           
|Deferred tax assets                          |                                                                                                                                                                                        |   | 4,560,934   |           |      |   | 7,264,885   |           
|Investments                                  |                                                                                                                                                                                        |   | 7,777,393   |           |      |   | 4,613,833   |           
|Prepaid income taxes                         |                                                                                                                                                                                        |   |            |           |      |   | 4,452,678   |           
|Other assets                                 |                                                                                                                                                                                        |   | 12,458,615  |           |      |   | 16,454,328  |           
|                                             |                                                                                                                                                                                        |   |             |           |      |   |             |           
|TOTAL ASSETS                                 |                                                                                                                                                                                        | $ | 471,161,734 |           |      | $ | 704,308,967 |           
|                                             |                                                                                                                                                                                        |   |             |           |      |   |             |           
|LIABILITIES AND STOCKHOLDERS EQUITY         |                                                                                                                                                                                        |   |             |           |      |   |             |           
|Current Liabilities                          |                                                                                                                                                                                        |   |             |           |      |   |             |           
|Accounts payable                             |                                                                                                                                                                                        |   |            |           |      | $ | 426,611     |           
|Client deposits                              |                                                                                                                                                                                        | $ | 2,215,001   |           |      |   | 3,208,295   |           
|Other accrued liabilities                    |                                                                                                                                                                                        |   | 22,424,646  |           |      |   | 46,249,269  |           
|Income taxes payable                         |                                                                                                                                                                                        |   | 678,703     |           |      |   |            |           
|Unearned revenue                             |                                                                                                                                                                                        |   | 3,464,018   |           |      |   | 13,202,115  |           
|Total current liabilities                    |                                                                                                                                                                                        |   | 28,782,368  |           |      |   | 63,086,290  |           
|Non-current liabilities                      |                                                                                                                                                                                        |   |            |           |      |   | 5,217,758   |           
|Preferred stock of subsidiary                |                                                                                                                                                                                        |   |             |           |      |   |             |           
|                                             | 0.0005% Cumulative Convertible Preference Shares,
par value $2 each, 4,375,000 preference shares
Authorized, issued and outstanding  4,375,000
preference shares as of March 31, 2003 |   |             |          |      |   |             | 10,000,000 | 
|Stockholders Equity                         |                                                                                                                                                                                        |   |             |           |      |   |             |           
|Common stock, $0.16 par value                |                                                                                                                                                                                        |   |             |           |      |   |             |           
|                                             | 100,000,000 equity shares authorized,
Issued and outstanding 66,186,130 and 66,243,078
as of March 31, 2002 and 2003, respectively                                                    |   |             | 8,597,001 |      |   |             | 8,602,909  | 
|Additional paid-in capital                   |                                                                                                                                                                                        |   | 123,079,948 |           |      |   | 127,042,751 |           
|Accumulated other comprehensive income       |                                                                                                                                                                                        |   | (45,441,148 | )         |      |   | (31,444,835 | )         
|Deferred stock compensation                  |                                                                                                                                                                                        |   | (7,620,600  | )         |      |   | (2,817,066  | )         
|Retained earnings                            |                                                                                                                                                                                        |   | 363,764,165 |           |      |   | 524,621,160 |           
|Total stockholders equity                   |                                                                                                                                                                                        |   | 442,379,366 |           |      |   | 626,004,919 |           
|                                             |                                                                                                                                                                                        |   |             |           |      |   |             |           
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY   |                                                                                                                                                                                        | $ | 471,161,734 |           |      | $ | 704,308,967 |           
|                                             |                                                                                                                                                                                        |   |             |           |      |   |             |           

See accompanying notes to the consolidated financial statements





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##### Table of Contents



Infosys Technologies Limited and Subsidiary
Consolidated statements of income for the years ended March 31,

|                                                                                                                  |         |   |             |            |      |   |             |            |  |   |             |            | 
|----------------------------------------------------------------------------------------------------------------- | ------- | - | ----------- | ---------- | ---- | - | ----------- | ---------- |  | - | ----------- | ---------- | 
|                                                                                                                  |         |   | 2001        |            | 2002 |   | 2003       
|                                                                                                                  |         |   |             |            |      |   |            
|Revenues                                                                                                          |         | $ | 413,850,510 |            |      | $ | 545,051,214 |            |  | $ | 753,807,025 |           
|Cost of revenues (including amortization of stock
compensation expenses of $3,162,283, $2,999,457
and $2,818,887) |         |   | 216,776,027 |            |      |   | 293,031,689 |            |  |   | 417,359,025 |           
|Gross profit                                                                                                      |         |   | 197,074,483 |            |      |   | 252,019,525 |            |  |   | 336,448,000 |           
|Operating Expenses:                                                                                               |         |   |             |            |      |   |             |            |  |   |             |           
|Selling and marketing expenses                                                                                    |         |   | 20,682,776  |            |      |   | 27,113,122  |            |  |   | 55,649,913  |           
|General and administrative expenses                                                                               |         |   | 36,957,609  |            |      |   | 44,348,181  |            |  |   | 57,808,445  |           
|Amortization of stock compensation expenses                                                                       |         |   | 1,919,512   |            |      |   | 2,010,315   |            |  |   | 1,984,647   |           
|Amortization of intangible assets                                                                                 |         |   |            |            |      |   |            |            |  |   | 2,360,799   |           
|Total operating expenses                                                                                          |         |   | 59,559,897  |            |      |   | 73,471,618  |            |  |   | 117,803,804 |           
|Operating income                                                                                                  |         |   | 137,514,586 |            |      |   | 178,547,907 |            |  |   | 218,644,196 |           
|Other income, net                                                                                                 |         |   | 9,505,343   |            |      |   | 13,865,294  |            |  |   | 18,048,110  |           
|Income before income taxes                                                                                        |         |   | 147,019,929 |            |      |   | 192,413,201 |            |  |   | 236,692,306 |           
|Provision for income taxes                                                                                        |         |   | 15,071,825  |            |      |   | 27,946,892  |            |  |   | 41,822,265  |           
|                                                                                                                  |         |   |             |            |      |   |             |            |  |   |             |           
|Net income                                                                                                        |         | $ | 131,948,104 |            |      | $ | 164,466,309 |            |  | $ | 194,870,041 |           
|                                                                                                                  |         |   |             |            |      |   |             |            |  |   |             |           
|Earnings per equity share                                                                                         |         |   |             |            |      |   |             |            |  |   |             |           
|                                                                                                                  | Basic   |   | $           | 2.01       |      |   | $           | 2.51       |  |   | $           | 2.97       | 
|                                                                                                                  | Diluted |   | $           | 1.98       |      |   | $           | 2.49       |  |   | $           | 2.93       | 
|Weighted equity shares used in computing earnings
per equity share                                                |         |   |             |            |      |   |             |            |  |   |             |           
|                                                                                                                  | Basic   |   |             | 65,771,256 |      |   |             | 65,556,648 |  |   |             | 65,571,002 | 
|                                                                                                                  | Diluted |   |             | 66,714,739 |      |   |             | 66,084,874 |  |   |             | 66,479,009 | 
|                                                                                                                  |         |   |             |            |      |   |             |            |  |   |             |           

See accompanying notes to the consolidated financial statements





---



##### Table of Contents



Infosys Technologies Limited and Subsidiary
Consolidated statements of stockholders equity and comprehensive income



|                                                            |                            |  |              |   |                    |   |               |   |        |   |             |   |  |   |             |             |  
|----------------------------------------------------------- | -------------------------- |  | ------------ | - | ------------------ | - | ------------- | - | ------ | - | ----------- | - |  | - | ----------- | ----------- | -
|                                                            |                            |  | Common stock |   |                    |   |               |   |        |   |            
|                                                            |                            |  |              |   | Additional
paidin |   | Comprehensive
|                                                            |                            |  | Shares       |   | Par value          |   | capital       |   | income
|                                                            |                            |  |              |   |                    |   |               |   |       
|Balance as of March 31, 2000                                |                            |  | 66,150,700   |   |                    | $ | 8,593,510     |   |        | $ | 121,506,726 |   |  |   |             |            
|Cash dividends declared                                     |                            |  |             |   |                    |   |              |   |        |   |            |   |  |   |             |            
|Common stock issued                                         |                            |  | 7,417        |   |                    |   | 596           |   |        |   | 510,792     |   |  |   |             |            
|Amortization of compensation
related to stock option grants |                            |  |             |   |                    |   |              |   |        |   |            |   |  |   |             |            
|Comprehensive income                                        |                            |  |              |   |                    |   |               |   |        |   |             |   |  |   |             |            
|                                                            | Net income                 |  |              |  |                    |   |               |  |        |   |             |  |  |   | $           | 131,948,104 |  
|                                                            | Other comprehensive income |  |              |   |                    |   |               |   |        |   |             |   |  |   |             |             |  
|                                                            | Translation adjustment     |  |              |  |                    |   |               |  |        |   |             |  |  |   |             | (14,527,039 | )
|                                                            |                            |  |              |   |                    |   |               |   |        |   |             |   |  |   |             |            
|Comprehensive income                                        |                            |  |              |   |                    |   |               |   |        |   |             |   |  | $ | 117,421,065 |            
|                                                            |                            |  |              |   |                    |   |               |   |        |   |             |   |  |   |             |            
|Balance as of March 31, 2001                                |                            |  | 66,158,117   |   |                    | $ | 8,594,106     |   |        | $ | 122,017,518 |   |  |   |             |            
|                                                            |                            |  |              |   |                    |   |               |   |        |   |             |   |  |   |             |            
|Common stock issued                                         |                            |  | 28,013       |   |                    |   | 2,895         |   |        |   | 949,076     |   |  |   |             |            
|Cash dividends declared                                     |                            |  |             |   |                    |   |              |   |        |   |            |   |  |   |             |            
|Deferred stock compensation
related to stock option grants  |                            |  |             |   |                    |   |              |   |        |   | 113,354     |   |  |   |             |            
|Amortization of compensation
related to stock option grants |                            |  |             |   |                    |   |              |   |        |   |            |   |  |   |             |            
|Comprehensive income                                        |                            |  |              |   |                    |   |               |   |        |   |             |   |  |   |             |            
|                                                            | Net income                 |  |              |  |                    |   |               |  |        |   |             |  |  |   | $           | 164,466,309 |  
|                                                            | Other comprehensive income |  |              |   |                    |   |               |   |        |   |             |   |  |   |             |             |  
|                                                            | Translation adjustment     |  |              |  |                    |   |               |  |        |   |             |  |  |   |             | (16,776,176 | )
|                                                            |                            |  |              |   |                    |   |               |   |        |   |             |   |  |   |             |            
|Comprehensive income                                        |                            |  |              |   |                    |   |               |   |        |   |             |   |  | $ | 147,690,133 |            
|                                                            |                            |  |              |   |                    |   |               |   |        |   |             |   |  |   |             |            
|Balance as of March 31, 2002                                |                            |  | 66,186,130   |   |                    | $ | 8,597,001     |   |        | $ | 123,079,948 |   |  |   |             |            
|                                                            |                            |  |              |   |                    |   |               |   |        |   |             |   |  |   |             |            
|Common stock issued                                         |                            |  | 56,948       |   |                    |   | 5,908         |   |        |   | 2,799,780   |   |  |   |             |            
|Cash dividends declared                                     |                            |  |             |   |                    |   |              |   |        |   |            |   |  |   |             |            
|Income tax benefit arising on
exercise of stock options     |                            |  |             |   |                    |   |              |   |        |   | 1,163,023   |   |  |   |             |            
|Amortization of compensation
related to stock option grants |                            |  |             |   |                    |   |              |   |        |   |            |   |  |   |             |            
|Comprehensive income                                        |                            |  |              |   |                    |   |               |   |        |   |             |   |  |   |             |            
|                                                            | Net income                 |  |              |  |                    |   |               |  |        |   |             |  |  |   |             | 194,870,041 |  
|                                                            | Other comprehensive income |  |              |   |                    |   |               |   |        |   |             |   |  |   |             |             |  
|                                                            | Translation adjustment     |  |              |  |                    |   |               |  |        |   |             |  |  |   |             | 13,996,313  |  
|                                                            |                            |  |              |   |                    |   |               |   |        |   |             |   |  |   |             |            
|Comprehensive income                                        |                            |  |              |   |                    |   |               |   |        |   |             |   |  | $ | 208,866,354 |            
|                                                            |                            |  |              |   |                    |   |               |   |        |   |             |   |  |   |             |            
|Balance as of March 31, 2003                                |                            |  | 66,243,078   |   |                    | $ | 8,602,909     |   |        | $ | 127,042,751 |   |  |   |             |            
|                                                            |                            |  |              |   |                    |   |               |   |        |   |             |   |  |   |             |            

