Videsh Sanchar Nigam Limited 21st Annual Report 2006 · PDF fileVidesh Sanchar Nigam Limited...

Videsh Sanchar Nigam Limited

21st Annual Report2006-2007

Videsh Sanchar Nigam Limited (VSNL),

a member of the US$ 27 billion Tata

Group, is a leading global communications

solutions company offering next-generation

voice, data and value-added services to

enterprises, carriers and retail consumers.

Voted the Best Wholesale Service Provider

at the World Communications Awards, 2006,

VSNL is one of the world’s largest providers

of wholesale international voice services and

operates one of the largest global submarine

cable networks. VSNL’s customer base

includes 1500 Global Carriers, 450 Mobile

Operators, 10,000 Enterprises, 500,000

Broadband and Internet subscribers and

300 Wi-Fi public hotspots.

Rated amongst the Top 100 Emerging

Global Challengers by the Boston Consulting

Group, VSNL has offi ces in over 35 countries

including the United States of America,

Canada, the United Kingdom, South Africa,

Singapore, Hong Kong, Sri Lanka and

India. VSNL’s global transmission network

of over 200,000 route kilometers and its IP

core with 200 points of presence, enable a

range of services that include voice, private

leased circuits, IP VPN, Internet access,

global Ethernet, hosting, mobile signaling

and other IP services. Our philosophy of

BusinessnRich drives us to empower our

customers to achieve enhanced value in

their global businesses.

VSNL (www.vsnl.in) is listed on the

Bombay Stock Exchange and the National

Stock Exchange in India, and its American

Depositary Receipts (ADRs) are listed on the

New York Stock Exchange in US.

World Communications Awards, 2006 – LONDONMichel Guyot, President, Global Voice Solutions (center) accepts the award for “Best Wholesale Carrier” from WCA host, Emily Maitlis of Newsnight (left).

TelecomAsia Awards, 2006 – PHUKETThe 2006 TelecomAsia CEO of the Year Award has been given in recognition of Mr. N Srinath’s role in transforming VSNL from a domestic monopoly to a major global telco in just four years.

2006 Global Wholesale Telecommunications Awards – AMSTERDAMClaude Sassoulas, MD - Europe, Global Data Solutions, accepts the award for “Best Pan-Asian Wholesale Provider”

1

TWENTY FIRST ANNUAL REPORT 2006-07

CONTENTS

Corporate Details .............................................................................................................. 2

Notice .................................................................................................................................... 5

Directors’ Report ................................................................................................................ 10

Report on Corporate Governance .............................................................................. 20

Declaration by CEO regarding Company’s Code of Conduct andCEO/CFO Certification ..................................................................................................... 34

Secretarial Responsibility Statement ......................................................................... 35

Auditors’ Certificate on Corporate Governance ..................................................... 36

Auditors’ Report ................................................................................................................. 37

Balance Sheet ..................................................................................................................... 40

Profit & Loss Account ....................................................................................................... 41

Cash Flow Statement ....................................................................................................... 42

Schedules ............................................................................................................................. 43

Notes to the Accounts ..................................................................................................... 56

Section 212 of the Companies Act, 1956, related to Subsidiary Companies 81

Consolidated Accounts

Auditors’ Report on Consolidated Financial Statements .................................... 85

Consolidated Balance Sheet .......................................................................................... 86

Consolidated Profit & Loss Account ........................................................................... 87

Consolidated Cash Flow Statement ........................................................................... 88

Consolidated Schedules ................................................................................................. 89

Consolidated Notes to the Accounts ......................................................................... 95

Financial Ratios .................................................................................................................. 120

Board of Directors ............................................................................................................. 121

Annual General Meeting on Thursday, 2 August 2007, at MC Ghia Hall, Kalaghoda Mumbai at 11.00 a.m.As a measure of economy, copies of the Annual Report will not be distributed at the Annual General Meeting.

Shareholders are requested to kindly bring their copies to the meeting.

VIDESH SANCHAR NIGAM LIMITED

Twenty First Annual Report 2006-2007

2

CORPORATE DETAILS

BOARD OF DIRECTORS(As on 3 July 2007)

Mr. Subodh Bhargava (Chairman) (Independent)

Mr. N. Srinath (Managing Director and Chief Executive Officer)

Mr. Kishor A. Chaukar (Panatone Nominee)

Mr. Pankaj Agrawala (Government Nominee)

Dr. Mukund Rajan (Panatone Nominee)

Mr. N. Parameswaran (Government Nominee)

Mr. P. V. Kalyanasundaram (Independent)

Dr. V.R.S. Sampath (Independent)

Mr. Amal Ganguli (Independent)

Mr. Vinod Kumar (Panatone Nominee)

Mr. S. Ramadorai (Panatone Nominee)

Mr. Satish Ranade Company Secretary & Chief Legal OfficerMr. Rajiv Dhar Chief Financial Officer

REGISTERED OFFICE Videsh Sanchar Bhavan, Mahatma Gandhi Road,Mumbai – 400 001.

CORPORATE OFFICE Lokmanya Videsh Sanchar BhawanKashinath Dhuru Marg, Prabhadevi, Mumbai – 400 028.

BANKERS Citibank Inc.Indian Overseas BankStandard Chartered BankHDFC BankHongkong & Shanghai Banking CorporationState Bank of IndiaICICI Bank Ltd.

LEGAL ADVISORS Messrs ANS Law AssociatesMessrs Mulla & Mulla and Craigie Blunt & Caroe

STATUTORY AUDITORS Messrs S.B. Billimoria & Co., Chartered Accountants

REGISTRARS & Messrs Sharepro Services (India) Pvt. Ltd.TRANSFER AGENTS Satam Estate, 3rd Floor,

Above Bank of Baroda, ChakalaAndheri (East), Mumbai - 400 099.

3

Wholesale Voice 53%

Enterprise &Carrier Data 32%

Other TrafficRevenue 10%

Interest &Other Income 5%

REVENUE EARNED

Wholesale Voice 54%

Enterprise &Carrier Data 31%

Other TrafficRevenue 9%

Interest & Other Income 6%

Network Cost 51%

Operating &Other Expenses 16%

Depreciation 9%

Taxes 6%

Dividend 4%

Reserve 8%

Staff Cost 6%

Network Cost 54%

Operating &Other Expenses 15%

Depreciation 9%

Taxes 5%

Dividend 4%

Reserve 8%

Staff Cost 5%

DISTRIBUTION OF REVENUE

2006-07 2005-06

2006-07 2005-06



4

0

10000

20000

30000

40000

50000

60000

70000

Average Capital Employed

2006-072005-062004-052003-042002-030

5

10

15

20

25

30

35

40

ROCE

Rs. i

n M

illio

ns

15.29

9.00

19.73 11.71 12.42

51015

4194838342 40938

37718

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

5154

2003-04 2004-05 2005-06 2006-07

2003-04 2004-05 2005-06 2006-07

7691

87599306

Min

ute

s in

Mill

ion

s

0

2000

4000

6000

8000

10000

2006-072005-062004-052003-04

2967

4282

6746

10553

EBIDTA

AVERAGE CAPITAL EMPLOYED AND ROCE

WHOLESALE VOLUME

5

NOTICENOTICE is hereby given that the Twenty First Annual General Meeting of Videsh Sanchar Nigam Limited will be held at1100 hours on Thursday, 2 August 2007, at MC Ghia Hall, Bhogilal Hargovindas Building, Second Floor, 18/20 KaikhushruDubash Road Marg, Kalghoda, Mumbai - 400021 to transact the following business:

Ordinary Business

1. To receive, consider and adopt the Balance Sheet of the Company as on 31 March 2007, the audited Profit and LossAccount for the year ended on that date, the Auditors’ Report thereon and the Report of the Board of Directors.

2. To declare dividend for the financial year 2006-2007.

3. To appoint a Director in place of Mr. Kishor A. Chaukar who retires at this Annual General Meeting and being eligibleoffers himself for reappointment.

4. To appoint a Director in place of Mr. Subodh Bhargava who retires at this Annual General Meeting and being eligibleoffers himself for reappointment.

Special Business

5. To pass following resolution with or without modifications as an ordinary resolution:

“RESOLVED THAT pursuant to the provisions of sections 269, 198 and 309 and other applicable provisions, if any, ofthe Companies Act, 1956, (the “Act”) read with Schedule XIII thereto, subject to the provisions of the Memorandumand Articles of Association of the Company, and subject to such approvals, if any, as may be necessary, approval ofthe Company be and is hereby accorded to the appointment of Mr. N. Srinath as the Managing Director of theCompany for a period commencing 2 February 2007 for a period of five years i.e upto and inclusive 1 February 2012on the terms and conditions agreed to between Mr. Srinath and the Company as set out in the explanatory statementattached to this notice and hereby approved, with liberty to the Board of Directors to revise the terms as toremuneration and other terms and conditions of appointment, from time to time within the limits prescribed underthe provisions of Schedule XIII or any amendment thereto for the time being in force.”

“RESOLVED FURTHER THAT where in any financial year during the tenure of Mr. N. Srinath as the Managing Directorof the Company as above, the Company has no profits or the profits are inadequate, the Company shall subject tothe provisions of Sections 198, 269 and 309 of the Act pay basic salary, perquisites and allowances as mutuallyagreed between the Company and Mr. Srinath and specified in the explanatory statement.”

“RESOLVED FURTHER THAT the Board of Directors of the Company be and is hereby authorised to take such steps asmay be necessary to give effect to this resolution.”

6. To appoint a Director liable to retire by rotation in place of Mr. Vinod Kumar who holds office only up to this AnnualGeneral Meeting and in respect of whom a notice under the provisions of section 257 of the Companies Act, 1956has been received by the Company from a member signifying his intention to propose Mr. Vinod Kumar as acandidate for the office of director.