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                            |                            |   |                   |             |                |   |             |   |               |   |             |             |       |   |             |             |  
|----------------------------------------------------------- | -------------------------- | - | ----------------- | ----------- | -------------- | - | ----------- | - | ------------- | - | ----------- | ----------- | ----- | - | ----------- | ----------- | -
|                                                            |                            |   | Accumulated other |             |                |   |             |   |               |   |             |             | Total
|                                                            |                            |   | comprehensive     |             | Deferred stock |   | Retained    |   | stockholders
|                                                            |                            |   | income            |             | compensation   |   | earnings    |   | equity       
|                                                            |                            |   |                   |             |                |   |             |   |              
|Balance as of March 31, 2000                                |                            | $ | (14,137,933       | )           |                | $ | (17,598,813 | ) |               | $ | 99,773,031  |             |       | $ | 198,136,521 |            
|Cash dividends declared                                     |                            |   |                  |             |                |   |            |   |               |   | (9,359,068  | )           |       |   | (9,359,068  | )          
|Common stock issued                                         |                            |   |                  |             |                |   |            |   |               |   |            |             |       |   | 511,388     |            
|Amortization of compensation
related to stock option grants |                            |   |                  |             |                |   | 5,081,795   |   |               |   |            |             |       |   | 5,081,795   |            
|Comprehensive income                                        |                            |   |                   |             |                |   |             |   |               |   |             |             |       |   |             |            
|                                                            | Net income                 |   |                   |            |                |   |             |  |               |   |             | 131,948,104 |       |   |             | 131,948,104 |  
|                                                            | Other comprehensive income |   |                   |             |                |   |             |   |               |   |             |             |       |   |             |             |  
|                                                            | Translation adjustment     |   |                   | (14,527,039 | )              |   |             |  |               |   |             |            |       |   |             | (14,527,039 | )
|Comprehensive income                                        |                            |   |                   |             |                |   |             |   |               |   |             |             |       |   |             |            
|                                                            |                            |   |                   |             |                |   |             |   |               |   |             |             |       |   |             |            
|Balance as of March 31, 2001                                |                            | $ | (28,664,972       | )           |                | $ | (12,517,018 | ) |               | $ | 222,362,067 |             |       | $ | 311,791,701 |            
|                                                            |                            |   |                   |             |                |   |             |   |               |   |             |             |       |   |             |            
|Common stock issued                                         |                            |   |                  |             |                |   |            |   |               |   |            |             |       |   | 951,971     |            
|Cash dividends declared                                     |                            |   |                   |             |                |   |            |   |               |   | (23,064,211 | )           |       |   | (23,064,211 | )          
|Deferred stock compensation
related to stock option grants  |                            |   |                  |             |                |   | (113,354    | ) |               |   |            |             |       |   |            |            
|Amortization of compensation
related to stock option grants |                            |   |                  |             |                |   | 5,009,772   |   |               |   |            |             |       |   | 5,009,772   |            
|Comprehensive income                                        |                            |   |                   |             |                |   |             |   |               |   |             |             |       |   |             |            
|                                                            | Net income                 |   |                   |            |                |   |             |  |               |   |             | 164,466,309 |       |   |             | 164,466,309 |  
|                                                            | Other comprehensive income |   |                   |             |                |   |             |   |               |   |             |             |       |   |             |             |  
|                                                            | Translation adjustment     |   |                   | (16,776,176 | )              |   |             |  |               |   |             |            |       |   |             | (16,776,176 | )
|Comprehensive income                                        |                            |   |                   |             |                |   |             |   |               |   |             |             |       |   |             |            
|                                                            |                            |   |                   |             |                |   |             |   |               |   |             |             |       |   |             |            
|Balance as of March 31, 2002                                |                            | $ | (45,441,148       | )           |                | $ | (7,620,600  | ) |               | $ | 363,764,165 |             |       | $ | 442,379,366 |            
|                                                            |                            |   |                   |             |                |   |             |   |               |   |             |             |       |   |             |            
|Common stock issued                                         |                            |   |                  |             |                |   |            |   |               |   |            |             |       |   | 2,805,688   |            
|Cash dividends declared                                     |                            |   |                  |             |                |   |            |   |               |   | (34,013,046 | )           |       |   | (34,013,046 | )          
|Income tax benefit arising on
exercise of stock options     |                            |   |                  |             |                |   |            |   |               |   |            |             |       |   | 1,163,023   |            
|Amortization of compensation
related to stock option grants |                            |   |                  |             |                |   | 4,803,534   |   |               |   |            |             |       |   | 4,803,534   |            
|Comprehensive income                                        |                            |   |                   |             |                |   |             |   |               |   |             |             |       |   |             |            
|                                                            | Net income                 |   |                   |             |                |   |             |   |               |   |             | 194,870,041 |       |   |             | 194,870,041 |  
|                                                            | Other comprehensive income |   |                   |            |                |   |             |  |               |   |             |             |       |   |             |             |  
|                                                            | Translation adjustment     |   |                   | 13,996,313  |                |   |             |  |               |   |             |            |       |   |             | 13,996,313  |  
|Comprehensive income                                        |                            |   |                   |             |                |   |             |   |               |   |             |             |       |   |             |            
|                                                            |                            |   |                   |             |                |   |             |   |               |   |             |             |       |   |             |            
|Balance as of March 31, 2003                                |                            | $ | (31,444,835       | )           |                | $ | (2,817,066  | ) |               | $ | 524,621,160 |             |       | $ | 626,004,919 |            
|                                                            |                            |   |                   |             |                |   |             |   |               |   |             |             |       |   |             |            

See accompanying notes to the consolidated financial statements





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##### Table of Contents



Infosys Technologies Limited and Subsidiary
Consolidated statements of cash flows for the years ended March 31,

|                                                                                 |  |      |              |      |  |      |             |   |  |   |             |  
|-------------------------------------------------------------------------------- |  | ---- | ------------ | ---- |  | ---- | ----------- | - |  | - | ----------- | -
|                                                                                 |  | 2001 |              | 2002 |  | 2003
|                                                                                 |  |      |              |      |  |     
|OPERATING ACTIVITIES:                                                            |  |      |              |      |  |      |             |   |  |   |             |  
|Net income                                                                       |  | $    | 131,948,104  |      |  | $    | 164,466,309 |   |  | $ | 194,870,041 |  
|Adjustments to reconcile net income to net cash
provided by operating activities |  |      |              |      |  |      |             |   |  |   |             |  
|Gain on sale of property, plant and equipment                                    |  |      | (20,053      | )    |  |      | (16,754     | ) |  |   | (2,070      | )
|Depreciation                                                                     |  |      | 24,527,867   |      |  |      | 33,608,391  |   |  |   | 37,023,974  |  
|Amortization of intangible assets                                                |  |      |             |      |  |      |            |   |  |   | 2,360,799   |  
|Provision for investments                                                        |  |      | 3,480,300    |      |  |      |            |   |  |   | 3,219,030   |  
|Deferred tax benefit                                                             |  |      | (769,304     | )    |  |      | (1,999,471  | ) |  |   | (2,418,210  | )
|Amortization of stock compensation expenses                                      |  |      | 5,081,795    |      |  |      | 5,009,772   |   |  |   | 4,803,534   |  
|Changes in assets and liabilities                                                |  |      |              |      |  |      |             |   |  |   |             |  
|Trade accounts receivable                                                        |  |      | (36,310,272  | )    |  |      | (7,196,700  | ) |  |   | (37,657,569 | )
|Prepaid expenses and other current assets                                        |  |      | (2,150,772   | )    |  |      | 1,079,574   |   |  |   | (5,236,301  | )
|Unbilled revenue                                                                 |  |      | (503,694     | )    |  |      | (3,132,295  | ) |  |   | (15,436,197 | )
|Income taxes                                                                     |  |      | (1,973,114   | )    |  |      | 869,109     |   |  |   | (3,922,235  | )
|Accounts payable                                                                 |  |      | (901,961     | )    |  |      | (27,382     | ) |  |   | 419,750     |  
|Client deposits                                                                  |  |      | 833,215      |      |  |      | 1,075,855   |   |  |   | 919,545     |  
|Unearned revenue                                                                 |  |      | 3,770,772    |      |  |      | (3,753,943  | ) |  |   | 9,491,122   |  
|Other accrued liabilities                                                        |  |      | 9,651,967    |      |  |      | 1,492,616   |   |  |   | 22,756,370  |  
|                                                                                 |  |      |              |      |  |      |             |   |  |   |             |  
|Net cash provided by operating activities                                        |  |      | 136,664,850  |      |  |      | 191,475,081 |   |  |   | 211,191,583 |  
|                                                                                 |  |      |              |      |  |      |             |   |  |   |             |  
|INVESTING ACTIVITIES:                                                            |  |      |              |      |  |      |             |   |  |   |             |  
|Expenditure on property, plant and equipment                                     |  |      | (101,235,420 | )    |  |      | (68,347,644 | ) |  |   | (43,157,754 | )
|Expenditure on intangible assets                                                 |  |      |             |      |  |      |            |   |  |   | (3,551,433  | )
|Proceeds from sale of property, plant and equipment                              |  |      | 49,676       |      |  |      | 335,079     |   |  |   | 70,383      |  
|Loans to employees                                                               |  |      | (4,932,703   | )    |  |      | (5,547,203  | ) |  |   | (7,249,008  | )
|Purchase of investments                                                          |  |      | (5,879,755   | )    |  |      | (2,200,000  | ) |  |   | (54,378     | )
|                                                                                 |  |      |              |      |  |      |             |   |  |   |             |  
|Net cash used in investing activities                                            |  |      | (111,998,202 | )    |  |      | (75,759,768 | ) |  |   | (53,942,190 | )
|                                                                                 |  |      |              |      |  |      |             |   |  |   |             |  
|FINANCING ACTIVITIES:                                                            |  |      |              |      |  |      |             |   |  |   |             |  
|Proceeds from issuance of common stock                                           |  |      | 511,388      |      |  |      | 963,351     |   |  |   | 2,805,688   |  
|Proceeds from issuance of preferred stock by
subsidiary                          |  |      |             |      |  |      |            |   |  |   | 10,000,000  |  
|Payment of dividends                                                             |  |      | (9,220,142   | )    |  |      | (22,902,618 | ) |  |   | (33,913,973 | )
|                                                                                 |  |      |              |      |  |      |             |   |  |   |             |  
|Net cash used in financing activities                                            |  |      | (8,708,754   | )    |  |      | (21,939,267 | ) |  |   | (21,108,285 | )
|                                                                                 |  |      |              |      |  |      |             |   |  |   |             |  
|Effect of exchange rate changes on cash                                          |  |      | (8,473,135   | )    |  |      | (7,374,351  | ) |  |   | 7,735,870   |  
|Net increase in cash and cash equivalents during
the period                      |  |      | 7,484,759    |      |  |      | 86,401,695  |   |  |   | 143,876,978 |  
|Cash and cash equivalents at the beginning of the
period                         |  |      | 116,599,486  |      |  |      | 124,084,245 |   |  |   | 210,485,940 |  
|                                                                                 |  |      |              |      |  |      |             |   |  |   |             |  
|Cash and cash equivalents at the end of the period                               |  | $    | 124,084,245  |      |  | $    | 210,485,940 |   |  | $ | 354,362,918 |  
|                                                                                 |  |      |              |      |  |      |             |   |  |   |             |  
|Supplementary information:                                                       |  |      |              |      |  |      |             |   |  |   |             |  
|Cash paid towards taxes                                                          |  | $    | 16,950,802   |      |  | $    | 27,493,194  |   |  | $ | 45,398,138  |  
|Non-cash transaction (See Note 2.5)                                              |  |      |             |      |  |      |            |   |  | $ | 5,000,000   |  

See accompanying notes to the consolidated financial statements





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##### Table of Contents



Infosys Technologies Limited and Subsidiary
Notes to the consolidated financial statements

1   Company overview and significant accounting policies

1.1 Company overview

Infosys Technologies Limited
(Infosys or the Company) along with its
majority owned and controlled subsidiary, Progeon Limited
(Progeon) is a
leading global information technology, or IT, services company. The Company
provides end-to-end business solutions that leverage technology thus enabling
its clients to enhance business performance. The Company provides solutions
that span the entire software life cycle encompassing consulting, design,
development, re-engineering, maintenance, systems integration and package
evaluation and implementation. In addition, the Company offers software
products for the banking industry and business process management services.

1.2 Basis of preparation of financial statements

The accompanying consolidated financial statements are prepared in accordance
with U.S. Generally Accepted Accounting Principles (GAAP). Inter-company
balances and transactions are eliminated on consolidation. All amounts are
stated in U.S. dollars, except as otherwise specified.

1.3 Use of estimates

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
on the date of the financial statements, and the reported amounts of revenues
and expenses during the period. Examples of estimates include accounting for
contract costs expected to be incurred to complete software development,
allowance for uncollectible accounts receivable, future obligations under
employee benefit plans, provisions for post-sales customer support and the
useful lives of property, plant and equipment and intangible assets. Actual
results could differ from those estimates.

1.4 Revenue recognition

The company derives revenues primarily from software development and related
services, licensing of software products and from business process management
services. Arrangements with customers for software development and related
services are either on a fixed price, fixed timeframe or on a time and material
basis.

Revenue on time-and-material contracts is recognized as the related services
are performed. Revenue from the end of the last billing to the balance sheet
date is recognized as unbilled revenues. Revenue from fixed-price, fixed-time
frame contracts is recognized as per the percentage-of-completion method.
Guidance has been drawn from paragraph 95 of Statement of Position (SOP) 97-2
to account for revenue from fixed price arrangements for software development
and related services in conformity with SOP 81-1. The input (efforts expended)
method has been used to measure progress towards completion as there is a
direct relationship between input and productivity. Provisions for estimated
losses, if any, on uncompleted contracts are recorded in the period in which
such losses become probable based on the current contract estimates. Costs and
earnings in excess of billings are classified as unbilled revenue while
billings in excess of costs and earnings are classified as unearned revenue.
Maintenance revenue is recognized ratably over the term of the underlying
maintenance agreement.

The company provides its clients with a fixed-period warranty for corrections
of errors and telephone support on all its fixed-price, fixed-time frame
contracts. Costs associated with such support services are accrued at the time
related revenues are recorded and included in cost of
revenues. The company estimates such costs based on historical experience and
estimates are reviewed on a periodic basis for any material changes in
assumptions and likelihood of occurrence.

In accordance with SOP 97-2, Software Revenue Recognition, license fee revenues
are recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the license fee is fixed and determinable, and the collection of the
fee is probable. Arrangements to deliver our software products generally have
three elements: license, implementation and Annual Technical Services
(ATS).
The company has applied the principles in SOP 97-2 to account for revenue from
these multiple element arrangements. Vendor specific objective evidence of fair
value (VSOE) has been established for ATS. VSOE is the price charged when the
element is sold separately. When other services are provided in conjunction
with the licensing arrangement, the revenue from such contracts are allocated
to each component of the contract using the residual method, whereby revenue is
deferred for the undelivered services and the residual amounts are recognized
as revenue for delivered elements. In the absence of an established VSOE for
implementation, the entire arrangement fee for license and implementation is
recognised as the implementation is performed. Revenue from client training,
support and other services arising due to the sale of software products is
recognized as the services are performed. ATS revenue is recognised ratably
over the period in which the services are rendered.

Revenues from business process management and other services are recognized on
both, the time-and-material and fixed-price, fixed-time frame bases. Revenue on
time-and-material contracts is recognized as the related services are rendered.
Revenue from fixed-price, fixed-time frame contracts is recognized as per the
proportional performance method using an output measure of performance.