7. To appoint a Director liable to retire by rotation in place of Mr. S. Ramadorai who holds office only up to this AnnualGeneral Meeting and in respect of whom a notice under the provisions of section 257 of the Companies Act, 1956has been received by the Company from a member signifying his intention to propose Mr. S. Ramadorai as acandidate for the office of director.

8. To consider and, if thought fit, to pass with or without modification the following Resolution as a Special Resolution:

“RESOLVED THAT pursuant to Section 224A and other applicable provisions, if any, of the Companies Act, 1956, M/sS.B. Billimoria & Co., Chartered Accountants be and are hereby appointed Statutory Auditors of the Company to holdoffice from the conclusion of this Annual General Meeting until the conclusion of the next Annual General Meetingand to examine and audit the accounts of the Company for the financial year 2007-2008 on such remuneration asmay be mutually agreed upon between the Board of Directors and the Auditors, plus reimbursement of service tax,traveling and out of pocket expenses.”

“RESOLVED FURTHER THAT the Auditors of the Company be and are hereby authorized to carry out (either themselvesor through qualified associates) the audit of the Company’s accounts maintained at all its branches and establishments(whether now existing or acquired during the financial year ending 31 March 2008) wherever in India or abroad.”

By Order of the Board of Directors

Dated : 3 July 2007

Registered Office : Satish RanadeVidesh Sanchar Bhavan Company Secretary &M.G. Road, Mumbai - 400 001. Chief Legal Officer



6

NOTES :1. A MEMBER ENTITLED TO ATTEND AND VOTE IS ENTITLED TO APPOINT A PROXY TO ATTEND AND VOTE INSTEAD OF

HIMSELF AND THE PROXY NEED NOT BE A MEMBER. THE INSTRUMENT APPOINTING A PROXY SHOULD, HOWEVER, BEDEPOSITED AT THE REGISTERED OFFICE OF THE COMPANY NOT LESS THAN 48 HOURS BEFORE THE COMMENCEMENTOF THE MEETING.

2. Members who hold shares in dematerialized form are requested to bring their DP ID and Client ID numbers for easyidentification of attendance at the meeting.

3. The statement of material facts pursuant to Section 173 (2) of the Companies Act, 1956, setting out the material factsin respect of the business under all items except item Nos.1 to 4 is annexed hereto.

4. Details regarding the persons proposed to be appointed as Directors and their brief resume have been given in theAnnexure attached to the Notice.

5. This may be taken as notice of declaration of dividend for 2006-2007 in accordance with Article 93 of Articles ofAssociation of the Company in respect of dividend for that year when declared.

6. Registers of members and transfer books of the Company shall remain closed from 17 July 2007 to 2 August 2007(both days inclusive) for the purpose of ascertaining eligibility to dividend.

7. The dividend as recommended by the Board of Directors, if declared at this Annual General Meeting, shall be paid onor after Wednesday the 8 August 2007.(i) to those shareholders whose names appear on the Company’s Register of Members after giving effect to all

valid share transfers in physical form lodged with the Registrar & Transfer Agents (R&T Agents) of the Companyon or before end of business on Monday, 16 July 2007.

(ii) in respect of shares held in electronic form, to those “deemed members” whose names appear in the statementsof beneficial ownership furnished by National Securities Depository Limited (NSDL) and Central DepositoryServices (India) Limited (CDSL) as at the end of business on Monday, 16 July 2007. In respect of shares held indemat mode, the dividend will be paid on the basis of beneficial ownership as per details to be furnished byNSDL and CDSL for this purpose.

8. Pursuant to the provisions of Section 205A(5) of the Companies Act, 1956, dividends for the financial year ended 31March 1995 and thereafter, which remain unclaimed in the unpaid dividend account for a period of seven years fromthe date of transfer of the same, will be transferred to the Investor Education and Protection Fund established by theCentral Government. The Members and Shareholders who have not encashed their dividend warrant(s) so far for thefinancial year ended 31 March 1999 or any subsequent financial years are requested to make their claim to the R & TAgents of the Company. According to the provisions of the Act, no claims shall lie against the said Fund or theCompany for the amounts of dividend so transferred nor shall any payment be made in respect of such claims. Thesummary of the unpaid dividend for the past years and the date on which the outstanding amount shall be transferredto Investor Education and Protection Fund on the dates are given in the table below.

Date of Balance as on Dividend Remarks Transfer toAGM/Board 30th June 2007 for the year Investor Education &

Protection Fund

26 Sept 2000 338,714.00 1999-00 Final Dividend 7 Nov 2007

27 Sept 2001 2,765,650.00 2000-01 Final Dividend 27 Oct 2008

14 Dec 2001 2,781,684.30 2001-02 Interim Dividend 13 Jan 2009

20 Aug 2002 2,151,657.00 2001-02 Final Dividend 19 Sept 2009


2 Sept 2004 820,057.00 2003-04 Final Dividend 2 Oct 2011

14 Sept 2005 908,574.00 2004-05 Final Dividend 14 Oct 2012


Total 12,187,061.30

9. Consequent upon the introduction of Section 109A of the Companies Act, 1956, shareholders are entitled to makenomination in respect of shares held by them in physical form. Shareholders desirous of making nominations arerequested to send their requests in Form No. 2B in duplicate (which will be made available on request) to the R & TAgents of the Company.

10. Members are requested to notify any change in their addresses immediately, in any event not later than Monday, 16July 2007, so as to enable us to dispatch the dividend warrants at the correct addresses:(i) In case of physical shares to the R & T Agents, M/s Sharepro Services (India) Private Limited, Satam Estate, 3rd

Floor, Above Bank of Baroda, Chakala, Andheri East, Mumbai-400 099.(ii) In case of shares held in demat form to their depositary participants (DPs).

7

Annexure to the Notice dated 3 July 2007The Statement of Material Facts pursuant to Section 173 (2) of the Companies Act, 1956.

In respect of Item No. 5

The Board of Directors of the Company at its meeting held on 2 February 2007 has appointed Mr. N. Srinath as theManaging Director of the Company subject to the approval of members and shareholders of the Company in generalmeeting for a period commencing 2 February 2007 for a period of five years i.e up to and inclusive 1 February 2012 at theremuneration, in accordance with the norms laid down in Schedule XIII and other applicable provisions of the CompaniesAct, 1956, as reproduced herein below :

a. Basic Salary – Basic Salary in the scale of Rs. 200,000-4,00,000 per month as may be finalised by or under the authorityof the Board from time to time.

b. Special Allowance – 33% of Basic Salary.

c. Commission - Such remuneration by way of commission in addition to basic salary, perquisites and allowances payable,calculated with reference to the net profits of the Company for each financial year and the performance of theManaging Director during the year as evaluated by the Board at the end of each such financial year. This amountwould be subject to the overall ceilings stipulated in Sections 198, 309 and other applicable provisions of the CompaniesAct, 1956.

d. Perquisites and Allowances –

i. Residential Accommodation - The Company shall provide Company owned / leased accommodation to Mr. Srinath,Managing Director, and undertake its maintenance. The perquisite value of the residential accommodation providedwill be calculated as per the Income Tax Rules. Alternatively, if Mr. Srinath does not avail Company owned / leasedaccommodation he shall be eligible to draw a House Rent Allowance @ 60% of the Basic Salary.

ii. In addition to the residential accommodation, the Managing Director shall also be entitled to other perquisitesand allowances of the value of 43% of his annual basic salary to cover the following: furnishing; leave travelconcession for self, wife and dependent children; normal medical reimbursement for self, wife and dependentchildren; and any other perquisites and allowances as may be agreed to by the Board and the Managing Director.

iii. The Company will pay fees of a maximum of one club. This will not include admission and life membership fees.

iv. Reimbursement of inpatient medical expenses towards hospitalization as per VSNL rules applicable from time totime in that regard, provision of a Company car for official duties and provision of telephone at residence and cellphone (including payment for local calls and long distance official calls) shall not be included in the computationof perquisites for the purpose of calculating the ceiling mentioned in para (ii) above.

v. The Company’s contribution to Provident Fund and Superannuation or Annuity Fund, if any, to the extent theseeither singly or together are not taxable under the Income Tax Act, Gratuity payable as per the rules of theCompany and encashment of leave shall not be included in the computation of the limit referred to in para (ii)above. In case the aggregate contribution to Provident Fund and Superannuation Fund is less than 27% of thebasic salary, the Special Allowance referred to in para (b) above shall be increased to that extent.

Minimum Remuneration - Notwithstanding anything to the contrary herein contained, where in any financial year duringthe currency of Managing Director’s tenure, the Company has no profits or the profits are inadequate, the Company shallsubject to the provisions of Sections 198, 269 and 309 of the Act pay basic salary, perquisites and allowances as specifiedabove.

Other Terms and Conditions –

1. The terms and conditions of the appointment may be varied / enhanced from time to time by the Board of Directorsof the Company as it may in its discretion deem fit within the maximum amounts payable to the Managing Directorprescribed under the provisions of Schedule XIII to the Companies Act, 1956.

2. Sitting Fees - The Managing Director shall not be paid any sitting fees for attending the meeting of the Board ofDirectors or any committee thereof from the date of his appointment.

None of the Directors other than Mr. N. Srinath is concerned or interested in the above Resolution.



8


Mr. Vinod Kumar was appointed as an additional Director on the Board with effect from 2 February 2007 under Article 66Bof the Articles of Association of the Company. Under Section 260 of the Companies Act of 1956 and under the said Article,Mr. Vinod Kumar holds office up to the date of the forthcoming Annual General Meeting. Mr. Vinod Kumar is eligible forappointment as a Director of the Company and the Company has, pursuant to section 257 of the Companies Act of 1956,received a notice in writing proposing his candidature for appointment. If appointed, Mr. Vinod Kumar will act as a non-executive Director liable to retire by rotation.

None of the Directors other than Mr. Vinod Kumar is concerned or interested in the above Resolution.


Mr. S. Ramadorai was appointed as an additional Director on the Board with effect from 28 June 2007 under Article 66B ofthe Articles of Association of the Company. Under Section 260 of the Companies Act of 1956 and under the said Article, Mr.S. Ramadorai holds office up to the date of the forthcoming Annual General Meeting. Mr. S. Ramadorai is eligible forappointment as a Director of the Company and the Company has, pursuant to section 257 of the Companies Act of 1956,received a notice in writing proposing his candidature for appointment. If appointed, Mr. S. Ramadorai will act as a non-executive Director liable to retire by rotation.

None of the Directors other than Mr. S. Ramadorai is concerned or interested in the above Resolution.


M/s. S.B. Billimoria & Co., Chartered Accountants, were appointed as Statutory Auditors of the Company at the TwentiethAnnual General Meeting held on 13 September 2006 and hold office till the conclusion of this Annual General Meeting.Since the Government of India continues to hold not less than 25% of the subscribed and paid up share capital of theCompany, the appointment of the auditors of the Company is required to be approved by a Special Resolution pursuant tothe provisions of Section 224A of the Companies Act, 1956.

None of the Directors are interested in the resolution.

By Order of the Board of Directors

Satish RanadeDated : 3 July 2007 Company Secretary &

Registered Office : Chief Legal OfficerVidesh Sanchar BhavanM.G. Road, Mumbai - 400 001.

9

Details of Directors Seeking Appointment/Re-Appointment at the21st Annual General Meeting

Particulars Mr. Kishor Chaukar Mr. Subodh Bhargava Mr. N. Srinath Mr. Vinod Kumar Mr. S. Ramadorai

Date of Birth 1 August 1947 30 March 1942 8 July 1962 14 December 1965 6 October 1944

Date of Appointment 1 July 2002 15 May 2002 13 February 2002 2 February 2007 28 June 2007(appointed asManaging Directoron 2 February 2007)

Qualifications BA (Eco) – Karnataka B.E. (Mech) B.E. (Mech), MBA BE (Hons), MBA Bachelor’s degree inUniversity, PGDBA Physics from Delhi(Indian Institute of University, Bachelor’sManagement, degree in ElectronicsAhmedabad), DEA – and TelecommunicationsRural Economics – from IISC Bangalore andUniversity of Dijon, a Master’s degree inFrance. Computer Science from

University of California,USA.

Expertise in Specific Functional Area General Management General Management General Management General Management General Management

Directorships held in other Tata Industries Limited Wartsila India Limited Tata Teleservices Limited VSNL Global Services Ltd. Tata Industries LimitedPublic Companies (excluding Tata Advanced (Chairman) VSNL Global Services Tata Elxsi Limitedforeign and private companies) Materials Limited Tata Steel Limited Limited Tata Technologies Ltd.

Tata Teleservices Limited Samtel Colour Limited (Chairman)Tata Autocomp Systems Rane Engine Valves WTI AdvancedLimited Limited Technology LimitedIDFC Private Equity Samcor Glass Limited Aviation SoftwareCompany Limited TRF Limited DevelopmentTata Investment Carborundum Universal ConsultancyCorporation Limited Limited India LimitedE2E SerWiz Solutions GlaxoSmithKline Consumer CMC Limited (Chairman)Limited Healthcare Limited Hindustan Unilever LimitedTata Petrodyne Limited Batiliboi Limited Nicholas Piramal IndiaTSR Darashaw Limited SRF Limited Limited(Chairman) DCM Engineering Limited Tata Consultancy

Power Finance Services LimitedCorporation Limited Tata Teleservices Limited

C-Edge Technologies Ltd.Tata Teleservices(Maharashtra) Limited

Memberships/Chairmanships of Audit Committee Audit Committee NIL NIL Audit CommitteeCommittees in other Public Companies Tata Autocomp Systems Videsh Sanchar Nigam Ltd Tata Technologies Limited

Ltd. Rane Engine Valves Ltd (Chairman)Tata Teleservices Ltd. (Chairman) Tata Elxsi LimitedE2E SerWiz Solutions Ltd Samtel Colour Limited Hindustan LeverInvestor Grievance (Chairman) LimitedCommittee Wartsila India Limited Investor GrievanceVidesh Sanchar Nigam Ltd Carborundum Universal Committee

Limited (Chairman) Tata ConsultancyTRF Limited Services LimitedBatiliboi LtdGlaxoSmithKline ConsumerHealthcare LimitedSRF LimitedTata Steel LimitedInvestor GrievanceCommitteeWartsila India Limited

Shareholding In VSNL NIL NIL NIL NIL NIL



10

Dear Shareholders,

The directors are pleased to present the annual report andaudited accounts for the financial year ended 31 March2007.

FINANCIAL PERFORMANCE

During the year under review, 2006-07, your Companyearned a total revenue of Rs.42.54 billion compared toRs.40.10 billion during the previous year. Profit before taxfor the year was Rs.7.13 billion, against Rs.6.87 billion inthe previous year. Profit after tax was Rs.4.69 billioncompared to Rs.4.80 billion in the previous year.

On a consolidated basis, for 2006-07, the Company’s totalincome was Rs.88.57 billion, with an EBIDTA of Rs.12.99billion and profit before tax and exceptional items ofRs.3.72 billion.

Dividend

The directors are pleased to recommend a dividend ofRs.4.50 per share (Rs.4.50 per share for the previous year)for the financial year ended 31 March 2007. The amountavailable for appropriation is Rs.19.40 billion, out of whichthe Company proposes to transfer Rs.468.60 million togeneral reserves, leaving Rs.17.43 billion to the balancesheet.

STRATEGIC OVERVIEW

The past year has been a landmark one in your Company’shistory. It was the first full year of global operations afterthe integration of VSNL’s major international acquisitions,Tyco Global Network and Teleglobe. The Companystrengthened its position in international wholesale voiceservices, grew its carrier and enterprise data business,launched services through its joint venture in South Africaand announced several new initiatives in global submarinecable systems.

Your Company has transformed itself into India’s first trulyglobal telecommunications company and today operatesin 38 countries across every major geography. VSNL isamong the world’s top three providers of internationalwholesale voice services, and the number one wholesaleVoice over Internet Protocol provider. Your Companyprovides a range of connectivity services across the globeto both carriers and enterprises. It is one of the largestproviders of submarine cable capacity in the world, basedon its state-of-the-art infrastructure. VSNL is also a globalTier-1 Internet Services Provider (ISP) and one of the majorplayers in the growing global IP Transit market. YourCompany already offers telecommunication servicesthrough its subsidiary in Sri Lanka and a joint venture inNepal, United Telecom Ltd., while its joint venture in SouthAfrica, Neotel Proprietary Ltd., has also launched itsoperations.

Meanwhile, in India, your Company continues to be thecountry’s largest player in international telecommunicationservices for both voice and data. In the voice space, VSNLremains one of the leading players for international voicecommunications, connecting India to more than 240countries and territories worldwide. Your Company is alsoa leading player in the Indian data market, offeringcustomers a range of telecommunication solutions, suchas private leased circuits, managed data networks, virtualprivate network services and data centre services. In theretail space, VSNL remains a premier Internet ServiceProvider, offering connectivity, messaging, Internettelephony and a wide variety of content services. Havingpioneered the use of the Internet in India, your Companyis now emerging as a key player in India’s broadbandrevolution.

VSNL has transformed itself over the last few years byreworking its strategies and repositioning itself. YourCompany’s overall strategy remains to:

• Maintain its leadership in wholesale services with aglobal footprint, new products and enhanced servicelevels.

• Diversify and de-risk its business model and ensurerapid growth, by expanding into new high-potentialareas like enterprise and carrier value added data andbroadband services.

• Extend and strengthen its global presence bydelivering network and communication solutionsglobally and by expanding into overseas telecommarkets through greenfield ventures or throughmergers and acquisitions.

• Support all its businesses by selective and strategicexpansions and modernisations of its state-of-the-artinfrastructure network.

• Fully leverage synergies with other Tata Groupcompanies in the telecom and software sectors, togive customers a range of end-to-end solutions.

• Continuously improve efficiency and competitivenessthrough initiatives such as quality, cost rationalisationand profit enhancement; and enhance customer focusand orientation to deliver a customer experience thatmatches the best in the world.

OPERATIONAL REVIEW

Your Company operates under three main businesssegments globally – Wholesale Voice, Enterprise and CarrierData and Other Services.

Wholesale Voice

• International Long Distance (ILD)

ILD voice services were traditionally VSNL’s corebusiness. Over the last five years, the international

DIRECTORS’ REPORT

11

telephony market in India has been under pressuredue to increased competition, falling rates and lowermargins. With the acquisition of Teleglobe during2005-06, your Company has transformed itself from asingle-country operator to a leading global player,backed by assets that can support its businessesworldwide. VSNL owns and operates one of the largestinternational networks with coverage to more than240 countries and territories. Your Company also hasseveral hundred direct and bilateral relationships withleading international voice telecommunicationproviders and carries over 25 billion minutes ofinternational wholesale voice traffic on an annualisedbasis.

While VSNL retains its position as India’s leading ILDservices provider, tariffs and interconnect rates(determining VSNL’s revenues for international callspassed to or from other domestic telecom networks)declined, sustaining the pressure on margins.

Therefore, globally your Company’s focus continuesto remain on increasing volumes and thus revenues,while improving margins by cutting costs. YourCompany believes that its strategic advantage in thisbusiness comes from its volumes, reach, and robuststate-of-the-art technology and networks, which areall difficult to replicate.