When the company receives advances for services and products, such amounts are
reported as client deposits until all conditions for revenue recognition are
met.

1.5 Cash and cash equivalents

The company considers all highly liquid investments with a remaining maturity
at the date of purchase / investment of three months or less to be cash
equivalents. Cash and cash equivalents comprise cash, cash on deposit with
banks, marketable securities and deposits with corporations.

1.6 Property, plant and equipment

Property, plant and equipment are stated at cost, less accumulated
depreciation. The company depreciates property, plant and equipment over their
estimated useful lives using the straight-line method. The estimated useful
lives of assets are as follows:





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|                       |  |           |  |                     |  |        
|---------------------- |  | --------- |  | ------------------- |  | -------
|Buildings              |  | 15 years  |  | Plant and equipment |  | 5 years
|Furniture and fixtures |  | 5 years   |  | Vehicles            |  | 5 years
|Computer equipment     |  | 2-5 years |  |                     |  |        

The cost of software purchased for internal use is accounted under SOP 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. Deposits paid towards the acquisition of property, plant and
equipment outstanding at each balance sheet date and the cost of property,
plant and equipment not put to use before such date are disclosed under
Capital work-in-progress.

1.7 Intangible assets

Intangible assets are amortized over their respective individual estimated
useful lives on a straight-line basis, commencing from the date the asset is
available to the company for its use. Management estimates the useful lives of
acquired rights in software applications to range between one through five
years.

1.8 Impairment of long-lived assets

The company evaluates the recoverability of its long-lived assets and certain
identifiable intangibles, if any, whenever events or changes in circumstances
indicate that their carrying amounts may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount
of an asset to future undiscounted net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying value of the assets
exceeds the fair value of the assets. Assets to be disposed are reported at the
lower of the carrying value or the fair value less the cost to sell.

1.9 Research and development

Research and development costs are expensed as incurred. Software product
development costs are expensed as incurred until technological feasibility is
achieved.

1.10 Foreign currency translation

The accompanying financial statements are reported in U.S. dollars. The
functional currency of the company is the Indian rupee (Rs.). The translation
of Rs. to U.S. dollars is performed for balance sheet accounts using the
exchange rate in effect at the balance sheet date and for revenue and expense
accounts using a monthly average exchange rate for the respective periods. The
gains or losses resulting from such translation are reported as Other
comprehensive income, a separate component of stockholders equity. The method
for translating expenses of overseas operations depends upon the funds used. If
the payment is made from a rupee denominated bank account, the exchange rate
prevailing on the date of the payment would apply. If the payment is made from
a foreign currency, i.e., non-rupee denominated account, the translation into
rupees is performed at the average monthly exchange rate.

1.11 Earnings per share

In accordance with Statement of Financial Accounting Standards (SFAS) 128,
Earnings Per Share, basic earnings per share are computed using the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is computed using the weighted average number of common and dilutive
common equivalent shares outstanding during the period, using the treasury
stock method for options and warrants, except where the result would be
anti-dilutive.

1.12 Income taxes

Income taxes are accounted for using the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities, and their respective tax bases and operating
loss carry-forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
of changes in tax rates on deferred tax assets and liabilities is recognized as
income in the period that includes the enactment date. The measurement of
deferred tax assets is reduced, if necessary, by a valuation allowance for any
tax benefits of which future realization is uncertain.

1.13 Fair value of financial instruments

The carrying amounts reflected in the balance sheets for cash, cash
equivalents, accounts receivable and accounts payable approximate their
respective fair values due to the short maturities of these instruments.

1.14 Concentration of risk

Financial instruments that potentially subject the company to concentrations of
credit risk consist principally of cash equivalents, trade accounts receivable,
investment securities and hedging instruments. By nature, all such financial
instruments involve risk, including the credit risk of nonperformance by
counterparties. In managements opinion, as of March 31, 2002 and March 31,
2003, there was no significant risk of loss in the event of non-performance of
the counterparties to these financial instruments, other than the amounts
already provided for in the financial statements, if any. Exposure to credit
risk is managed through credit approvals, establishing credit limits and
monitoring procedures. The companys cash resources are invested with
corporations, financial institutions and banks with high investment grade
credit ratings. Limitations are established by the company as to the maximum
amount of cash that may be invested with any such single entity.

1.15 Retirement benefits to employees

1.15.1 Gratuity

In accordance with the Payment of Gratuity Act, 1972, Infosys provides for
gratuity, a defined benefit retirement plan (the Gratuity Plan), covering
eligible employees. The Gratuity Plan provides a lump sum payment to vested
employees at retirement, death, incapacitation or termination of employment, of
an amount based on the respective employees salary and the tenure of
employment. Liabilities with regard to the Gratuity Plan are determined by
actuarial valuation, based upon which, Infosys contributes to the Infosys
Technologies Limited Employees Gratuity Fund Trust





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##### Table of Contents



(the Trust). Trustees administer contributions made to the Trust and invest
in specific designated securities as mandated by law, which generally comprise
central and state government bonds and debt instruments of government-owned
corporations.

In accordance with the Payment of Gratuity Act, 1972, Progeon provides for
gratuity, a defined benefit retirement plan covering eligible employees. The
plan provides a lump sum payment to vested employees at retirement, death,
incapacitation or termination of employment, of an amount based on the
respective employees salary and the tenure of employment. Liabilities with
regard to the gratuity plan are determined by actuarial valuation.

1.15.2 Superannuation

Apart from being covered under the Gratuity Plan described above, certain
employees of Infosys are also participants of a defined contribution plan. The
company makes monthly contributions under the superannuation plan (the Plan)
to the Infosys Technologies Limited Employees Superannuation Fund Trust, based
on a specified percentage of each covered employees salary. Infosys has no
further obligations to the Plan beyond its monthly contributions.

Certain employees of Progeon are also participants of a defined contribution
plan. The company makes monthly provisions under the superannuation plan based
on a specified percentage of each covered employees salary. The company has no
further obligations to the superannuation plan beyond its monthly provisions.

1.15.3 Provident fund

Eligible employees also receive benefits from a provident fund, which is a
defined contribution plan. Both the employee and the company make monthly
contributions to this provident fund plan equal to a specified percentage of
the covered employees salary. Infosys contributes a part of the contributions
to the Infosys Technologies Limited Employees Provident Fund Trust. The
remainders of the contributions are made to the Government administered
provident fund. There are no further obligations under the provident fund plan
beyond its monthly contributions.

In respect of Progeon, eligible employees receive benefits from a
provident fund, which is a defined contribution plan. Both the employee and the
company make monthly contributions to this provident fund plan equal to a
specified percentage of the covered employees salary. Amounts collected under
the provident fund plan are deposited in a Government administered provident
fund. The company has no further obligations under the provident fund plan
beyond its monthly contributions.

1.16 Investments

The company accounts by the equity method for investments between 20% and 50%
or where it is otherwise able to exercise significant influence over the
operating and financial policies of the investee. Investment securities in
which the company controls less than 20% voting interest are currently
classified as available-for-sale securities. Non-readily marketable equity
securities for which there are no readily determinable fair values are recorded
at cost.

Investment securities designated as available-for-sale are carried at their
fair value. Fair value is based on quoted market prices. Unquoted securities
are carried at cost, adjusted for declines in value judged to be other than
temporary. Temporary unrealized gains and losses, net of the related tax effect
are reported as a separate component of stockholders equity until realized.
Realized gains and losses and declines in value judged to be other than
temporary on available-for-sale securities are included in the statements of
income. The cost of securities sold is based on the specific identification
method. Interest and dividend income is recognized when earned.

1.17 Stock-based compensation

The company applies the intrinsic value-based method of accounting prescribed
by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees,and related interpretations including FASB Interpretation
No. 44, Accounting for Certain Transactions involving Stock Compensation an
interpretation of APB Opinion No. 25,issued in March 2000, to
account for its fixed stock option plans. Under this method, compensation
expense is recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. SFAS 123, Accounting for
Stock-Based Compensation, established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS 123, the Company has elected to continue
to apply the intrinsic value-based method of accounting described above, and
has adopted the disclosure requirements of SFAS 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment of FASB Statement No.
123. All stock options issued to date have been accounted as a fixed stock
option plan.

The following table illustrates the effect on net income and earnings per share
if the company had applied the fair value recognition provisions of SFAS
Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation.

|                                                                                                                                            |                       |   |             |      |      |   |                      |      |  |   |             |      | 
|------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | - | ----------- | ---- | ---- | - | -------------------- | ---- |  | - | ----------- | ---- | 
|                                                                                                                                            |                       |   |             |      |      |   | Year ended March 31, |      |  |   |            
|                                                                                                                                            |                       |   |            
|                                                                                                                                            |                       |   | 2001        |      | 2002 |   | 2003                
|                                                                                                                                            |                       |   |             |      |      |   |                     
|Net income, as reported                                                                                                                     |                       | $ | 131,948,104 |      |      | $ | 164,466,309          |      |  | $ | 194,870,041 |     
|Add: Stock-based employee compensation expense included
in reported net income, net of related tax effects                                  |                       |   | 5,081,795   |      |      |   | 5,009,772            |      |  |   | 4,803,534   |     
|Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects |                       |   | (37,339,233 | )    |      |   | (64,294,987          | )    |  |   | (62,447,389 | )   
|                                                                                                                                            |                       |   |             |      |      |   |                      |      |  |   |             |     
|Pro forma net income                                                                                                                        |                       | $ | 99,690,666  |      |      | $ | 105,181,094          |      |  | $ | 137,226,186 |     
|                                                                                                                                            |                       |   |             |      |      |   |                      |      |  |   |             |     
|Earnings per share:                                                                                                                         |                       |   |             |      |      |   |                      |      |  |   |             |     
|                                                                                                                                            | Basic  as reported   |   |             | 2.01 |      |   |                      | 2.51 |  |   |             | 2.97 | 
|                                                                                                                                            | Basic  pro forma     |   |             | 1.52 |      |   |                      | 1.60 |  |   |             | 2.09 | 
|                                                                                                                                            | Diluted  as reported |   |             | 1.98 |      |   |                      | 2.49 |  |   |             | 2.93 | 
|                                                                                                                                            | Diluted  pro forma   |   |             | 1.49 |      |   |                      | 1.59 |  |   |             | 2.09 | 
|                                                                                                                                            |                       |   |             |      |      |   |                      |      |  |   |             |     





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The fair value of each option is estimated on the date of grant
using the Black-Scholes model with the following assumptions:

|                        |  |                      |      |           |  |           |      |   |  |  |       |  
|----------------------- |  | -------------------- | ---- | --------- |  | --------- | ---- | - |  |  | ----- | -
|                        |  | Year ended March 31,
|                        |  |                     
|                        |  | 2001                 |      | 2002      |  | 2003     
|                        |  |                      |      |           |  |          
|Dividend yield %        |  |                      | 0.1  | %         |  |           | 0.2  | % |  |  | 0.2   | %
|Expected life           |  | 1-5 years            |      | 1-5 years |  | 1-5 years
|Risk free interest rate |  |                      | 10.8 | %         |  |           | 9.5  | % |  |  | 6.0   | %
|Volatility              |  |                      | 44.0 | %         |  |           | 69.0 | % |  |  | 60-75 | %

1.18 Dividends

Dividend on common stock are recorded as a liability on the date of declaration
by the stockholders.

1.19 Derivative financial instruments

On April 1, 2001, the company adopted SFAS 133, Accounting for Derivative
Instruments and Hedging Activitiesas amended, when the rules became effective
for companies with fiscal years ending March 31. The company enters into
forward foreign exchange contracts where the counter party is generally a bank.
The company purchases forward foreign exchange contracts to mitigate the risk
of changes in foreign exchange rates on accounts receivable and forecasted cash
flows denominated in certain foreign currencies. Although these contracts are
effective as hedges from an economic perspective, they do not qualify for hedge
accounting under SFAS 133, as amended. Any derivative that is either not
designated hedge, or is so designated but is ineffective per SFAS 133, is
marked to market and recognized in earnings immediately.

1.20 Reclassifications

Certain reclassifications have been made to conform prior period data to the
current presentations. These reclassifications had no effect on reported
earnings.

1.21 Recent Accounting Pronouncements

In November 2002, the Emerging Issues Task Force (EITF) reached a consensus on
Issue No. 00-21, Revenue Arrangements with Multiple Deliverablesapplicable for
fiscal periods beginning after June 2003. This Issue addresses when and, if so,
how an arrangement involving multiple deliverables should be divided into
separate units of accounting, where the deliverable (the revenue generating
activities) are sufficiently separable and have standalone value to the
customer. It is also necessary that there exists sufficient evidence of fair
value to separately account for some or all of the deliverables. The Company
believes that the adoption of the consensus will not have a material impact on
the Companys revenue recognition policies as the accounting for the revenue
from a significant portion of the Companys service offerings is governed by
higher level GAAP literature.

In November 2002, the FASB issued Interpretation
No.45, Guarantors Accounting and Disclosure Requirements for Guarantees
Including Indirect Guarantees of Indebtedness of Others. The adoption of the
Interpretation did not have a material impact on the Companys accounting or
disclosure policies.

In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities, an interpretation of Accounting
Research Bulletin (ARB) 51, that applies to variable interest entities created
after January 31, 2003, and to variable interest entities in which an
enterprise obtains an interest after that date. The company has assessed the
implication of this interpretation and does not have to consolidate or disclose
information about variable interest entities when the interpretation becomes
applicable to existing entities from July 1, 2003.

2   Notes to the Consolidated Financial Statements

2.1 Cash and cash equivalents

The cost and fair values for cash and
cash equivalents as of March 31, 2002 and 2003 are as follows:

|                           |  |                 |             |      |  |   |             | 
|-------------------------- |  | --------------- | ----------- | ---- |  | - | ----------- | 
|                           |  | As of March 31,
|                           |  |                
|                           |  | 2002            |             | 2003
|                           |  |                 |             |     
|Cost and fair values       |  |                 |             |      |  |   |             | 
|Cash and bank deposits     |  | $               | 158,274,886 |      |  | $ | 283,302,326 | 
|Deposits with corporations |  |                 | 52,211,054  |      |  |   | 71,060,592  | 
|                           |  |                 |             |      |  |   |             | 
|                           |  | $               | 210,485,940 |      |  | $ | 354,362,918 | 
|                           |  |                 |             |      |  |   |             | 

Cash and cash equivalents include restricted cash balances in the amount of $
284,839 and $ 336,610 as of March 31, 2002 and 2003
respectively. The
restrictions are primarily
on account of unclaimed
dividend.

2.2 Trade accounts receivable

Trade accounts receivable as of March 31, 2002 and 2003, net of allowance for
doubtful accounts of $ 3,941,245 and $ 3,010,568 respectively,
amounted to $ 69,017,110 and $ 109,119,856. The age profile of trade
accounts receivable, net of allowances is given below.

|                        |  |                 |       |      |  |      |       | 
|----------------------- |  | --------------- | ----- | ---- |  | ---- | ----- | 
|                        |  |                 |       |      |  | In %
|                        |  |                 |       |      |  |     
|                        |  | As of March 31,
|                        |  | 2002            |       | 2003
|                        |  |                 |       |     
|Period (in days)
0  30 |  |                 | 69.0  |      |  |      | 65.8  | 
|31  60                 |  |                 | 30.0  |      |  |      | 29.0  | 
|61  90                 |  |                 | 0.5   |      |  |      | 3.9   | 
|More than 90            |  |                 | 0.5   |      |  |      | 1.3   | 
|                        |  |                 |       |      |  |      |       | 
|                        |  |                 | 100.0 |      |  |      | 100.0 | 
|                        |  |                 |       |      |  |      |       | 





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2.3 Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:

|                                         |  |                 |            |      |  |   |            | 
|---------------------------------------- |  | --------------- | ---------- | ---- |  | - | ---------- | 
|                                         |  | As of March 31,
|                                         |  | 2002            |            | 2003
|                                         |  |                 |            |     
|Rent deposits                            |  | $               | 2,079,155  |      |  | $ | 2,856,226  | 
|Security deposits with service providers |  |                 | 1,220,401  |      |  |   | 2,814,216  | 
|Loans to employees                       |  |                 | 8,331,779  |      |  |   | 12,252,004 | 
|Prepaid expenses                         |  |                 | 2,990,523  |      |  |   | 5,209,907  | 
|Other current assets                     |  |                 | 618,057    |      |  |   | 1,251,963  | 
|                                         |  |                 |            |      |  |   |            | 
|                                         |  | $               | 15,239,915 |      |  | $ | 24,384,316 | 
|                                         |  |                 |            |      |  |   |            | 

Other current assets represent advance payments to vendors for the supply of
goods and rendering of services and certain costs incurred towards software.
Deposits with service providers relate principally to leased telephone lines
and electricity supplies.

2.4 Property, plant and equipment  net

Property, plant and equipment consist of the following:

|                         |  |                 |             |      |  |   |              |  
|------------------------ |  | --------------- | ----------- | ---- |  | - | ------------ | -
|                         |  | As of March 31,
|                         |  | 2002            |             | 2003
|                         |  |                 |             |     
|Land                     |  | $               | 8,955,962   |      |  | $ | 9,948,480    |  
|Buildings                |  |                 | 58,481,413  |      |  |   | 81,114,141   |  
|Furniture and fixtures   |  |                 | 32,683,315  |      |  |   | 43,969,763   |  
|Computer equipment       |  |                 | 59,006,470  |      |  |   | 77,299,299   |  
|Plant and equipment      |  |                 | 37,685,337  |      |  |   | 47,832,904   |  
|Vehicles                 |  |                 | 72,085      |      |  |   | 73,995       |  
|Capital work-in-progress |  |                 | 30,881,704  |      |  |   | 16,281,831   |  
|                         |  |                 |             |      |  |   |              |  
|                         |  |                 | 227,766,286 |      |  |   | 276,520,413  |  
|Accumulated depreciation |  |                 | (80,554,555 | )    |  |   | (119,326,223 | )
|                         |  |                 |             |      |  |   |              |  
|                         |  | $               | 147,211,731 |      |  | $ | 157,194,190  |  
|                         |  |                 |             |      |  |   |              |  

Depreciation expense amounted to $ 24,527,867, $ 33,608,391 and $ 37,023,974
for fiscal 2001, 2002 and 2003 respectively. The amount of third party software
expensed during fiscal 2001, 2002 and 2003 was $ 6,979,492, $ 7,147,614 and $
11,607,776 respectively.

2.5 Intangible assets

During fiscal 2003, the company acquired the intellectual property rights of
Trade IQ product from IQ Financial Systems Inc., USA for its banking business
unit. The consideration paid amounted to US$ 3.47 million. The consideration
has been recorded as an intangible asset, which is being amortized over two
years representing managements estimate of the useful life of the intellectual
property.

The company also entered into an agreement with the Aeronautical Development
Agency, India (ADA) for transferring the intellectual property rights in
AUTOLAY, a commercial software application product used in the design of high
performance structural systems. The company will pay the committed
consideration of US$ 5 million within ten years of the contract date. The
ownership of intellectual property in AUTOLAY transfers to the company on
remittance of the consideration to ADA. The committed consideration of US$ 5
million is recorded as an intangible asset and is being amortized over five
years, which is managements estimate of the useful life. The amount payable to
ADA is disclosed as a non-current liability as of March 31, 2003 and as a
non-cash transaction in the consolidated statement of cash flows.

As of March 31, 2003, intangible assets (net of accumulated amortization of $
2,360,799) were $ 6,471,236.

2.6 Investments

The carrying value and the fair values of the Companys investments are as
follows:

|                                                                                                                                                                                                                       |        |   |               |     |            |   |           |     | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | - | ------------- | --- | ---------- | - | --------- | --- | 
|                                                                                                                                                                                                                       |        |   | Carrying cost |     | Fair value
|                                                                                                                                                                                                                       |        |   |               |     |           
|As of March 31, 2002                                                                                                                                                                                                   |        |   |               |     |            |   |           |    
|M-Commerce Ventures Pte Ltd  70 units, each unit representing 1
Ordinary Share of
S$ 1 each at par and 9 Redeemable Preference Shares of S$ 1 each at
par, with a
premium of S$ 1,110 per Redeemable Preference Share |        | $ | 399,485       |     |            | $ | 399,485   |    
|Asia Net Media BVI Limited  30,000,000 Ordinary Shares at $ 0.05
each, fully paid,
par value $ 0.01 each                                                                                                              |        |   | 1,500,000     |     |            |   | 1,500,000 |    
|CIDRA Corporation  33,333 Series D Convertible Preferred Stock, at
$ 90 each, fully paid,
par value $ 0.01 each                                                                                                       |        |   | 2,999,970     |     |            |   | 2,999,970 |    
|Workadia Inc., USA  880,000 Series B Preferred Stock at $ 2.5 each,
fully paid,
par value $ 0.0005 each                                                                                                               |        |   | 2,200,000     |     |            |   | 2,200,000 |    
|JASDIC Park Company  480 Common Stock, at ¥ 50,000 each, fully paid,
par value ¥ 50,000 each                                                                                                                          |        |   | 177,576       |     |            |   | 177,576   |    
|Stratify, Inc. (formerly Purple Yogi Inc.)  276,243 Series D
Convertible Preferred Stock,
at $ 1.81 each fully paid, par value $ 0.001 each                                                                           |        |   | 500,000       |     |            |   | 500,000   |    
|                                                                                                                                                                                                                       | Others |   |               | 362 |            |   |           | 362 | 
|                                                                                                                                                                                                                       |        |   |               |     |            |   |           |     | 
|                                                                                                                                                                                                                       |        | $ | 7,777,393     |     |            | $ | 7,777,393 |    
|                                                                                                                                                                                                                       |        |   |               |     |            |   |           |     | 





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##### Table of Contents



|                                                                                                                                                                                                                       |  |   |           |  |  |   |           | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | --------- |  |  | - | --------- | 
|As of March 31, 2003                                                                                                                                                                                                   |  |   |           |  |  |   |           | 
|M-Commerce Ventures Pte Ltd - 80 units, each unit representing 1
Ordinary Share of
S$ 1 each at par and 9 Redeemable Preference Shares of S$ 1 each at par,
with a premium of S$ 1,110 per Redeemable Preference Share |  | $ | 453,863   |  |  | $ | 453,863   | 
|CiDRA Corporation  33,333 Series D Convertible Preferred Stock, at $
90 each, fully paid,
par value $ 0.01 each                                                                                                       |  |   | 2,999,970 |  |  |   | 2,999,970 | 
|Workadia Inc., USA  880,000 Series B Preferred Stock at $ 2.5 each,
fully paid,
par value $ 0.0005 each                                                                                                               |  |   | 660,000   |  |  |   | 660,000   | 
|Stratify, Inc. (formerly Purple Yogi Inc.)  276,243 Series D
Convertible Preferred Stock,
at $ 1.81 each fully paid, par value $ 0.001 each                                                                           |  |   | 500,000   |  |  |   | 500,000   | 
|                                                                                                                                                                                                                       |  |   |           |  |  |   |           | 
|                                                                                                                                                                                                                       |  | $ | 4,613,833 |  |  | $ | 4,613,833 | 
|                                                                                                                                                                                                                       |  |   |           |  |  |   |           | 

An amount of $ 619,161 received from Workadia Inc. towards recovery of
investment is shown under other current assets, pending clearance from
regulatory authorities for setting-off against the investment.

2.7 Other assets

Other assets represent the non-current portion of loans to employees.

2.8 Related parties

The company grants loans to employees for acquiring assets such as property and
cars. Such loans are repayable over fixed periods ranging from 1 to 100 months.
The annual rates of interest at which the loans have been made to employees
vary between 0% through 4%. No loans have been made to employees in connection
with equity issues. The loans are generally secured by the assets acquired by
the employees. As of March 31, 2002 and 2003, amounts receivable from executive
officers amounting to $ 473,464 and nil, respectively, are included in prepaid
expenses and other current assets, and other assets in the accompanying balance
sheets.

The required repayments of loans by employees are as detailed below.

|           |  |                |            |      |  |   |            | 
|---------- |  | -------------- | ---------- | ---- |  | - | ---------- | 
|           |  | As of March 31
|           |  | 2002           |            | 2003
|           |  |                |            |     
|2003       |  | $              | 8,331,779  |      |  |   |           | 
|2004       |  |                | 3,755,840  |      |  | $ | 12,252,004 | 
|2005       |  |                | 2,670,075  |      |  |   | 4,298,780  | 
|2006       |  |                | 1,826,748  |      |  |   | 3,206,683  | 
|2007       |  |                | 1,454,086  |      |  |   | 2,416,202  | 
|2008       |  |                |           |      |  |   | 2,099,781  | 
|Thereafter |  |                | 2,751,866  |      |  |   | 4,432,882  | 
|           |  |                |            |      |  |   |            | 
|           |  | $              | 20,790,394 |      |  | $ | 28,706,332 | 
|           |  |                |            |      |  |   |            | 

The estimated fair values of related party receivables amounted to $ 17,905,507
and $ 24,422,419 as of March 31, 2002 and 2003 respectively. These amounts have
been determined using available market information and appropriate valuation
methodologies. Considerable judgment is required to develop these estimates of
fair value. Consequently, these estimates are not necessarily indicative of the
amounts that the company could realize in the market.

2.9 Other accrued liabilities

Other accrued liabilities comprise the following:

|                                        |  |                |            |      |  |   |            | 
|--------------------------------------- |  | -------------- | ---------- | ---- |  | - | ---------- | 
|                                        |  | As of March 31
|                                        |  | 2002           |            | 2003
|                                        |  |                |            |     
|Accrued compensation to staff           |  | $              | 11,575,996 |      |  | $ | 25,382,793 | 
|Accrued dividends                       |  |                | 229,839    |      |  |   | 336,610    | 
|Provision for post sales client support |  |                | 2,255,573  |      |  |   | 1,015,022  | 
|Employee withholding taxes payable      |  |                | 2,614,479  |      |  |   | 4,964,118  | 
|Provision for expenses                  |  |                | 3,356,760  |      |  |   | 12,196,810 | 
|Retainage                               |  |                | 1,918,203  |      |  |   | 1,120,938  | 
|Others                                  |  |                | 473,796    |      |  |   | 1,232,978  | 
|                                        |  |                |            |      |  |   |            | 
|                                        |  | $              | 22,424,646 |      |  | $ | 46,249,269 | 
|                                        |  |                |            |      |  |   |            | 





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##### Table of Contents



2.10    Employee post-retirement benefits

2.10.1 Gratuity

The following tables set out the funded status of the gratuity plans and the
amounts recognized in the companys financial statements in fiscal 2001, 2002
and 2003.