• National Long Distance (NLD)

Your Company has a strong national networkinfrastructure and interconnect agreements with allbasic and cellular mobile service operators in India tocarry NLD traffic to and from their networks. However,VSNL is dependent on getting traffic from these accessproviders, many of who have acquired their own NLDlicenses. Meanwhile, direct customer accessmechanisms such as the Carrier Access Code (CAC),or Intelligent Network (IN) type services such as callingcards across multiple carrier networks, have not yetbeen implemented. As a result, VSNL continues to beabsent from the retail long distance voice market.

Enterprise and Carrier Data

VSNL’s reach now extends beyond India to enterprisesglobally, providing connectivity across the world throughits own network or with the help of its partners in differentgeographies. VSNL aims to make inroads into the largeand lucrative global markets by developing differentiatedservices and offering competitive pricing.

As voice, data and video communications converge, thedemand for enterprise data services is growing worldwide.In addition to international and national private leasedcircuits (IPLCs and NPLCs), your Company offers a widerange of Internet Protocol (IP) services encompassingInternet telephony, MPLS VPNs (virtual private networks),Internet access, managed hosting and other data centre

services, Internet leased lines, mail and messaging services,video conferencing, website hosting services with securityback-up and database management services and networkmanagement.

VSNL’s telecom service offerings can be seamlesslyintegrated across products and geographies, andcustomised to meet the varied requirements of theenterprise sector. The Company continues to expand its IPVPN services throughout the main global markets. VSNLhas progressed up the value chain to deliver managedsolutions to customers. During 2006-07, the Companysignificantly expanded its VPN and data centre offerings,establishing state-of-the-art Asynchronous Transfer Mode(ATM) and Multi Protocol Label Switching (MPLS) networks.

To further strengthen its customer value proposition, VSNLpartners with Tata Group company TCS and other softwareand systems integration companies, for integrated jointproduct and service offerings. Your Company also marketsits services through indirect channels catering to the smalland medium enterprise market in India.

After recent amendments to telecom licences, IP VPNservices are to be provided under the ILD and NLD licences.The wireless as well as fibre last-mile network can now beused to provide services under the NLD licence. NLD serviceproviders are also now allowed to make their ownarrangements for laying the last mile for providing leasedcircuits and for connecting Closed User Groups. Thisamendment removes a major hurdle to VSNL’s leasedservices and the Company is actively expanding its fibreand wireless access network based on the new Wi-maxtechnology to provide its own last mile connectivity to itsenterprise customers.

Other Services

Broadband Business

Keeping with the pace of growth of 2005-06, thebroadband business grew by close to 100% in the year2006-07. VSNL which was the first broadband serviceprovider in India to offer an integrated voice, video anddata service to its customers, has made much moreprogress in terms of providing Integrated Internet Servicesto its customers. Customers can now use their high speedinternet connection to view movies, buy music, do livedarshan, buy anti-virus and other software applications,call using net telephony and much more with the state ofthe art broadband service offered by your company.

VSNL continues to evaluate and test out newer access andapplication technologies. As part of that VSNL is evaluatingand testing WIMAX. Various partnerships with leadingindustry players in both the software and hardwaresegments have been announced and VSNL continues toprovide thought leadership for various broadbandinitiatives in India.



12

Dial Up Internet Service

Continuing from the last year, VSNL continues to lead thedial up market in India in terms of innovations and servicesfor the customer – be it the first of its kind Honours club –named as E3 Honours for high end, long term, dial up usersor alternative mechanisms for payment. To add to all this,VSNL has become the first dial up service operator in thecountry to offer rich content and interactive services todial up users using the same user ID and password formultiple services like Internet access, net telephony andvalue-added email services.

Public Access Business – Wi-Fi and Cybercafes

VSNL is now the largest public broadband access provideracross the country. Public access is being provided throughWi-Fi hotspots and a chain of cybercafés. The Wi-Fi hotspotsare spread across airports, five star hotels, coffee shops,restaurant chains, hospitals, educational institutes, railwaystations, etc across the country with VSNL enjoying goodsuccess in terms of major new site acquisitions throughthe year. Today VSNL provides public internet access atmore than 300 hotspot locations, across the country. VSNLwas recently invited onto the Board of the WirelessBroadband Alliance (WBA). WBA is the leading globalorganization representing the largest Wireless Broadbandoperators like British Telecom, France Telecom, KoreaTelecom, StarHub, Swisscom Mobile and T Mobile. VSNLjoined WBA in 2006, and is the only representative fromIndia in this world body. This was a fast track path for VSNLinto the Board, given the contributions done by VSNLtowards pushing aggressive growth for wireless broadband.

To consolidate its position in the Internet space in India,VSNL has over the last two years, acquired two companies– Direct Internet Limited and Primus India. In order tostreamline the businesses and to provide the necessarymanagerial focus for unlocking the value of the retailbusiness in the future, your Board decided to hive off theretail business unit into a subsidiary called VSNL InternetServices Limited (VISL). A comprehensive scheme ofarrangement and merger of Direct Internet Limited intoVISL has been filed with the competent courts. (Please seeManagement Discussion and Analysis for details).

New Stream Of Business - Outsourcing Services

To help reduce the total cost of its operations and to takeadvantage of opportunities in the outsourcing business,VSNL has incorporated a 100% subsidiary VSNL GlobalServices Limited (VGSL). VGSL will provide outsourcingservices, namely, client relationship management services,technical and other support services, transactionprocessing services, sales administration services,marketing, promotion, maintaining and updatingaccounting, costing, management records, accountsreceivable management, accounts payable managementetc. During the year, VGSL has already set up one specialeconomic zone (SEZ) unit and another software technologypark (STPI) unit.

Technical Services Agreement with Neotel

As we have previously reported, the Government of SouthAfrica has selected VSNL as the strategic partner toparticipate in the second network operator (SNO) processin that country, to provide telecom services in competitionwith the incumbent carrier. South Africa has issued alicence to this SNO, called Neotel Proprietary Ltd, to providea broad range of telecommunications services (exceptmobile services). During the past year, VSNL signed aTechnical Services Agreement to provide technical supportservices to Neotel, to assist it in rolling out its services inSouth Africa.

Customer Service

VSNL has made significant progress towards transformingitself into a customer-focused organisation. The customerservice team’s mission is to support the entire customerlife cycle from service delivery to service assurance,including retention and growth.

To support its global operations, the Company is definingand implementing stringent service delivery standards thatadhere to global best practices. In addition, VSNL hascreated a dedicated team to support its carrier partners.

Centralised 24 x 7 call centres in India support VSNL’s globalwholesale and enterprise businesses. Retail and broadbandcustomers are supported by two other outsourced callcentres.

Premature Termination of Monopoly andCompensation

The Company continues to pursue its claim against theGovernment of India for inadequate compensation givenagainst the premature termination of its ILD monopoly.The Government of India (GoI) had allowed other playersinto the ILD business from 1 April 2002, terminating VSNL’sexclusivity two years ahead of schedule. It gave VSNL acompensation package and had given an assurance priorto disinvestment that it would consider additionalcompensation if found necessary on a detailed review,when undertaken. However, in February 2002 just beforethe disinvestment of the Company, the GoI unilaterallygranted a further dispensation as full and final settlementof every sort of claim against the preponing of the ILD de-monopolisation. VSNL feels that the compensation isinadequate as the losses, as estimated by independentagencies at that time, were quantified at a much highervalue. The Company had been pursuing the GoI to consideradditional compensation and to ensure that the claim wasnot barred by limitation, filed a claim in the Mumbai HighCourt in 2005.

Demerger of Surplus Land

Under the terms of the share purchase and shareholders’agreements signed between the Government of India andthe strategic partner (parties) at the time of disinvestment

13

by the government in 2002, it was agreed that certainidentified lands would be demerged into a separatecompany. It was further provided that if for any reason theCompany cannot hive off or demerge the land into aseparate entity, alternative courses as stipulated in theshare purchase and shareholders’ agreement would beexplored. A draft scheme of demerger was presented tothe VSNL Board in April 2005, and the parties are currentlyexamining the legality and feasibility of implementing thescheme. The land identified for demerger at differentlocations measures 773.13 acres, and carries a book value(as indicated in the accounts) of Rs.1.64 million.

HUMAN RESOURCES

VSNL constantly reviews its HR policies in order to keeppace with market changes and has embarked on a rangeof initiatives to create a positive work environment, ampleopportunities for development and growth and high levelsof motivation and engagement.

The VSNL Group had 4401 employees on 31 March 2007,against 3,960 on 31 March 2006. Of these, 1200 (1034 lastyear) were located outside India.

The Company has a structured process for orienting newrecruits and training its workforce. VSNL’s compensationand benefit practices aim to be competitive, attractive andinnovative and are either global or local in orientation asneeded. Relationships with the employees across the globeremained harmonious. The Company conducts annualemployee satisfaction surveys and based on the findings,takes up various issues to enhance satisfaction.

VSNL has signed a memorandum of understanding withDr Reddy’s Foundation (DRF) for setting up a TelecomTraining Academy to run internship courses to developdifferent vocational skills required for the telecom industry.The Academy focuses on students from economicallyweaker sections of society, especially candidates who arecompleting their Diploma / ITI courses from rural andsmaller towns. A full-fledged Telecom Training Academyhas been set up near Vasai (about 45kms north of Mumbai),which commenced its first programme on 12 December2006 with a 24-month Field Engineering Programme witha batch strength of 22 interns. These interns have nowbeen placed for “on-the-job” orientation at various fieldlocations of the Company. The second batch with 32 internscommenced on 5 February 2007.

AWARDS AND RECOGNITION

The Company’s transformational initiatives are beingrecognised in international markets. During the year, theCompany earned several prestigious internationalrecognitions for the first time, including:

• Best Pan-Asian Wholesale Provider Award at theCapacity Global Awards 2006.

• Best Wholesale Carrier at the World CommunicationsAwards 2006.

• Voice & Data Top International Long Distance OperatorAward for 2001-2006.

• PCQuest Users’ Choice for Internet Award for 2002-2005.