|                                                             |  |                      |            |      |  |      |            |   |  |   |            |  
|------------------------------------------------------------ |  | -------------------- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                                             |  | Year ended March 31,
|                                                             |  | 2001                 |            | 2002 |  | 2003
|                                                             |  |                      |            |      |  |     
|Change in benefit obligations                                |  |                      |            |      |  |      |            |   |  |   |            |  
|Benefit obligations at the beginning of the year             |  | $                    | 11,043,208 |      |  | $    | 13,581,972 |   |  | $ | 15,851,898 |  
|Unrecognized actuarial loss                                  |  |                      | (329,928   | )    |  |      |           |   |  |   | (514,983   | )
|Service cost                                                 |  |                      | 2,627,599  |      |  |      | 1,341,313  |   |  |   | 2,158,209  |  
|Interest cost                                                |  |                      | 1,183,461  |      |  |      | 1,376,398  |   |  |   | 1,082,815  |  
|Benefits paid                                                |  |                      | (184,247   | )    |  |      | (175,364   | ) |  |   | (238,823   | )
|Effect of exchange rate changes                              |  |                      | (758,121   | )    |  |      | (272,421   | ) |  |   | 450,082    |  
|                                                             |  |                      |            |      |  |      |            |   |  |   |            |  
|Benefit obligations at the end of the year                   |  |                      | 13,581,972 |      |  |      | 15,851,898 |   |  |   | 18,789,198 |  
|                                                             |  |                      |            |      |  |      |            |   |  |   |            |  
|Change in plan assets                                        |  |                      |            |      |  |      |            |   |  |   |            |  
|Fair value of plan assets at the beginning of the year       |  |                      | 4,375,821  |      |  |      | 10,147,905 |   |  |   | 12,448,532 |  
|Effect of exchange rate changes                              |  |                      | (468,275   | )    |  |      | (524,191   | ) |  |   | 385,738    |  
|Actual return on plan assets                                 |  |                      | 1,061,611  |      |  |      | 1,324,702  |   |  |   | 1,369,206  |  
|Employer contributions                                       |  |                      | 5,362,995  |      |  |      | 1,675,480  |   |  |   | 2,100,113  |  
|Benefits paid                                                |  |                      | (184,247   | )    |  |      | (175,364   | ) |  |   | (238,823   | )
|                                                             |  |                      |            |      |  |      |            |   |  |   |            |  
|Plan assets at the end of the year                           |  |                      | 10,147,905 |      |  |      | 12,448,532 |   |  |   | 16,064,766 |  
|                                                             |  |                      |            |      |  |      |            |   |  |   |            |  
|Funded status                                                |  |                      | (3,434,067 | )    |  |      | (3,403,366 | ) |  |   | (2,724,432 | )
|Excess of actual return over estimated return on plan
assets |  |                      | 301,791    |      |  |      | 141,394    |   |  |   | 552,688    |  
|Unrecognized transitional obligation                         |  |                      | 639,319    |      |  |      | 594,784    |   |  |   | 402,646    |  
|Unrecognized actuarial cost                                  |  |                      | 4,216,291  |      |  |      | 3,131,389  |   |  |   | 2,235,222  |  
|                                                             |  |                      |            |      |  |      |            |   |  |   |            |  
|(Accrued) / prepaid benefit                                  |  | $                    | 1,723,334  |      |  | $    | 464,201    |   |  | $ | 466,124    |  
|                                                             |  |                      |            |      |  |      |            |   |  |   |            |  

Net gratuity cost for fiscal 2001, 2002 and 2003 comprises the following
components:

|                                                     |  |                      |           |      |  |      |            |   |  |   |           |  
|---------------------------------------------------- |  | -------------------- | --------- | ---- |  | ---- | ---------- | - |  | - | --------- | -
|                                                     |  | Year ended March 31,
|                                                     |  | 2001                 |           | 2002 |  | 2003
|                                                     |  |                      |           |      |  |     
|Service cost                                         |  | $                    | 2,627,599 |      |  | $    | 1,341,313  |   |  | $ | 2,158,209 |  
|Interest cost                                        |  |                      | 1,183,461 |      |  |      | 1,376,398  |   |  |   | 1,082,815 |  
|Expected return on assets                            |  |                      | (759,820  | )    |  |      | (1,183,308 | ) |  |   | (816,518  | )
|Amortization of unrecognized transitional obligation |  |                      | 55,127    |      |  |      | 44,535     |   |  |   | 43,980    |  
|Amortization of unrecognized actuarial loss          |  |                      | 329,928   |      |  |      | 105,330    |   |  |   | 129,701   |  
|                                                     |  |                      |           |      |  |      |            |   |  |   |           |  
|Net gratuity cost                                    |  | $                    | 3,436,295 |      |  | $    | 1,684,268  |   |  | $ | 2,598,187 |  
|                                                     |  |                      |           |      |  |      |            |   |  |   |           |  

The assumptions used in accounting for the gratuity plan in fiscal 2001, 2002
and 2003 are set out below.

|                                        |  |                      |    |      |  |      |    |   |  |  |     |  
|--------------------------------------- |  | -------------------- | -- | ---- |  | ---- | -- | - |  |  | --- | -
|                                        |  | Year ended March 31,
|                                        |  | 2001                 |    | 2002 |  | 2003
|                                        |  |                      |    |      |  |     
|Discount rate                           |  |                      | 10 | %    |  |      | 10 | % |  |  | 7   | %
|Rate of increase in compensation levels |  |                      | 9  | %    |  |      | 9  | % |  |  | 5-7 | %
|Rate of return on plan assets           |  |                      | 10 | %    |  |      | 10 | % |  |  | 7   | %

The company assesses these assumptions with its projected long-term plans of
growth and prevalent industry standards.

2.10.2 Superannuation

The company contributed $ 796,739, $ 1,220,716 and $ 1,216,282 to the
superannuation plan in fiscal 2001, 2002 and 2003 respectively.

2.10.3 Provident fund

The company contributed $ 2,339,794, $ 3,146,742, and $ 3,820,331 to the
provident fund in fiscal 2001, 2002 and 2003, respectively.

2.11    Stockholders equity

Infosys has only one class of capital stock referred to as equity shares. All
references in these financial statements to number of shares, per share amounts
and market prices of equity shares are retroactively restated to reflect stock
splits made. The rights of equity shareholders are set out below.

2.11.1 Voting

Each holder of equity shares is entitled to one vote per share. The equity
shares represented by American Depositary Shares (ADS) carry similar rights
to voting and dividends as the other equity shares. Two ADSs represent one
underlying equity share.

2.11.2 Dividends

Should the company declare and pay dividends, such dividends will be paid in
Indian Rupees. Indian law mandates that any dividend be declared out of
distributable profits only after the transfer of a specified percentage of net
income computed in accordance with current regulations to a general reserve.
Moreover, the remittance of dividends outside India is governed by Indian law
on foreign exchange and is subject to applicable taxes.





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##### Table of Contents



2.11.3 Liquidation

In the event of liquidation of the company, the holders of common stock shall
be entitled to receive any of the remaining assets of the company, after
distribution of all preferential amounts. The amounts will be in proportion to
the number of equity shares held by the stockholders.

2.11.4 Stock options

There are no voting, dividend or liquidation rights to the holders of warrants
issued under the companys stock option plans.

2.12    Share
Capital of Progeon

In April 2002, Progeon issued 12,250,000 equity shares of par value $0.20 per
share to its holding company, Infosys, in exchange for an aggregate
consideration of $2,500,000 (First Tranche subscription). In terms of the
stock subscription agreement between Infosys, Citicorp International Finance
Corporation (CIFC) and Progeon, Infosys is also required to subscribe to an
additional 12,250,000 equity shares in Progeon, on or before the date of the
first anniversary of the First Tranche Subscription.

On June 14, 2002, Progeon issued 4,375,000 0.0005% cumulative convertible
preference shares to CIFC at an issue price of $2.28 (equivalent to Rs. 112)
per share, in exchange for an aggregate consideration of $10,000,000. Unless
earlier converted, pursuant to an agreement between the company and CIFC, these
cumulative convertible preference shares shall automatically be converted into
equity shares, (i) one year prior to the Initial Public Offering (IPO) date
or (ii) September 30, 2005 or (iii) at the holders option, immediately upon
the occurrence of any Liquidity Event; whichever is earlier. The term
Liquidity Event includes any of a decision of the Board of Directors of the
company to make an IPO, merger, reconstruction, capital reorganization or other
event which, in the sole opinion of the holder of the convertible preference
shares, amounts to an alteration in the capital structure of the company. Each
preference share is convertible into one equity share, par value $0.20 each.
The dividend on the preference shares for the period ended March 31, 2003 is
payable.

Each holder of these cumulative convertible preference shares is entitled to
receive notice of, and to attend, any shareholders meeting and shall be
entitled to vote together with holders of equity shares on any matters that
affect their rights as preference shareholders including any resolution for
winding up the company or for the repayment or reduction of the companys share
capital.

In the event of any liquidation, dissolution or winding up of the company,
either voluntary or involuntary, each holder of the preference shares will be
paid a dollar equivalent of Rs. 112 per preference share, as adjusted for stock
dividends, combinations, splits, recapitalizations and the like, in preference
to any distribution of any assets of the company to the holders of equity
shares.

Upon the completion of the distribution described above, the remaining assets
and funds of the company available for distribution to shareholders shall be
distributed among all holders of preference shares and equity shares based on
the number of equity shares held by each of them (assuming a full conversion of
all the preference shares).

2.13    Other income, net

Other income, net, consists of the following:

|                                            |  |                      |            |      |  |      |            |  |  |   |            |  
|------------------------------------------- |  | -------------------- | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | -
|                                            |  | Year ended March 31,
|                                            |  | 2001                 |            | 2002 |  | 2003
|                                            |  |                      |            |      |  |     
|Interest income                             |  | $                    | 8,526,635  |      |  | $    | 10,423,654 |  |  | $ | 16,701,515 |  
|Income from sale of special import licenses |  |                      | 14,800     |      |  |      |           |  |  |   |           |  
|Exchange gains                              |  |                      | 4,444,208  |      |  |      | 2,749,162  |  |  |   | 4,157,373  |  
|Provision for investments                   |  |                      | (3,480,300 | )    |  |      |           |  |  |   | (3,219,030 | )
|Others                                      |  |                      |           |      |  |      | 692,478    |  |  |   | 408,252    |  
|                                            |  |                      |            |      |  |      |            |  |  |   |            |  
|                                            |  | $                    | 9,505,343  |      |  | $    | 13,865,294 |  |  | $ | 18,048,110 |  
|                                            |  |                      |            |      |  |      |            |  |  |   |            |  

In fiscal 2003, we provided for write-downs to our investments in the aggregate
amount of approximately $3.2 million. These included approximately $1.5 million
for Asia Net Media BVI Limited, $0.2 million for JASDIC Park Company, $1.5
million for Workadia Inc., and other miscellaneous investments. These
write-downs were required due to the non-temporary impact of adverse market
conditions on these entities business models and their inability to continue
operations. In addition, these entities are currently in liquidation. It is
unlikely that we will recover any significant additional funds on their
liquidation.

2.14    Operating leases

The company has various operating leases for office buildings that are
renewable on a periodic basis. Rental expenses for operating leases in fiscal
2001, 2002 and 2003 were $ 3,689,822, $ 5,109,690, and $ 6,141,298
respectively. The operating leases can be renewed or canceled at the companys
option.

The company leases some of its office space under non-cancelable operating
leases. The schedule of future minimum rental payments in respect of these
leases is set out below.

|                      |  |   |            | 
|--------------------- |  | - | ---------- | 
|Year ending March 31, |  |   |            | 
|                      |  |   |            | 
|2004                  |  | $ | 3,772,447  | 
|2005                  |  |   | 3,341,814  | 
|2006                  |  |   | 2,491,325  | 
|2007                  |  |   | 1,050,362  | 
|2008                  |  |   | 689,691    | 
|Thereafter            |  |   | 1,472,132  | 
|                      |  |   |            | 
|                      |  | $ | 12,817,771 | 
|                      |  |   |            | 





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##### Table of Contents



2.15    Research and development

General and administrative expenses in the accompanying statements of income
include research and development expenses of $ 3,610,550, $ 3,083,994 and $
2,950,949 for fiscal 2001, 2002 and 2003 respectively.

2.16    Employees Stock Offer Plans (ESOP)

In September 1994, the company established the 1994 plan, which provided for
the issue of 6,000,000 warrants, as adjusted, to eligible employees. The
warrants were issued to an employee welfare trust (the Trust). In 1997, in
anticipation of a share dividend to be declared by the company, the Trust
exercised all warrants held by it and converted them into equity shares. As and
when the Trust issued options/stock to eligible employees, the difference
between the market price and the exercise price was accounted as deferred stock
compensation expense and amortized over the vesting period. Such amortized
deferred compensation expense was $ 5,081,795, $ 5,009,772 and $ 4,803,534 for
fiscal 2001, 2002, and 2003 respectively. The 1994 plan lapsed in fiscal 2000,
and consequently no further shares will be issued to employees under this plan.

1998 Employees Stock Offer Plan (the 1998 Plan). The companys 1998 Plan
provides for the grant of non-statutory stock options and incentive stock
options to employees of the company. The establishment of the 1998 Plan was
approved by the board of directors in December 1997 and by the stockholders in
January 1998. The Government of India has approved the 1998 Plan, subject to a
limit of 1,470,000 equity shares representing 2,940,000 ADS to be issued under
the 1998 Plan. Unless terminated sooner, the 1998 Plan will terminate
automatically in January 2008. All options under the 1998 Plan will be
exercisable for equity shares represented by ADSs. The 1998 Plan is
administered by a Compensation Committee comprising five members, all of who
are independent directors on the Board of Directors. All options under the 1998
Plan are exercisable for equity shares represented by ADSs.

1999 Stock Offer Plan (the 1999 Plan). In fiscal 2000, the company instituted
the 1999 Plan. The stockholders and the Board of Directors approved the 1999
Plan in June 1999. The 1999 Plan provides for the issue of 6,600,000 equity
shares to employees. The 1999 Plan is administered by a Compensation Committee
comprising five members, all of who are independent directors on the Board of
Directors. Under the 1999 Plan, options will be issued to employees at an
exercise price, which shall not be less than the Fair Market Value (FMV).
Under the 1999 Plan, options may also be issued to employees at exercise prices
that are less than FMV only if specifically approved by the members of the
company in a general meeting. All options under the 1999 plan are exercisable
for equity shares.

The options under the 1998 Plan and 1999 Plan vest over a period of one through
four years and expire 5 years from the date of completion of vesting.

The activity in the warrants / equity shares of the 1994, 1998 and 1999 ESOP in
fiscal 2001, 2002 and 2003 are set out below.

|                                                                            |           |  |                      |           |                |   |                |        |                |  |                |           |                |   |       |        |  |  |           |          |   |   |       |        | 
|--------------------------------------------------------------------------- | --------- |  | -------------------- | --------- | -------------- | - | -------------- | ------ | -------------- |  | -------------- | --------- | -------------- | - | ----- | ------ |  |  | --------- | -------- | - | - | ----- | ------ | 
|                                                                            |           |  | Year ended March 31,
|                                                                            |           |  | 2001                 |           | 2002           |   | 2003          
|                                                                            |           |  |                      |           |                |   |               
|                                                                            |           |  |                      |           |                |   | Weighted       |        |                |  |                |           | Weighted       |   |       |        |  |  | Weighted 
|                                                                            |           |  | Shares arising       |           | average        |   | Shares arising |        | average        |  | Shares arising |           | average       
|                                                                            |           |  | out of options       |           | exercise price |   | out of options |        | exercise price |  | out of options |           | exercise price
|                                                                            |           |  |                      |           |                |   |                |        |                |  |                |           |               
|1994 Option plan:                                                           |           |  |                      |           |                |   |                |        |                |  |                |           |                |   |       |        |  |  |           |          |   |   |       |       
|Outstanding at the
beginning of the period                                  |           |  | 341,400              |           |                |   |               |        |                |  | 330,000        |           |                |   |      |        |  |  | 321,400   |          |   |   |      |       
|                                                                            | Granted   |  |                      |          |                |   |                |       |                |  |                |          |                |   |       |       |  |  |           |         |   |   |       |       | 
|                                                                            | Forfeited |  |                      | (10,600   | )              |   | $              | 1.15   |                |  |                | (8,600    | )              |   | $     | 1.15   |  |  |           | (3,200   | ) |   | $     | 1.15   | 
|                                                                            | Exercised |  |                      | (800      | )              |   | $              | 1.15   |                |  |                |          |                |   |       |       |  |  |           |         |   |   |       |        | 
|                                                                            |           |  |                      |           |                |   |                |        |                |  |                |           |                |   |       |        |  |  |           |          |   |   |       |       
|Outstanding at the end of the period                                        |           |  | 330,000              |           |                |   |                |        |                |  | 321,400        |           |                |   |       |        |  |  | 318,200   |          |   |   |       |       
|                                                                            |           |  |                      |           |                |   |                |        |                |  |                |           |                |   |       |        |  |  |           |          |   |   |       |       
|Exercisable at the end of the period                                        |           |  |                     |           |                |   |               |        |                |  |               |           |                |   |       |        |  |  |          |          |   |   |      |       
|Weighted-average fair value of
grants
during the period at less than
market |           |  |                     |           |                |   |               |        |                |  |               |           |                |   |      |        |  |  |          |          |   |   |      |       
|1998 Option plan:                                                           |           |  |                      |           |                |   |                |        |                |  |                |           |                |   |       |        |  |  |           |          |   |   |       |       
|Outstanding at the
beginning of the period                                  |           |  | 344,750              |           |                |   |               |        |                |  | 782,753        |           |                |   |      |        |  |  | 1,131,247 |          |   |   |       |       
|                                                                            | Granted   |  |                      | 482,420   |                |   | $              | 230.88 |                |  |                | 454,250   |                |   | $     | 98.06  |  |  |           | 290,100  |   |   | $     | 123.69 | 
|                                                                            | Forfeited |  |                      | (38,200   | )              |   | $              | 172.58 |                |  |                | (77,773   | )              |   | $     | 240.90 |  |  |           | (124,874 | ) |   | $     | 92.43  | 
|                                                                            | Exercised |  |                      | (6,217    | )              |   | $              | 53.82  |                |  |                | (27,983   | )              |   | $     | 44.32  |  |  |           | (44,770  | ) |   | $     | 47.21  | 
|                                                                            |           |  |                      |           |                |   |                |        |                |  |                |           |                |   |       |        |  |  |           |          |   |   |       |       
|Outstanding at the end of the period                                        |           |  | 782,753              |           |                |   |                |        |                |  | 1,131,247      |           |                |   |       |        |  |  | 1,251,703 |          |   |   |       |       
|                                                                            |           |  |                      |           |                |   |                |        |                |  |                |           |                |   |       |        |  |  |           |          |   |   |       |       
|Exercisable at the end of the period                                        |           |  | 55,558               |           |                |   |               |        |                |  | 164,527        |           |                |   |      |        |  |  | 315,002   |          |   |   |      |       
|Weighted-average fair value of
options
granted during the period            |           |  |                     |           |                | $ | 45.85          |        |                |  |               |           |                | $ | 31.10 |        |  |  |          |          |   | $ | 32.04 |       
|1999 Option plan:                                                           |           |  |                      |           |                |   |                |        |                |  |                |           |                |   |       |        |  |  |           |          |   |   |       |       
|Outstanding at the
beginning of the period                                  |           |  | 1,006,800            |           |                |   |               |        |                |  | 2,793,980      |           |                |   |      |        |  |  | 4,668,815 |          |   |   |      |       
|                                                                            | Granted   |  |                      | 1,957,830 |                |   | $              | 136.68 |                |  |                | 2,050,500 |                |   | $     | 64.74  |  |  |           | 616,850  |   |   | $     | 78.41  | 
|                                                                            | Forfeited |  |                      | (169,450  | )              |   | $              | 110.06 |                |  |                | (175,635  | )              |   | $     | 119.23 |  |  |           | (212,316 | ) |   | $     | 96.63  | 
|                                                                            | Exercised |  |                      | (1,200    | )              |   | $              | 89.98  |                |  |                | (30       | )              |   | $     | 84.95  |  |  |           | (12,178  | ) |   | $     | 56.24  | 
|                                                                            |           |  |                      |           |                |   |                |        |                |  |                |           |                |   |       |        |  |  |           |          |   |   |       |       
|Outstanding at the end of the period                                        |           |  | 2,793,980            |           |                |   |                |        |                |  | 4,668,815      |           |                |   |       |        |  |  | 5,061,171 |          |   |   |       |       
|                                                                            |           |  |                      |           |                |   |                |        |                |  |                |           |                |   |       |        |  |  |           |          |   |   |       |       
|Exercisable at the end of the period                                        |           |  | 93,400               |           |                |   |               |        |                |  | 448,530        |           |                |   |      |        |  |  | 1,222,639 |          |   |   |      |       
|Weighted-average fair value of
options granted during the period            |           |  |                     |           |                | $ | 51.92          |        |                |  |               |           |                | $ | 32.47 |        |  |  |          |          |   | $ | 34.80 |       
|                                                                            |           |  |                      |           |                |   |                |        |                |  |                |           |                |   |       |        |  |  |           |          |   |   |       |       





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##### Table of Contents



The following table summarizes information about stock options outstanding as of March
31, 2003

|                     |  |                     |           |                       |  |                  |      |                |  |                  |      |  |  |  |           |  |  |   |     | 
|-------------------- |  | ------------------- | --------- | --------------------- |  | ---------------- | ---- | -------------- |  | ---------------- | ---- |  |  |  | --------- |  |  | - | --- | 
|                     |  | Options Outstanding |           | Options Exercisable  
|                     |  |                     |           |                      
|                     |  | No. of shares       |           | Weighted average      |  |                  |      |                |  | No. of shares    |      |  |  | 
|Range of exercise    |  | arising out of      |           | remaining contractual |  | Weighted average |      | arising out of |  | Weighted average
|prices per share ($) |  | options             |           | life in years         |  | exercise price   |      | options        |  | exercise price  
|                     |  |                     |           |                       |  |                  |      |                |  |                 
|1994 Plan            |  |                     |           |                       |  |                  |      |                |  |                  |      |  |  |  |           |  |  |   |     | 
|1.15                 |  |                     | 318,200   |                       |  |                  | 1.58 |                |  | $                | 1.15 |  |  |  |          |  |  |   |    | 
|                     |  |                     |           |                       |  |                  |      |                |  |                  |      |  |  |  |           |  |  |   |     | 
|1998 Plan            |  |                     |           |                       |  |                  |      |                |  |                  |      |  |  |  |           |  |  |   |     | 
|34-50                |  |                     | 98,250    |                       |  |                  | 3.94 |                |  | $                | 34   |  |  |  | 98,250    |  |  | $ | 34  | 
|51-100               |  |                     | 265,566   |                       |  |                  | 6.51 |                |  | $                | 84   |  |  |  | 17,338    |  |  | $ | 86  | 
|101-150              |  |                     | 391,560   |                       |  |                  | 7.18 |                |  | $                | 127  |  |  |  | 14,910    |  |  | $ | 132 | 
|151-200              |  |                     | 349,347   |                       |  |                  | 5.57 |                |  | $                | 192  |  |  |  | 132,229   |  |  | $ | 189 | 
|201-300              |  |                     | 71,560    |                       |  |                  | 5.63 |                |  | $                | 240  |  |  |  | 22,455    |  |  | $ | 240 | 
|301-400              |  |                     | 60,070    |                       |  |                  | 5.12 |                |  | $                | 324  |  |  |  | 22,170    |  |  | $ | 327 | 
|401-660              |  |                     | 15,350    |                       |  |                  | 4.92 |                |  | $                | 514  |  |  |  | 7,650     |  |  | $ | 525 | 
|                     |  |                     |           |                       |  |                  |      |                |  |                  |      |  |  |  |           |  |  |   |     | 
|                     |  |                     | 1,251,703 |                       |  |                  |      |                |  |                  |      |  |  |  | 315,002   |  |  |   |     | 
|                     |  |                     |           |                       |  |                  |      |                |  |                  |      |  |  |  |           |  |  |   |     | 
|1999 Plan            |  |                     |           |                       |  |                  |      |                |  |                  |      |  |  |  |           |  |  |   |     | 
|51-100               |  |                     | 3,301,853 |                       |  |                  | 6.12 |                |  | $                | 72   |  |  |  | 702,478   |  |  | $ | 81  | 
|101-150              |  |                     | 1,343,913 |                       |  |                  | 5.70 |                |  | $                | 122  |  |  |  | 389,646   |  |  | $ | 123 | 
|151-200              |  |                     | 409,305   |                       |  |                  | 5.44 |                |  | $                | 160  |  |  |  | 128,295   |  |  | $ | 161 | 
|201-250              |  |                     | 6,100     |                       |  |                  | 5.01 |                |  | $                | 216  |  |  |  | 2,220     |  |  | $ | 222 | 
|                     |  |                     |           |                       |  |                  |      |                |  |                  |      |  |  |  |           |  |  |   |     | 
|                     |  |                     | 5,061,171 |                       |  |                  |      |                |  |                  |      |  |  |  | 1,222,639 |  |  |   |     | 
|                     |  |                     |           |                       |  |                  |      |                |  |                  |      |  |  |  |           |  |  |   |     | 

Progeons 2002 Plan provides for the grant of stock options to employees of the
company and was approved by its board of directors and stockholders in June
2002. All options under the 2002 Plan are exercisable for equity shares. The
2002 Plan is administered by a Compensation Committee comprising three members,
all of whom are directors of the company. The 2002 Plan provides for the issue
of 5,250,000 equity shares to employees, at an exercise price, which shall not
be less than the FMV. Options may also be issued to employees at exercise
prices that are less than FMV only if specifically approved by the members of
the company in general meeting. The options issued under the 2002 Plan vest in
periods ranging between four through seven years, although accelerated vesting
based on performance conditions is provided in certain instances. All options
granted have been accounted for as a fixed plan. Options to purchase 1,801,175
shares of Progeon, with a weighted average exercise price of $0.69 and fair
value $ 0.30 have been granted during fiscal 2003 and are outstanding as of
March 31, 2003. There were no forfeitures or exercises on these grants. The
outstanding options have a weighted average remaining contractual life of 4.33
years and weighted average exercise price of $ 0.69. No options were
exercisable as of March 31, 2003.

2.17    Income taxes

The provision for income taxes comprises:

|                |                |   |                     |            |      |   |            |            |   |   |            |            |  
|--------------- | -------------- | - | ------------------- | ---------- | ---- | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                |                |   | Year ended March 31
|                |                |   | 2001                |            | 2002 |   | 2003      
|                |                |   |                     |            |      |   |           
|Current taxes   |                |   |                     |            |      |   |            |            |   |   |            |           
|                | Domestic taxes |   | $                   | 5,315,961  |      |   | $          | 6,483,255  |   |   | $          | 18,717,241 |  
|                | Foreign taxes  |   |                     | 10,525,168 |      |   |            | 23,463,108 |   |   |            | 25,523,234 |  
|                |                |   |                     |            |      |   |            |            |   |   |            |            |  
|                |                |   | 15,841,129          |            |      |   | 29,946,363 |            |   | $ | 44,240,475 |           
|                |                |   |                     |            |      |   |            |            |   |   |            |            |  
|Deferred taxes  |                |   |                     |            |      |   |            |            |   |   |            |           
|                | Domestic taxes |   |                     | (769,304   | )    |   |            | 27,126     |   |   |            | (1,122,604 | )
|                | Foreign taxes  |   |                     |           |      |   |            | (2,026,597 | ) |   |            | (1,295,606 | )
|                |                |   |                     |            |      |   |            |            |   |   |            |            |  
|                |                |   | (769,304            | )          |      |   | (1,999,471 | )          |   |   | (2,418,210 | )         
|                |                |   |                     |            |      |   |            |            |   |   |            |            |  
|Aggregate taxes |                | $ | 15,071,825          |            |      | $ | 27,946,892 |            |   | $ | 41,822,265 |           
|                |                |   |                     |            |      |   |            |            |   |   |            |            |  

The tax effects of significant temporary differences that resulted in deferred
tax assets and liabilities, and a description of the financial statement items
that created these differences are as follows:

|                                         |                               |   |                |           |      |   |           |           |  
|---------------------------------------- | ----------------------------- | - | -------------- | --------- | ---- | - | --------- | --------- | -
|                                         |                               |   | As of March 31
|                                         |                               |   | 2002           |           | 2003
|                                         |                               |   |                |           |     
|Deferred tax assets:                     |                               |   |                |           |      |   |           |          
|                                         | Property, plant and equipment |   | $              | 2,989,348 |      |   | $         | 4,719,124 |  
|                                         | Provision for doubtful debts  |   |                | 1,448,407 |      |   |           | 1,093,701 |  
|                                         | Investments                   |   |                | 1,571,586 |      |   |           | 2,545,761 |  
|                                         |                               |   |                |           |      |   |           |           |  
|                                         |                               |   | 6,009,341      |           |      |   | 8,358,586 |          
|                                         | Less:Valuation allowance      |   |                | (674,300  | )    |   |           | (614,004  | )
|                                         |                               |   |                |           |      |   |           |           |  
|                                         |                               |   | 5,335,041      |           |      |   | 7,744,582 |          
|                                         |                               |   |                |           |      |   |           |           |  
|Deferred tax liability on exchange gains |                               |   |               |           |      |   | (191,156  | )        
|                                         |                               |   |                |           |      |   |           |           |  
|Net deferred tax assets                  |                               | $ | 5,335,041      |           |      | $ | 7,553,426 |          
|                                         |                               |   |                |           |      |   |           |           |  

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which the temporary differences become deductible. Management considers the
scheduled reversal of the projected future taxable





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income, and tax planning strategies in making this assessment. Based on the
level of historical taxable income and projections for future taxable income
over the periods in which the deferred tax assets are deductible, management
believes that it is more likely than not the company will realize the benefits
of those deductible differences, net of the existing valuation differences at
March 31, 2003. The amount of the deferred tax assets considered realizable,
however, could be reduced in the near term if estimates of future taxable
income during the carry forward period are reduced.