VSNL is also the only Indian Telecom company identifiedby the Boston Consultancy Group as one of the New GlobalChallengers.

VSNL’s CEO Mr. N Srinath was named the ‘Telecom CEO ofthe Year’ by the leading publishing group Telecom Asia inthe 2006 edition of their awards. The Institute of EconomicStudies (IES), a research oriented organization, alsoconferred its Excellence Award on VSNL and its UdyogRattan Award on Mr N. Srinath in November 2006.

INTERNAL INITIATIVES

Your Company continues with various internal initiativessuch as organisation restructuring, profit enhancement,cost optimisation, quality programmes, customer care andinformation technology to compete effectively, improveorganisational flexibility and respond quickly to customers.Some important initiatives are:

Business Excellence

Your Company has been re-inventing its business modeland transforming itself in tandem with market andregulatory changes. To help drive the transformation, VSNLis implementing the Tata Business Excellence Model(TBEM), a framework that lays down best practices in areaslike leadership, strategy, customer and market focus,knowledge management, human resources, processmanagement planning, customer service and socialresponsibility. During the past year, VSNL has made furtherprogress in implementing TBEM, with many continuousimprovement projects underway and extensive employeeparticipation.

Your Company has initiated an exercise to streamlineinternal processes across all its entities globally andinstitutionalise a culture of continuous improvement. Theinternal audit and revenue assurance teams activelycontribute to sustaining process improvement efforts.Senior management regularly tracks implementation ofideas for improvement.

Your Company is the world’s first telecom service providerto obtain the TL 9000 certification (a set of quality systemmetrics designed for the telecom industry, encompassingISO 9001 and other best practices); as well as India’s firsttelecom service provider to obtain the BS7799 certification.

Compliance with section 404 of Sarbanes Oxley Act,2002

Pursuant to its listing on the New York Stock Exchange,VSNL must comply with section 404 of the Sarbanes OxleyAct by March 2008. This Act lays down requirements forinternal control over financial reporting in the Company.



14

VSNL is confident of being able to comply with thesestringent requirements in time.

Revenue Assurance and Cost Reduction

VSNL’s Revenue Assurance function aims to preventrevenue leakages and ensure robust internal controls andIT processes that keep pace with increasing businesscomplexities, thus moving towards zero tolerance ofrevenue leakages. A Revenue Assurance charter andmanual have been formulated to further structure theseactivities.

VSNL continues with its ongoing cost reduction exerciseand has successfully completed several cost reductionprojects as a part of its continuous improvement activities.

Enterprise Risk Management

VSNL has established an enterprise-wide risk management(ERM) framework to optimally manage risks, as well as tocomply with clause 49 of the SEBI Listing Agreement. Inline with VSNL’s commitment to deliver sustainable value,this framework aims to provide an integrated andorganised approach for evaluating and managing risks.

Fixed Deposits

VSNL has not accepted nor does it hold any publicdeposits.

STATUTORY INFORMATION AND DISCLOSURES

Particulars of Employees

The provisions of Section 217 (2A) of the Companies Act,1956, read with the Companies (Particulars of Employees)Rules, 1975, requires the Company to provide certaindetails about the employees who were in receipt ofremuneration of not less than Rs.24,00,000 during the yearended 31 March 2007 or not less than Rs.2,00,000 permonth during any part of the said year. The Company had83 such employees employed during the year ended31 March 2007. However, as per the provisions of section219(1)(b)(iv) of the Companies Act, 1956, the Directors’Report being sent to the shareholders does not includethis Annexure. Any shareholder interested in obtaining acopy of the Annexure may write to the Deputy CompanySecretary at the Registered Office of the Company.

R & D, Technology Absorption and Foreign ExchangeEarnings

There are no particulars to be disclosed pertaining to theyear under review, in respect of Research & Development(R&D) and technology absorption as required underCompanies (Disclosure of Particulars in the Report of theBoard of Directors) Rules, 1988. For the purpose of Form ‘C’under the said rules, foreign exchange earnings wereequivalent to Rs.17.59 billion and foreign exchange outgowas equivalent to Rs.10.74 billion.

Auditors’ Report

There are no qualifications in the report of the statutoryauditors for the year 2006-07.

Subsidiaries

The Statement pursuant to section 212 of the CompaniesAct, 1956 containing details of the Company’s subsidiariesis attached. The consolidated financial statements of theCompany and its subsidiaries, prepared in accordance withaccounting standard 21 (AS 21) prescribed by The Instituteof Chartered Accountants of India, form part of the annualreport and accounts. The Company has been grantedexemption from attaching the accounts of its subsidiarycompanies with the balance sheet of the parent company.These documents will be provided on request to anyshareholder wishing to have a copy, on receipt of suchrequest by the Deputy Company Secretary at theregistered office of the Company. These documents willalso be available for inspection by any shareholder at theregistered office of the Company.

The Board of Directors

The VSNL Board presently consists of eleven Directors. On17 July 2006, Mr. Amal Ganguli, Independent Director,joined the Board of VSNL. On 2 February 2007, the Boardof Directors of the Company has, subject to the approvalof shareholders, appointed Mr. N. Srinath as ManagingDirector and Chief Executive Officer of the VSNL Groupwith effect from 2 February 2007 for a period of five years.Mr. Vinod Kumar joined the Board of VSNL on 2 February2007. Mr. S. Ramadorai joined the Board of VSNL on28 June 2007. Mr. Ishaat Hussain resigned from the Boardof Directors of VSNL on 27 June 2007.

In accordance with the provisions of the Companies Act,1956 and the Companies Articles of Association, Mr. KishorChaukar and Mr. Subodh Bhargava retire by rotation at theensuing annual general meeting and being eligible, offerthemselves for reappointment.

In accordance with the provisions of the Companies Act,1956 and the Companies Articles of Association, Mr. VinodKumar and Mr. S. Ramadorai hold office only up to thisAnnual General Meeting; notices under the provisions ofsection 257 of the Companies Act, 1956 have been receivedby the Company from a member signifying his intentionto propose Mr. Kumar and Mr. Ramadorai as candidates forthe office of Director.

For details about the Directors, please refer to Point 2 ofthe Report on Corporate Governance.

None of the Company’s Directors is disqualified from beingappointed as a Director as specified in Section 274 of theCompanies Act, 1956 as amended by the Companies(Amendment) Act, 2000.

15

Corporate Governance

Pursuant to Clause 49 of the listing agreements with thestock exchanges, a Management Discussion and Analysis,Corporate Governance Report and Auditors’ Certificateregarding compliance of conditions of CorporateGovernance form a part of the annual report.

Corporate Sustainability Initiatives

As a member of the Tata Group, VSNL is committed to theGroup’s philosophy of improving the quality of life in thecommunities we serve. VSNL has a Corporate SocialResponsibility (CSR) Policy and is a member of the TataCouncil for Community Initiatives (TCCI). The Companyfosters an internal culture of volunteerism and contributesto the socio-economic development of the communitiesit operates in, through financial and other assistance tovarious causes and organisations.

VSNL is sensitive towards environmental, ecological andbiodiversity concerns arising out of its operations. Towardsthat end, VSNL has also become the first telecom serviceprovider in India to obtain ISO 14001 Certification.

Management of Business Ethics (MBE)

Consistent with the Group’s policy, VSNL is systematicallyimplementing the Tata Code of Conduct. VSNL has put inplace an organisational structure and a process toimplement and improve ethical standards and practices,and began implementing the Tata Code of Conduct in2003-04. VSNL conducts regular seminars, ethics awarenesscampaigns and workshops to sustain the momentum andto strengthen ethical values and practices among variousstakeholders.

DIRECTORS’ RESPONSIBILITY STATEMENT

Pursuant to Section 217(2AA) of the Companies Act, 1956,the Directors, based on the representations received fromthe operating management, confirm that:

• In the preparation of the annual accounts, theapplicable accounting standards have been followedand there are no material departures;

• They have consulted the Statutory Auditors in theselection of the accounting policies and have appliedthem consistently and made judgements andestimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of theCompany at the end of the financial year and of theprofit of the Company for that period;

• They have taken proper and sufficient care, to thebest of their knowledge and ability, for themaintenance of adequate accounting records inaccordance with the provisions of the Companies Act,1956, for safeguarding the assets of the Company andfor preventing and detecting fraud and otherirregularities;

• They have prepared the annual accounts on a goingconcern basis.

ACKNOWLEDGMENTS

The Directors would like to express their thanks for thehard work and dedication of every employee. The Directorsappreciate the support of various Ministries anddepartments of the Government of India and theDepartment of Telecommunications. The Directors are alsograteful to the Company’s stakeholders and partnersincluding its customers, shareholders, bankers, solicitors,suppliers and foreign telecom administrations for theirsupport.

On behalf of the Board of Directors

Subodh BhargavaDated: 3 July 2007 Chairman

Registered OfficeVidesh Sanchar BhavanM. G. Road,Mumbai - 400 001.



16

INDUSTRY ANALYSIS

The Indian telecom industry has changed significantly overthe last decade with all its segments opening tocompetition. This market is now highly competitive,complex and evolving rapidly, with numerous serviceofferings of different kinds, including fixed-line, mobile,Internet, long distance and various data services. India’stelecom market is growing rapidly and by 2010, telecomis expected to be a Rs.1380 billion sector, contributing 5.4%to India’s gross domestic product (GDP).

According to the latest figures from the TelecomRegulatory Authority of India (TRAI), during 2006-07 India’smobile subscriber base increased approximately 68%, from98.78 million to 166.05 million, while the fixed subscriberbase declined approximately 1.82% from 41.54 million to40.78 million. During the year, the broadband subscriberbase grew 70%, from 1.35 million to 2.30 million. STDcharges fell substantially after the announcement of newInterconnect Usage Charges (IUCs – see below) with effectfrom 1 March 2006, while international private leasedcircuit charges dropped by about 10-20% and broadbandtariffs fell by 30%. The rapid growth in this market offers avast potential demand for VSNL’s various services.