All deferred tax expenses / (benefits) are allocated to the continuing
operations of the company.

A reconciliation of the income tax provision to the amount computed by applying
the statutory income tax rate to the income before provision for income taxes
is summarized below.

|                                                                   |  |                     |             |      |  |      |             |   |  |   |             |  
|------------------------------------------------------------------ |  | ------------------- | ----------- | ---- |  | ---- | ----------- | - |  | - | ----------- | -
|                                                                   |  | Year ended March 31
|                                                                   |  | 2001                |             | 2002 |  | 2003
|                                                                   |  |                     |             |      |  |     
|Net income before taxes                                            |  | $                   | 147,019,929 |      |  | $    | 192,413,201 |   |  | $ | 236,692,306 |  
|Enacted tax rates in India                                         |  |                     | 39.55       | %    |  |      | 35.70       | % |  |   | 36.75       | %
|Computed expected tax expense                                      |  |                     | 58,146,382  |      |  |      | 68,691,513  |   |  |   | 86,984,422  |  
|Less: Tax effect due to non-taxable
income for Indian tax purposes |  |                     | (57,334,527 | )    |  |      | (67,338,527 | ) |  |   | (71,851,761 | )
|Others                                                             |  |                     | 3,437,865   |      |  |      | 5,014,830   |   |  |   | 2,517,994   |  
|Effect of tax rate change                                          |  |                     | (8,077      | )    |  |      | 142,565     |   |  |   | (56,018     | )
|Effect of prior period tax adjustments                             |  |                     | 305,014     |      |  |      |            |   |  |   |            |  
|Provision for Indian income tax                                    |  |                     | 4,546,657   |      |  |      | 6,510,381   |   |  |   | 17,594,637  |  
|Effect of tax on foreign income                                    |  |                     | 10,525,168  |      |  |      | 21,436,511  |   |  |   | 24,227,628  |  
|                                                                   |  |                     |             |      |  |      |             |   |  |   |             |  
|Aggregate taxes                                                    |  | $                   | 15,071,825  |      |  | $    | 27,946,892  |   |  | $ | 41,822,265  |  
|                                                                   |  |                     |             |      |  |      |             |   |  |   |             |  

The provision for foreign taxes is due to income taxes payable overseas,
principally in the United States of America. The company benefits from certain
significant tax incentives provided to software firms under Indian tax laws.
These incentives presently include: (i) an exemption from payment of Indian
corporate income taxes for a period of ten consecutive years of operation of
software development facilities designated as Software Technology Parks (the
STP Tax Holiday); and (ii) a tax deduction for profits derived from exporting
computer software (the Export Deduction). All but one of the companys
software development facilities are located in designated Software Technology
Parks (STP). The Government of India has recently amended the tax incentives
available to companies set up in designated STPs. The period of the STP Tax
Holiday available to such companies is restricted to ten consecutive years,
beginning from the financial year when the unit started producing computer
software or April 1, 1999, whichever is earlier. The Finance Act 2002 provides
that the exempt income from an export oriented undertaking, for the year
commencing April 1, 2002, be restricted to 90% of its export income.
Additionally, the Export Deduction is being phased out equally over a period of
five years starting from fiscal 2000.

The Company is subject to a 15% Branch
Profit Tax (BPT) in the U.S. to the extent its
U.S. branchs net profit during the year is greater than
the increase in the net assets of the Companys U.S. branch
during the fiscal year, computed in accordance with the Internal
Revenue Code. At March 31, 2003, the Companys
U.S. branch net assets amounted to approximately
$106.3 million. The Company has not triggered the BPT and
intends to maintain the current level of its net assets in the U.S., as
it is consistent with its business plan. Accordingly, a BPT provision
has not been recorded.

2.18    Earnings per share

The following is a reconciliation of the equity shares used in the computation
of basic and diluted earnings per equity share:

|                                                                                                                            |  |                     |            |      |  |      |            |  |  |  |            | 
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | ---------- | ---- |  | ---- | ---------- |  |  |  | ---------- | 
|                                                                                                                            |  | Year ended March 31
|                                                                                                                            |  | 2001                |            | 2002 |  | 2003
|                                                                                                                            |  |                     |            |      |  |     
|Basic earnings per equity share  weighted average
number of common shares outstanding excluding
unallocated shares of ESOP |  |                     | 65,771,256 |      |  |      | 65,556,648 |  |  |  | 65,571,002 | 
|Effect of dilutive common equivalent shares 
stock options outstanding                                                     |  |                     | 943,483    |      |  |      | 528,226    |  |  |  | 908,007    | 
|                                                                                                                            |  |                     |            |      |  |      |            |  |  |  |            | 
|Diluted earnings per equity share  weighted average
number of common shares and common equivalent
shares outstanding       |  |                     | 66,714,739 |      |  |      | 66,084,874 |  |  |  | 66,479,009 | 
|                                                                                                                            |  |                     |            |      |  |      |            |  |  |  |            | 

Options to purchase 666,772 shares under the 1998 Plan and 1,845,378 shares
under the 1999 Plan were not considered for calculating diluted earnings per
share as their effect was antidilutive.

2.19    Derivative financial instruments

The Company enters into forward foreign exchange contracts where the counter
party is generally a bank. The Company considers the risks of non-performance
by the counter party as non-material. Infosys held foreign exchange forward
contracts of $ 2,000,000 and $ 88,000,000 as of March 31, 2002 and 2003,
respectively. The foreign forward exchange contracts mature between one to six
months.

2.20    Segment reporting

SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, establishes standards for the way that public business enterprises
report information about operating segments and related disclosures about
products and services, geographic areas, and major customers. The companys
operations predominantly relate to providing IT solutions, delivered to
customers located globally, across various industry segments. In the year ended
March 31, 2000, the company provided segmental disclosures based on the
geographical segment. However, from the fiscal year ended March 31, 2001, the
Chief Operating Decision Maker evaluates the companys performance and
allocates resources based on an analysis of various performance indicators by
industry classes and geographic segmentation of customers. Accordingly,
revenues represented along industry classes comprise the principal basis of
segmental information set out in these financial statements. Secondary
segmental reporting is performed on the basis of the geographical location of
customers. The accounting principles consistently used in the preparation of
the financial statements are





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consistently applied to record revenue and expenditure in individual segments,
and are as set out in the summary of significant accounting policies.

Industry segments for the company are primarily financial servicescomprising
enterprises providing banking, finance and insurance services, manufacturing
enterprises, enterprises in the telecommunications (telecom)and retail
industries, and otherssuch as utilities, transportation and logistics
companies.

Geographic segmentation is based on
business sourced from that geographic region and delivered from both
on-site and off-shore. North America comprises the United
States of America, Canada and Mexico; Europe includes
continental Europe (both the east and the west), Ireland and the
United Kingdom; and the Rest of the World comprising all other
places except those mentioned above and India.

Revenue in relation to segments is
categorized based on items that are individually indentifiable to
that segment, while expenditure is categorized in relation to the
associated turnover of the segment. Allocated expenses of the
geographic segments include expenses incurred for rendering services
from the companys offshore software development centres and
on-site expenses. Certain expenses such as depreciation, which form a
significant component of total expenses, are not specifically
allocable to specific segments as the underlying services are used
interchangeably. Management believes that it is not practical to
provide segment disclosures relating to those costs and expenses, and
accordingly these expenses are separately disclosed as
unallocated and adjusted only against the total income of
the company.

Fixed assets used in the companys business are not identified to any of the
reportable segments, as these are used interchangeably between segments.
Management believes that it is currently not practicable to provide segment
disclosures relating to total assets and liabilities since a meaningful
segregation of the available data is onerous.

Geographical information on revenue and industry revenue information is
collated based on individual customers invoiced or in relation to which the
revenue is otherwise recognized.

2.20.1 Industry segments

Year ended March 31, 2001

|                                |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   |             | 
|------------------------------- |  | ------------------ | ----------- | ------------- |  | ------- | ---------- | ------ |  | ------ | ---------- | ----- |  | - | ---------- |  |  | - | ---------- |  |  | - | ----------- | 
|                                |  | Financial services |             | Manufacturing |  | Telecom |            | Retail |  | Others |            | Total
|                                |  |                    |             |               |  |         |            |        |  |        |            |      
|Revenues                        |  | $                  | 139,616,739 |               |  | $       | 74,004,867 |        |  | $      | 76,412,722 |       |  | $ | 37,684,446 |  |  | $ | 86,131,736 |  |  | $ | 413,850,510 | 
|Identifiable operating expenses |  |                    | 49,021,150  |               |  |         | 28,363,069 |        |  |        | 19,219,376 |       |  |   | 11,893,574 |  |  |   | 26,233,048 |  |  |   | 134,730,217 | 
|Allocated expenses              |  |                    | 38,589,808  |               |  |         | 19,736,596 |        |  |        | 20,423,026 |       |  |   | 10,057,009 |  |  |   | 23,189,607 |  |  |   | 111,996,046 | 
|                                |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   |             | 
|Segmental operating income      |  |                    | 52,005,781  |               |  |         | 25,905,202 |        |  |        | 36,770,320 |       |  |   | 15,733,863 |  |  |   | 36,709,081 |  |  |   | 167,124,247 | 
|Unallocable expenses            |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   | 29,609,661  | 
|                                |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   |             | 
|Operating income                |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   | 137,514,586 | 
|Other income, net               |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   | 9,505,343   | 
|                                |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   |             | 
|Income before income taxes      |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   | 147,019,929 | 
|Provision for income taxes      |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   | 15,071,825  | 
|                                |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   |             | 
|Net income                      |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  | $ | 131,948,104 | 
|                                |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   |             | 

Year ended March 31, 2002

|                                |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   |             | 
|------------------------------- |  | ------------------ | ----------- | ------------- |  | ------- | ---------- | ------ |  | ------ | ---------- | ----- |  | - | ---------- |  |  | - | ---------- |  |  | - | ----------- | 
|                                |  | Financial services |             | Manufacturing |  | Telecom |            | Retail |  | Others |            | Total
|                                |  |                    |             |               |  |         |            |        |  |        |            |      
|Revenues                        |  | $                  | 199,725,558 |               |  | $       | 93,404,474 |        |  | $      | 85,190,054 |       |  | $ | 67,027,323 |  |  | $ | 99,703,805 |  |  | $ | 545,051,214 | 
|Identifiable operating expenses |  |                    | 74,364,097  |               |  |         | 38,112,096 |        |  |        | 23,873,023 |       |  |   | 18,696,233 |  |  |   | 34,831,145 |  |  |   | 189,876,594 | 
|Allocated expenses              |  |                    | 51,905,935  |               |  |         | 23,321,898 |        |  |        | 21,273,366 |       |  |   | 16,667,939 |  |  |   | 24,840,829 |  |  |   | 138,009,967 | 
|                                |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   |             | 
|Segmental operating income      |  |                    | 73,455,526  |               |  |         | 31,970,480 |        |  |        | 40,043,665 |       |  |   | 31,663,151 |  |  |   | 40,031,831 |  |  |   | 217,164,653 | 
|Unallocable expenses            |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   | 38,616,746  | 
|                                |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   |             | 
|Operating income                |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   | 178,547,907 | 
|Other income, net               |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   | 13,865,294  | 
|                                |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   |             | 
|Income before income taxes      |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   | 192,413,201 | 
|Provision for income taxes      |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   | 27,946,892  | 
|                                |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   |             | 
|Net income                      |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  | $ | 164,466,309 | 
|                                |  |                    |             |               |  |         |            |        |  |        |            |       |  |   |            |  |  |   |            |  |  |   |             | 

Year ended March 31, 2003

|                                |  |                    |             |               |  |         |             |        |  |        |             |       |  |   |            |  |  |   |             |  |  |   |             | 
|------------------------------- |  | ------------------ | ----------- | ------------- |  | ------- | ----------- | ------ |  | ------ | ----------- | ----- |  | - | ---------- |  |  | - | ----------- |  |  | - | ----------- | 
|                                |  | Financial services |             | Manufacturing |  | Telecom |             | Retail |  | Others |             | Total
|                                |  |                    |             |               |  |         |             |        |  |        |             |      
|Revenues                        |  | $                  | 283,305,475 |               |  | $       | 123,755,305 |        |  | $      | 114,309,356 |       |  | $ | 85,841,812 |  |  | $ | 146,595,077 |  |  | $ | 753,807,025 | 
|Identifiable operating expenses |  |                    | 113,522,995 |               |  |         | 50,493,841  |        |  |        | 38,470,934  |       |  |   | 27,432,075 |  |  |   | 54,817,856  |  |  |   | 284,737,701 | 
|Allocated expenses              |  |                    | 81,032,424  |               |  |         | 32,793,395  |        |  |        | 31,096,470  |       |  |   | 22,779,164 |  |  |   | 39,122,548  |  |  |   | 206,824,001 | 
|                                |  |                    |             |               |  |         |             |        |  |        |             |       |  |   |            |  |  |   |             |  |  |   |             | 
|Segmental operating income      |  |                    | 88,750,056  |               |  |         | 40,468,069  |        |  |        | 44,741,952  |       |  |   | 35,630,573 |  |  |   | 52,654,673  |  |  |   | 262,245,323 | 
|Unallocable expenses            |  |                    |             |               |  |         |             |        |  |        |             |       |  |   |            |  |  |   |             |  |  |   | 43,601,127  | 
|                                |  |                    |             |               |  |         |             |        |  |        |             |       |  |   |            |  |  |   |             |  |  |   |             | 
|Operating income                |  |                    |             |               |  |         |             |        |  |        |             |       |  |   |            |  |  |   |             |  |  |   | 218,644,196 | 
|Other income, net               |  |                    |             |               |  |         |             |        |  |        |             |       |  |   |            |  |  |   |             |  |  |   | 18,048,110  | 
|                                |  |                    |             |               |  |         |             |        |  |        |             |       |  |   |            |  |  |   |             |  |  |   |             | 
|Income before income taxes      |  |                    |             |               |  |         |             |        |  |        |             |       |  |   |            |  |  |   |             |  |  |   | 236,692,306 | 
|Provision for income taxes      |  |                    |             |               |  |         |             |        |  |        |             |       |  |   |            |  |  |   |             |  |  |   | 41,822,265  | 
|                                |  |                    |             |               |  |         |             |        |  |        |             |       |  |   |            |  |  |   |             |  |  |   |             | 
|Net income                      |  |                    |             |               |  |         |             |        |  |        |             |       |  |   |            |  |  |   |             |  |  | $ | 194,870,041 | 
|                                |  |                    |             |               |  |         |             |        |  |        |             |       |  |   |            |  |  |   |             |  |  |   |             | 