Effective 1 April 2007, the TRAI revised the access deficitcharge (ADC - a component of the IUC that makes up forbelow-cost monthly rentals and local call charges for fixedtelephones). The ADC was reduced on incomingInternational Long Distance (ILD) calls from Rs.1.60 perminute to Rs.1.00 per minute and on outgoing ILD callsfrom Rs.0.80 per minute to nil. The additional revenue shareof 1.5% of the adjusted gross revenue (AGR) towards ADCwas also reduced to 0.75% for all operators includinginternational long distance operators. Recently, theDepartment of Telecom (DoT) further relaxed the licenceconditions in respect of security related obligations forprovision of VPN services for international and nationallong distance services, and more new entities have beenlicensed to provide NLD/ILD services.

Regulatory Developments

Cable Landing Facilities

Further to the approval of the recommendations made bythe TRAI in December 2005, the TRAI after dueconsultations issued the International TelecommunicationAccess to Essential Facilities at Cable Landing StationsRegulations, 2007 (5 of 2007) in June 2007.

Even before the recommendations were accepted, VSNLhad established uniform practices and procedures foraccess facilitation to International TelecommunicationEntities from India (ITEs) at its various Cable LandingStations (CLSs), by provisioning Meet-me-Room (MMR)

facilities. VSNL has established MMRs at Mumbai, Ernakulamand Chennai, its main cable station locations. Accordingly,eligible ITEs shall be provided with access/interconnectionto international capacity on submarine cables landing at aCLS at the relevant MMR. In November 2006, VSNL alsopublished on its website the terms and conditions foraccess to its CLSs.

Introduction of Resellers

Further to the approval of the recommendations made bythe TRAI in December 2005, the TRAI submitted itsrecommendations to the DoT in March 2007 regardingterms and conditions to licence resellers in the IPLCsegment. To effectively implement these recommendations,the TRAI has also suggested amendments to the ILDOlicence to permit the sale of international bandwidth byresellers. The DoT has not yet accepted theserecommendations.

AGR in TDSAT

The Association of Unified Telecom Service Providers ofIndia, Cellular Operators Association of India and someIndividual telecom service providers have challenged,before the Hon’ble Telecom Disputes Settlement AndAppellate Tribunal (TDSAT), the definition of “gross revenue”and “adjusted gross revenue” (AGR) as applied by the DoTfor levying licence fees as being unfair and beyond thescope and powers of the DoT. It was represented that thepresent definition of adjusted gross revenue has a numberof anomalies, such as that it encompassed severaladditional revenue streams that were unrelated to theactivities under the licence.

The TDSAT in its order dated 7 July 2006 remitted thematter to the TRAI to make comprehensiverecommendations on the individual components ofrevenue that can be considered part of AGR. The TRAI inSeptember 2006 recommended that certain income shouldnot be included in the AGR viz. (i) income from dividend,(ii) capital gains on account of profit on sale of assets andsecurities; (iii) gains from foreign exchange fluctuations,(iv) reversal of provisions; (v) income from property rent ifnot connected to establishing, maintaining and workingof telecommunication and (vi) receipts from USO. Thismatter is being further heard by the TDSAT.

New FDI Guidelines

The Government of India vide Press Note 3 (2007 Series)dated 19 April 2007 notified the Foreign Direct Investment(FDI) policy, enhancing the FDI limit from 49% to 74% incertain telecom services subject to specified conditions, insupersession of its earlier Press Note 5 of 2005. Under thenew policy, both direct and indirect foreign investment inthe telecom licensee will be counted towards the FDI

ANNEXURE 1: MANAGEMENT DISCUSSION AND ANALYSIS

17

ceiling. The minimum Indian shareholding prescribed is26%. FDI up to 49% continues to be permissible on theautomatic route and FDI in the licensee company/Indianpromoters/investment companies including their holdingcompanies requires prior approval from the ForeignInvestment Promotion Board if it has a bearing on theoverall ceiling of 74%.

Certain security conditions have been imposed on thelicensee companies operating telecom services and theseshall be applicable to all licensee companies irrespectiveof their level of FDI. All telecom licensees are required tocomply with these terms and conditions within threemonths and thereafter to file half yearly compliancereports. The DoT is expected to notify the amendments tothe licence conditions soon.

Transfer Pricing Mechanism

Transfer pricing becomes relevant when a businessoperates in multiple countries. Transactions betweenassociated enterprises located in different jurisdictions aresubject to transfer pricing regulations.

Transfer pricing regulations in different countries adoptmethodologies that are broadly based on the Organizationfor Economic Cooperation and Development’s (OECD)Transfer Pricing Guidelines for Multinational Enterprises andTax Administrations (the “OECD Guidelines”). An enterpriseis expected to choose and adopt the most appropriateamong the approved methods that suits its business andeconomic realities by way of a demonstrated eliminationof other approved methods, to determine whatindependent entities, operating on an arm’s length basis,would reasonably expect to earn operating a comparablebusiness as the enterprise. In many countries, thesesubsidiaries are required to demonstrate to their revenueauthorities that the terms of the transfer prices for intercompany transactions adhere to the arms length principle.

Your Company has expanded its global footprint byacquiring the Tyco Global Network (TGN) in June 2005and Teleglobe International Holdings Ltd in February 2006.These acquisitions provided VSNL the ability to reach outto a large global customer base and expand and diversifyits services. VSNL’s current business model envisagesfrequent cross usage of networks and other assets apartfrom cross rendition of various services viz., productdevelopment, network management, selling & marketing,billing, service provisioning, customer support, informationtechnology support etc., among the group entities, torender a complete end-to-end service to its customers.Your Company has 51 subsidiaries in 24 countries. Eachsubsidiary discharges its functions, owns its assets, bearsits risk and reaps its rewards. Similarly each subsidiary isexpected to discharge its statutory obligation includingpaying taxes on its income.

For the VSNL group of Companies, considering the vastnetwork that is owned by the entities, the global reach of

the services, the operational interdependence between thegroup entities, cross continental location of customers, andother value drivers in the business, the Residual Profit SplitMethod (RPSM) has been chosen and implemented as theglobal transfer pricing methodology for determining intercompany prices for international telecommunicationrelated services. RPSM is one of the acceptable methodsprescribed under the Indian tax regulations as well as inmany of the other jurisdictions where formal transferpricing regulations currently exist.

SERVICES

International Long Distance (ILD)

Globally, VSNL handled 19.7 billion minutes of voice trafficout of which traffic to and from India has grown fromabout 3.8 billion minutes in 2005-06 to about 5.2 billion inthe year under review, with a total revenue of nearly USD1,170 million. The increased competition in India with theDoT issuing ILD licences to new players, some of who wereVSNL’s customers earlier, is expected to shrink theCompany’s addressable market and hence affect thisbusiness adversely.

National Long Distance (NLD)

The increased mobile penetration has resulted insignificant growth in the NLD traffic within India. The NLDtraffic has grown by over 82% from 2.9 billion minutes in2005-06 to 5.3 billion minutes in 2006-07. The increasedcompetition by issue of new NLD licences along with otherregulatory initiatives has reduced the gap between NLDand local tariffs. Continued shrinkage in the Company’saddressable market and falling tariffs is expected to affectthis business further.

Enterprise Data Services

The Indian corporate segment has also been growing at avery healthy rate, with enterprise data volumes growingalmost 100%. In the past financial year, even after adjustingfor the 35-40% price drop, the industry growth in revenueterms has been a healthy 20-30%. There are two key driversfor the growth in this business. First, the enhancedcapability of your Company to deliver services on a globalbasis is attracting new customers and opening up newmarkets. Second, there is significant growth in the existingcustomers’ businesses globally. Banking and financialservices (BFSI), information technology (IT), and BPOs/ callcentres are some examples of high growth sectors.

Internet and Broadband Services

Broadband in India is a developing story with stronggrowth expected over the next few years. The growth inbroadband subscribers has been slower than that in mobilesubscribers. The predominant reasons are the limitedaccess to last mile networks that limits the ability to serveretail customers and the inability to demonstrate anadequate value proposition except to enterprises and a



18

small group of individuals. Your Company continues to facethe major problem of last mile connectivity to thecustomer, which it is attempting to overcome by rollingout its own wireless networks based on Wi-Maxtechnologies.

ORGANISATIONAL RESTRUCTURING

Consolidating Subsidiaries

Your Company, which currently has over 50 internationaldirect and indirect subsidiaries, has initiated a process toreduce this number to about 30 through appropriaterestructuring. The majority of these subsidiaries came intothe VSNL fold through the acquisitions of TGN andTeleglobe and were formed to comply with local lawsstipulating the creation of country specific subsidiaries tohold the required licenses and assets, and to carry outoperations. VSNL aims to have one entity in each countryto the extent possible.

Retail Business Hive Off

During the year under review, VSNL acquired two entitiesin India, Direct Internet Limited (DIL) and VSNL InternetServices Limited (VISL).

Direct Internet Limited (DIL) provides broadband services,mainly to small and medium enterprises (SMEs). VSNL hasacquired the entire shareholding in DIL from Primus Group,USA and consequently, DIL is presently a 100% subsidiaryof VSNL.

DIL Internet Limited (DILI), formerly known as PrimusTelecommunications India Limited and now as VSNLInternet Services Limited (VISL), is presently a subsidiaryof DIL and an indirect subsidiary of VSNL. VISL rendersbroadband services to the Small and Medium Enterprises(SME) as well as retail customers.

In order to simplify this structure and to enable possibleunlocking of value in the retail business in the future, yourBoard decided to hive off VSNL’s retail business unit intoVISL. A comprehensive scheme of arrangement for transferof the retail business undertakings of VSNL to VISL andthe amalgamation of Direct Internet Limited with VISL hasbeen filed with the competent High Courts.

Global Structure

After its acquisitions, VSNL’s stated direction is to bestructured into global business units and global supportfunctions. Various initiatives are underway to implementthis structure, which will best enable VSNL to be a globalintegrated multi-business telecom player. These initiativesare far reaching in their scope and the impact they willhave on the Company’s business. They cover projects toimprove customer experience, define and create a commoncompany culture, tighten corporate identity and branding,and implement the next generation network (NGN)architecture for converged services among others.

RISKS AND CONCERNS

Like all businesses, VSNL is exposed to certain risks andconcerns in the course of its business:

End Customer Ownership

An important concern for the Company in its voicebusiness continues to be the lack of direct access to endcustomers. VSNL is dependent on cellular and basictelecommunication service providers to route the nationallong distance and international calls of their customersthrough VSNL. Some of these operators are alsocompetitors of VSNL in the long distance and othermarkets. This risk is further increased by the new licensesissued for NLD and ILD services, further shrinking theCompany’s addressable market. It would be a seriousdisadvantage to VSNL to not have access to a large enoughmarket to compete for business. VSNL has also beenpursuing implementation of Direct Customer Access eitherthrough the CAC regime or through services like callingcards.

Delay in Implementation of CAC Regime

The Carrier Access Code (CAC) regime was to have beenimplemented as per the TRAI recommendations in phasesfor different segments of the long distance sector, withthe final implementation of carrier pre selection (CPS) tobe completed by December 2003. Carrier selection givessubscribers the option to either pre-select a long distancecarrier for all ILD calls, or choose a provider for each call bydialling a carrier access code before making a call.Customers can then freely choose their long distancecarrier based on competitiveness and quality, rather thanthe choice being made for them by access operators, as isthe case at present.

However, implementation of the CAC regime has not fallenin place so far, due to technical and other reasons. Thedelay in implementation of the CAC regime is a cause ofconcern for VSNL. The Company hopes that this regime,which is essential to the survival of stand-alone ILD andNLD operators and is a fair entitlement of subscribersseeking competitive service options, will be implementedat the earliest.

Regulatory Environment and Tariffs

Most of VSNL’s services in India are operated under licencesfrom the DoT, and the Company is subject to the termsand conditions included therein. As India continues toliberalise its telecom sector it is possible that there maybe interpretational differences on the guidelines andlicence conditions leading to the need for VSNL to defendits position in case of any notice from or proceedings bythe regulator or licensor.

The TRAI has recommended norms for a Unified LicensingRegime (ULR), which the DoT is considering. Ifimplemented, these norms may increase competitivepressures.

19

There have been significant changes in the NLD and ILDlicenses recently. The entry fees for these licences havebeen substantially reduced to Rs.25 million each for ILDand NLD licences, which has already led to a number ofnew players entering the field.

Pursuant to the Press Note No. 3 dated 19 April 2007 issuedby the Department of Industrial Policy and Promotion,Ministry of Commerce and Industry, the Government ofIndia has set aside its earlier Press Note No. 5 dated 3November 2005. Certain stringent guidelines earlierimposed in the 2005 note regarding remote access havebeen relaxed in the present note. This will enable theefficient monitoring and maintenance of internationalnetworks.

The tariffs charged by telecommunication service providersin India including VSNL are subject to TRAI regulations.VSNL periodically renegotiates interconnect agreementswith various domestic mobile service operators and basictelecom service providers and settlement rates withinternational carriers, resulting in the revision of rates fromtime to time depending on the market conditions. Suchrevisions could be adverse and could have a material effecton VSNL’s operations and financial condition.

The Grey Market and the IUC Regime

On 24 January 2003, the Telecom Regulatory Authority ofIndia (TRAI) introduced the interconnection usage charge(IUC) regime to govern inter-operator settlements for callspassed between different networks. The IUC includes thecost of the origination/termination of a call and an inbuiltAccess Deficit Charge (ADC).

During 2005-06 and 2006-07, the TRAI gradually reducedthe ADCs on incoming ILD calls, which had some impacton curbing illegal operations and increasing volumes oflegitimate carriers like VSNL.

Increased Competition

The de-regulation of the Indian telecom market exposesthe Company to increased competition:

• The Internet Service Provider (ISP) business is intenselycompetitive and has a large number of players.

• ISPs are allowed to provide Internet telephony callsoverseas. Though the quality of such service may notbe comparable to traditional ILD calls, it may impactVSNL’s ILD business as also the Company’s ownInternet telephony services.

• VSNL operates in the markets for national longdistance and broadband services, where there areseveral potential and existing competitors. Relaxationof licensing conditions and granting of the newlicences for National and International Long distanceservices by the Department of Telecommunicationsis likely to intensify competition in these sectors.

Integration of International Acquisitions

A large part of VSNL’s operations is now in internationalmarkets. Integrating acquisitions and managing operationsin diverse international locations will be critical to thesuccess of VSNL’s plans. Similarly, the Company has entitiesoperating in more than 30 countries and changes in thelocal regulations may adversely affect the operations ofthe VSNL group in those countries.

Economic Conditions

Downturns in the Indian, regional and global economiescould have a material adverse effect on the Company’sshort-term business and prospects. VSNL’s operations couldbe affected by adverse developments in the operations ofsome of its key overseas business associates.

Exchange Rate

Since the Company operates globally, a significant portionof its revenue and costs are in foreign exchange.Movements of exchange rates across different currencieshave a significant impact on the Company’s operations.Therefore, the Company partially hedges its foreignexchange risk.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

VSNL has a well-developed internal control system andhas also implemented the SAP system for accounting.Internal control systems for the newly acquired businessesare being reviewed and will be streamlined. The financialpowers at various management levels are clearly definedin the delegation of powers. Technical and financialoperations are controlled by state-of-the-art technologyand systems. The accounts of the Company are subjectedto statutory audit.

CAUTIONARY STATEMENT

Statements in the directors’ report and managementdiscussion and analysis describing the Company’sobjectives, projections, estimates and expectations may be‘forward-looking statements’ within the meaning ofapplicable securities laws and regulations. Actual resultscould differ substantially or materially from thoseexpressed or implied. Important factors that could make adifference to the Company’s operations include economicconditions affecting demand/supply and price conditionsin the domestic and overseas markets in which theCompany operates, changes in government regulations,policies, tax laws and other incidental factors. Further, theCompany retains the flexibility to respond to fast-changingmarket conditions and business imperatives. Therefore, theCompany may need to change any of the plans andprojections that may have been outlined in this report,depending on market conditions.



20

REPORT ON CORPORATE GOVERNANCE FOR THE YEAR 2006-07(In accordance with clause 49 of the listing agreement with Indian stock exchanges)

Corporate governance is the system by which the objectivesof an organization are set, the means of attaining thoseobjectives are provided, performance monitoring guidelinesare set thus encouraging the use of resources efficiently tomeet the needs of the individual, the corporation and thesociety at large. Corporate governance is about promotingcorporate fairness, transparency and accountability. Thecorporate governance structure specifies the distributionof rights and responsibilities of the board, managers,shareholders and other stakeholders, and spells out the rulesand procedures for making decisions on corporate affairs.

1. CORPORATE GOVERNANCE PHILOSOPHY ANDPRACTICE

VSNL has evolved from the only ILD player in India to amulti-national corporation having its presence felt acrossthe globe. Today, VSNL being one of the leaders in the globalILD market, the challenge lies in designing a modeladdressing the specific and unique needs of geographiesand yet strengthening and aligning the overall businessobjectives and goals.

The Company believes that total business risk eliminationis never possible but can be minimized by consistentlydeveloping and following the best practices of CorporateGovernance. To this end, the Company focuses ondeveloping and implementing higher standards ofaccountability to enable optimum returns to allstakeholders. The Company is installing new state-of-theart systems including integrated financial accounting andbudgeting systems and through a systematic process oftraining and development has increased the quality of itspersonnel.

Fairness in words, actions and deeds with all stakeholdersare the pillars of corporate governance philosophy of theCompany. Corporate Governance in substance rather thanform is what the Company believes in and activelyimplements. To ensure this, a high level CorporateGovernance Council has been formed to ensure that thebest practices of Corporate Governance are adopted.

VSNL’s operations and accounts are audited at three levels:an internal audit; a statutory audit by an Indian accountingfirm under Indian accounting requirements and theirrestatement by an internationally recognised accountingfirm according to US GAAP. Besides, VSNL being listed onthe New York Stock Exchange, it has to comply with thestringent rules and regulations of the Sarbanes-Oxley Act,2002 (SOX). The Company believes that achieving SOXcompliance will inter-alia enhance its financial reportingstructure. The Company communicates regularly with itsshareholders through bulletins, presentations and meetingswith analysts and investors.

2. BOARD OF DIRECTORS

The Company is managed exclusively by and under thedirections of the Board. The composition of the Board isgoverned by the applicable laws and regulations and theArticles of Association of the Company. The powersdelegated by the Board to the Managing Director and bythe Managing Director to the sub-ordinate officers aredocumented in the Delegation of Powers (DoP). The DoP isrevised periodically.

Ten out of eleven directors are non-executive directors,forming more than half of the total number of directors.VSNL has four independent directors and one executivedirector.

None of the directors hold directorships in more than thepermissible number of companies under the applicableprovisions. Similarly, none of the directors on the board’ssub-committees hold membership of more than tencommittees of boards, nor is any director a chairman ofmore than five committees of boards.