---



##### Table of Contents



2.20.2 Geographic segments

Year ended March 31, 2001

|                                |  |               |             |        |  |       |            |                   |  |       |           |  |  |   |            |  |  |   |             | 
|------------------------------- |  | ------------- | ----------- | ------ |  | ----- | ---------- | ----------------- |  | ----- | --------- |  |  | - | ---------- |  |  | - | ----------- | 
|                                |  | North America |             | Europe |  | India |            | Rest of the World |  | Total
|                                |  |               |             |        |  |       |            |                   |  |      
|Revenues                        |  | $             | 304,242,537 |        |  | $     | 77,892,656 |                   |  | $     | 5,778,286 |  |  | $ | 25,937,031 |  |  | $ | 413,850,510 | 
|Identifiable operating expenses |  |               | 96,358,758  |        |  |       | 27,210,316 |                   |  |       | 1,943,571 |  |  |   | 9,217,572  |  |  |   | 134,730,217 | 
|Allocated expenses              |  |               | 82,053,059  |        |  |       | 20,951,885 |                   |  |       | 1,866,259 |  |  |   | 7,124,843  |  |  |   | 111,996,046 | 
|                                |  |               |             |        |  |       |            |                   |  |       |           |  |  |   |            |  |  |   |             | 
|Segmental operating income      |  |               | 125,830,720 |        |  |       | 29,730,455 |                   |  |       | 1,968,456 |  |  |   | 9,594,616  |  |  |   | 167,124,247 | 
|Unallocable expenses            |  |               |             |        |  |       |            |                   |  |       |           |  |  |   |            |  |  |   | 29,609,661  | 
|                                |  |               |             |        |  |       |            |                   |  |       |           |  |  |   |            |  |  |   |             | 
|Operating income                |  |               |             |        |  |       |            |                   |  |       |           |  |  |   |            |  |  |   | 137,514,586 | 
|Other income, net               |  |               |             |        |  |       |            |                   |  |       |           |  |  |   |            |  |  |   | 9,505,343   | 
|                                |  |               |             |        |  |       |            |                   |  |       |           |  |  |   |            |  |  |   |             | 
|Income before income taxes      |  |               |             |        |  |       |            |                   |  |       |           |  |  |   |            |  |  |   | 147,019,929 | 
|Provision for income taxes      |  |               |             |        |  |       |            |                   |  |       |           |  |  |   |            |  |  |   | 15,071,825  | 
|                                |  |               |             |        |  |       |            |                   |  |       |           |  |  |   |            |  |  |   |             | 
|Net income                      |  |               |             |        |  |       |            |                   |  |       |           |  |  |   |            |  |  | $ | 131,948,104 | 
|                                |  |               |             |        |  |       |            |                   |  |       |           |  |  |   |            |  |  |   |             | 

Year ended March 31, 2002

|                                |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   |             | 
|------------------------------- |  | ------------- | ----------- | ------ |  | ----- | ----------- | ----------------- |  | ----- | ---------- |  |  | - | ---------- |  |  | - | ----------- | 
|                                |  | North America |             | Europe |  | India |             | Rest of the World |  | Total
|                                |  |               |             |        |  |       |             |                   |  |      
|Revenues                        |  | $             | 388,168,447 |        |  | $     | 106,103,448 |                   |  | $     | 10,735,626 |  |  | $ | 40,043,693 |  |  | $ | 545,051,214 | 
|Identifiable operating expenses |  |               | 135,362,671 |        |  |       | 38,013,083  |                   |  |       | 4,183,775  |  |  |   | 12,317,065 |  |  |   | 189,876,594 | 
|Allocated expenses              |  |               | 98,093,268  |        |  |       | 26,809,588  |                   |  |       | 3,119,373  |  |  |   | 9,987,738  |  |  |   | 138,009,967 | 
|                                |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   |             | 
|Segmental operating income      |  |               | 154,712,508 |        |  |       | 41,280,777  |                   |  |       | 3,432,478  |  |  |   | 17,738,890 |  |  |   | 217,164,653 | 
|Unallocable expenses            |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   | 38,616,746  | 
|                                |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   |             | 
|Operating income                |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   | 178,547,907 | 
|Other income, net               |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   | 13,865,294  | 
|                                |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   |             | 
|Income before income taxes      |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   | 192,413,201 | 
|Provision for income taxes      |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   | 27,946,892  | 
|                                |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   |             | 
|Net income                      |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  | $ | 164,466,309 | 
|                                |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   |             | 

Year ended March 31, 2003

|                                |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   |             | 
|------------------------------- |  | ------------- | ----------- | ------ |  | ----- | ----------- | ----------------- |  | ----- | ---------- |  |  | - | ---------- |  |  | - | ----------- | 
|                                |  | North America |             | Europe |  | India |             | Rest of the World |  | Total
|                                |  |               |             |        |  |       |             |                   |  |      
|Revenues                        |  | $             | 550,075,653 |        |  | $     | 133,236,361 |                   |  | $     | 16,132,922 |  |  | $ | 54,362,089 |  |  | $ | 753,807,025 | 
|Identifiable operating expenses |  |               | 218,257,001 |        |  |       | 46,559,987  |                   |  |       | 4,084,049  |  |  |   | 15,836,664 |  |  |   | 284,737,701 | 
|Allocated expenses              |  |               | 149,621,377 |        |  |       | 35,920,484  |                   |  |       | 5,823,309  |  |  |   | 15,458,831 |  |  |   | 206,824,001 | 
|                                |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   |             | 
|Segmental operating income      |  |               | 182,197,275 |        |  |       | 50,755,890  |                   |  |       | 6,225,564  |  |  |   | 23,066,594 |  |  |   | 262,245,323 | 
|Unallocable expenses            |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   | 43,601,127  | 
|                                |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   |             | 
|Operating income                |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   | 218,644,196 | 
|Other income, net               |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   | 18,048,110  | 
|                                |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   |             | 
|Income before income taxes      |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   | 236,692,306 | 
|Provision for income taxes      |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   | 41,822,265  | 
|                                |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   |             | 
|Net income                      |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  | $ | 194,870,041 | 
|                                |  |               |             |        |  |       |             |                   |  |       |            |  |  |   |            |  |  |   |             | 

2.20.3 Significant clients

No clients individually accounted for more than 10% of the revenues in
fiscal 2001, 2002 and 2003.

2.21     Commitments and contingencies

The company has outstanding performance guarantees for various statutory
purposes totaling $ 3,334,700 and $ 1,681,044 as of March 31, 2002 and
2003, respectively. These guarantees are generally provided to governmental
agencies.

2.22     Non-monetary transaction

During the year ended March 31, 2001, the company and certain of its
employees founded OnMobile Systems Inc. (OnMobile). These founding
employees resigned as employees of Infosys and hold senior management
positions in OnMobile. The company transferred certain Intellectual
Property Rights (IPR) that it had developed and owned in a product called
OnScan to OnMobile Systems Inc. (formerly OnScan, Inc). OnScan is a
web-enabled wireless notification product. In exchange for the transfer,
the company received consideration in the form of securities including
100,000 shares of Common Stock, par value $ 0.001 each, 100,000 shares of
Series A Voting Convertible Preferred Stock, par value $ 0.001 each and
4,400,000 shares of Series A Nonvoting Convertible Preferred Stock, par
value $ 0.001 each. Convertible Preferred Stock is convertible in to Common
Stock automatically upon the closing of an Initial Public Offering by OnMobile
Systems Inc.

As of the date of the transfer technological feasibility had not been
achieved during product development. The cost of development was expensed
as incurred and had not been capitalized. The transfer was recorded at
historical cost and accordingly, no values were assigned to IPR. The fair
value of the securities was also determined to be zero given the
uncertainty regarding the success of OnMobile; no gain was recognized on
this transaction.

2.23     Litigation

The company is subject to legal proceedings and claims, which have arisen,
in the ordinary course of its business. Legal actions, when
ultimately concluded and determined, will not, in the opinion of
management, have a material effect on the results of operations or the
financial position of the company.





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##### Table of Contents



Financial Statement Schedule  II

(Schedule II of Reg. §210.5-04(c) of Regulation S-X-17 of the Securities Act of
1933 and Securities Exchange Act of 1934)

Valuation and qualifying accounts

Allowance for doubtful accounts on trade accounts receivable (denominated in
United States dollars)

|            |  |                     |           |                 |  |            |           |               |  |            |            |   |  |   |           | 
|----------- |  | ------------------- | --------- | --------------- |  | ---------- | --------- | ------------- |  | ---------- | ---------- | - |  | - | --------- | 
|            |  | Balance at          |           | Charged to cost |  |            |           |               |  | Balance at
|Description |  | beginning of period |           | and expenses    |  | Write offs |           | end of period
|            |  |                     |           |                 |  |            |           |              
|Fiscal 2002 |  | $                   | 3,902,996 |                 |  | $          | 2,856,689 |               |  | $          | (2,818,440 | ) |  | $ | 3,941,245 | 
|Fiscal 2003 |  | $                   | 3,941,245 |                 |  | $          | 150,864   |               |  | $          | (1,081,541 | ) |  | $ | 3,010,568 | 
|            |  |                     |           |                 |  |            |           |               |  |            |            |   |  |   |           | 





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##### Table of Contents






Item   19. Exhibits

|               |  |                                                                                                                                                                                                                                        
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit number |  | Description of document                                                                                                                                                                                                                
|               |  |                                                                                                                                                                                                                                        
|**3.1          |  | Articles of Association of the Registrant, as amended                                                                                                                                                                                  
|               |  |                                                                                                                                                                                                                                        
|**3.2          |  | Memorandum of Association of the Registrant, as amended                                                                                                                                                                                
|               |  |                                                                                                                                                                                                                                        
|*3.3           |  | Certificate of Incorporation of the Registrant, as currently in effect                                                                                                                                                                 
|               |  |                                                                                                                                                                                                                                        
|****4.1        |  | Form of Deposit Agreement among the Registrant, Deutsche Bank Trust Company Americas and holders from time to time of
American Depository Receipts issued thereunder (including as an exhibit, the form of American Depositary Receipt)
|               |  |                                                                                                                                                                                                                                        
|*4.2           |  | Registrants Specimen Certificate for Equity Shares                                                                                                                                                                                    
|               |  |                                                                                                                                                                                                                                        
|*10.1          |  | Registrants 1998 Stock Option Plan                                                                                                                                                                                                    
|               |  |                                                                                                                                                                                                                                        
|*10.2          |  | Registrants Employee Stock Offer Plan                                                                                                                                                                                                 
|               |  |                                                                                                                                                                                                                                        
|*10.3          |  | Employees Welfare Trust Deed of Registrant Pursuant to Employee Stock Offer Plan                                                                                                                                                       
|               |  |                                                                                                                                                                                                                                        
|*10.4          |  | Form of Indemnification Agreement                                                                                                                                                                                                      
|               |  |                                                                                                                                                                                                                                        
|***10.5        |  | Registrants 1999 Stock Option Plan                                                                                                                                                                                                    
|               |  |                                                                                                                                                                                                                                        
|23.1           |  | Consent of KPMG, India                                                                                                                                                                                                                 
|               |  |                                                                                                                                                                                                                                        
|99.1           |  | Certification of Chief Executive Officer and Chief Financial Officer under Section 302 of the Sarbanes Oxley Act                                                                                                                       
|               |  |                                                                                                                                                                                                                                        
|99.2           |  | Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes Oxley Act                                                                                                                       
|               |  |                                                                                                                                                                                                                                        
|99.3           |  | Audit Committee Charter                                                                                                                                                                                                                
|               |  |                                                                                                                                                                                                                                        
|99.4           |  | Compensation Committee Charter                                                                                                                                                                                                         
|               |  |                                                                                                                                                                                                                                        
|99.5           |  | Nomination Committee Charter                                                                                                                                                                                                           
|               |  |                                                                                                                                                                                                                                        
|99.6           |  | Code of Ethics for Financial Professionals                                                                                                                                                                                             
|               |  |                                                                                                                                                                                                                                        
|99.7           |  | Whistleblower Policy                                                                                                                                                                                                                   



---

|*    |  | Incorporated by reference to exhibits filed with the Registrants
Registration Statement on Form F-1 (File No. 333-72195) in the form
declared effective on March 10, 1999.   
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|**   |  | Incorporated by reference to exhibits filed with the Registrants
Quarterly Report on Form 6-K filed on January 21, 2000                                                      
|    
|***  |  | Incorporated by reference to exhibits filed with the Registrants
Quarterly Report on Form 6-K filed on August 4, 1999.                                                       
|    
|**** |  | Incorporated by reference to Exhibits filed with Post Effective Amendment
No. 1 to Registrants Registration Statement on Form F-6 (File No.
333-72199) filed on March 28,2003




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.

for Infosys Technologies Limited


|                 |  |                                     |  |                          
|---------------- |  | ----------------------------------- |  | -------------------------
|                 |  | /s/ Nandan M. Nilekani              |  | /s/ N. R. Narayana Murthy
|Bangalore, India |  | Chief Executive Officer, President, |  | Chairman and Chief Mentor
|May 13, 2003     |  | and Managing Director               |  |