The names and categories of the directors on the board,their attendance at board meetings during the year and atthe last annual general meeting, and the number ofdirectorships and committee memberships held by themin other companies as of 31 March 2007 (with Directorshipsupdated as of 3 July 2007) are given below:

Attendance No. of Directorships No. of Committee PositionsBoard Meetings at the last AGM in Public Companies held in Public Companies

Name Category during the tenure (13.09.2006) Including VSNL Including VSNL

Held Attended Chairman Member Chairman Member

Directors in Office

Mr. Subodh Bhargava Independent 9 8 Yes 2 11 3 7[Chairman] Non Executive

Mr. N. Srinath Not Independent 9 9 Yes 1 2 NIL NIL[Managing Director: Executivew.e.f. 2 February 2007

Mr. Kishor A. Chaukar Not Independent 9 9 Yes 1 9 2 2Non Executive

21

Mr. Pankaj Agrawala 1 Not Independent 9 5 No NIL 2 NIL 2Non Executive

Dr. Mukund Rajan Not Independent 9 9 Yes NIL 4 NIL NILNon Executive

Mr. N. Parameswaran 1 Not Independent 9 9 Yes NIL 2 NIL NILNon Executive

Mr. P.V. Kalyanasundaram Independent 9 8 Yes NIL 1 NIL 1Non Executive

Dr. V.R.S. Sampath Independent 9 8 Yes NIL 2 NIL 1Non Executive

Mr. Amal Ganguli Independent 8 6 No NIL 10 4 4[w.e.f. 17 July 2006] Non Executive

Mr. Vinod Kumar Not Independent 2 1 N/A NIL 2 NIL NIL[w.e.f. 2 February 2007] Non Executive

Mr. S. Ramadorai Not Independent N/A N/A N/A 2 11 1 3[w.e.f. 28 June 2007] Non Executive

Directors served during the year

Mr. Ishaat Hussain Not Independent 9 8 Yes 2 12 4 6[Until 27 June 2007] Non Executive

1 Nominee director of the Government of India.

Notes :

(a) None of the directors is related to any other director.

(b) None of the directors has any business relationship with the Company.

(c) None of the directors received any loans and advances from the Company during the year.

(d) The information as required under Annexure IA to Clause 49 is being made available to the board.

(e) Apart from Directors’ Remuneration, the Company did not have any pecuniary relationship or transactions with non-executive directors during 2006-07.

(f ) The detailed resume of each director and the details of the directors proposed to be appointed / reappointed at the21st Annual General Meeting are published elsewhere in the annual report.

(g) The gap between two board meetings did not exceed four months. The dates on which the 9 board meetings wereheld are as follows:

26 June 2006 29 July 2006 22 August 2006 13 September 200631 October 2006 1 December 2006 30 January 2007 2 February 200714 March 2007

Attendance No. of Directorships No. of Committee PositionsBoard Meetings at the last AGM in Public Companies held in Public Companies

Name Category during the tenure (13.09.2006) Including VSNL Including VSNL

Held Attended Chairman Member Chairman Member

Directors in Office

3. AUDIT COMMITTEE

The audit committee consists of four members. TheChairman of the committee is Mr. Amal Ganguli, anindependent director, who is Fellow of the Institute ofChartered Accountants in England and Wales, Fellow ofInstitute of Chartered Accountants of India, Fellow of BritishInstitute of Management, Member of New Delhi Chapter ofInstitute of Internal Auditors, Florida, USA. Mr. Amal Ganguli

became the Chairman of the Audit Committee w.e.f. 19October 2006.

The other members of the committee are Mr. SubodhBhargava, Independent Director, Mr. Pankaj Agrawala,Government Nominee Director, Mr. P.V. Kalyanasundaram,Independent Director. Mr. Satish Ranade, Company Secretaryand Chief Legal Officer is the audit committee’s Secretary.Mr. Ishaat Hussain, Director (Finance), Tata Sons Limited, who



22

was a member of the Audit Committee till 24 October 2005,was a special invitee for Audit Committee meetings till hiscessation of Director of VSNL w.e.f. 27 June 2007.

The audit committee has adequate powers and detailedterms of reference to play an effective role as required underthe provisions of the Companies Act, 1956 and clause 49 ofVSNL’s listing agreement with the stock exchanges.

Attendance at the Audit Committee Meetings

Name No. of Audit CommitteeMeetings during 2006-2007

Held duringTenure Attended

Mr. Subodh Bhargava 9 8[Chairman till19 October 2006]

Mr. Amal Ganguli 6 6[Member w.e.f. 17 July 2006and Chairman from19 October 2006]

Mr. Pankaj Agrawala 9 5

Mr. P.V. Kalyanasundaram 9 7

Mr. Ishaat Hussain 9 7(Special Invitee)[Member till 24 October 2005and Special Invitee till27 June 2007]

At the Annual General Meeting held on 13 September 2006,the Chairman of the Audit Committee, Mr. Subodh Bhargavawas present. During the last financial year, the AuditCommittee held nine meetings and not more than fourmonths had elapsed between any two meetings. The datesof meetings of the Audit Committee are as follows:

5 May 2006 29 May 2006 26 June 200629 July 2006 22 August 2006 19 October 200630 October 2006 30 January 2007 16 February 2007

4. REMUNERATION COMMITTEE

a) Constitution and Terms of Reference

The Remuneration Committee consists of twomembers. The Chairman of the Committee is Mr. KishorChaukar, Mr. Subodh Bhargava is the other member onthe Committee. Mr. Satish Ranade, Company Secretaryand Chief Legal Officer is the RemunerationCommittee’s Convener. Two meetings of theRemuneration Committee were held on 3 April 2007and 26 May 2007. Mr. N. Parameswaran has been

appointed as member of the Remuneration Committeeby the Board on 26 May 2007.

The broad terms of reference of the RemunerationCommittee are to review the performance of theWhole-time Directors, after considering the Company’sperformance and recommend to the Boardremuneration including salary, perquisites andcommission to be paid to the Company’s Whole-timeDirectors within the overall ceilings approved by theshareholders.

b) Remuneration Policy

For the financial year 2006-07, the Company proposesto pay remuneration to the non-executive directors(NEDs) by way of commission at a rate not exceeding1% per annum of the profits of the Company(computed in accordance with Section 309(5) of theCompanies Act, 1956). The distribution of commissionamongst the NEDs is placed before the Board. Thecommission to NEDs is proposed to be distributedbroadly on the basis of their attendance andcontribution at the Board and certain Committeemeetings as well as the time spent on operationalmatters other than at the meetings. Mr. Vinod Kumar,Director who is in employment of a VSNL subsidiary isnot paid sitting fees or commission.

The Company pays sitting fees of Rs.10,000/- permeeting to the non-executive directors for attendingthe meetings of the Board and Committee meetings.

The Company pays remuneration by way of salary,perquisites and allowances (fixed component) andcommission (variable component) to the whole timedirector. Salary is paid within the range approved bythe shareholders. Annual increments, recommended bythe Remuneration Committee are approved by theBoard. Within the prescribed ceiling, the perquisitespackage is approved by the Remuneration Committee.Commission is calculated with reference to net profitsof the Company in a particular financial year and isdetermined by the Board of Directors at the end ofthe financial year based on the recommendations ofthe remuneration committee, subject to overall ceilingsstipulated in Sections 198 and 309 of the CompaniesAct, 1956. Specific amount payable to the whole-timedirector is based on the performance criteria laid downby the Board which broadly takes in to account theprofits earned by the Company for the year.

c) The details of commission to be paid to the non-executive directors for the year 2006-07 are as follows:

23

(Amount in Rs.’000)

Name of the Director Commission Sitting Fees

Mr. Subodh Bhargava 659.3 190.0(Chairman Board;Chairman ofAudit Committee till19 October 2006)

Mr. Ishaat Hussain 317.2 150.0

Mr. Kishor Chaukar 242.9 200.0

Mr. Pankaj Agrawala 297.4 140.0

Dr. Mukund Govind Rajan 178.5 130.0

Mr. N. Parameswaran 218.1 110.0

Mr. P.V. Kalyanasundaram 317.2 150.0

Dr. V.R..S. Sampath 198.3 160.0

Mr. Amal Ganguli 356.9 140.0(Chairman ofAudit Committee from19 October 2006)

Mr. Vinod Kumar* NIL NIL(Director w.e.f.2 February 2007)

Mr. S. Ramadorai N/A N/A(Director w.e.f.28 June 2007)

Total 2785.8 1370.0

* Mr. Vinod Kumar being the managing director andemployee of an international subsidiary of VSNL, no sittingfees/commission is deemed payable to him.

d) The details of remuneration to the whole-time directorduring the year 2006-07 are as follows:

(Amount in Rs.’000)

Name Salary Perquisites & Commission*Allowances

Mr. N. Srinath 4445.99 640.86 3500.00

Total 4445.99 640.86 3500.00

* Commission payable will be paid only after the date ofthe Annual General Meeting.

5. INVESTOR GRIEVANCE COMMITTEE

The committee consists of three members. The Chairmanof the committee is Mr. Kishor A. Chaukar who is theManaging Director of Tata Industries Limited. The othermembers are Mr. Pankaj Agrawala, nominee Director of theGovernment and Dr. V.R.S. Sampath, Independent Director.Mr. Satish Ranade, Company Secretary and Chief LegalOfficer is the Investor Grievance Committee’s secretary.

During the last financial year, the Committee held fourmeetings on 26 June 2006, 29 July 2006, 31 October 2006and 30 January 2007.

The details of grievances received from the shareholdersduring the year and their status on 31 March 2007 is givenbelow:

Sr. Nature of Complaints No. of Complaints

No. Received Pending

1. SEBI/Stock ExchangeComplaint NIL NIL

2. Direct/Miscellaneous/Other Complaint 8 NIL

TOTAL 8 NIL

This committee has been delegated the powers to approvethe issue of Duplicate Share Certificates and approvetransfer/transmission of shares exceeding 500 shares perfolio. The Registrar and Transfer Agents have beenauthorised to issue Duplicate Share Certificates and approvetransfer/transmission up to a maximum of 500 shares perfolio, limited only to routine day-to-day work. As the sharesof the Company are under compulsory dematerializedtrading for all investors, this delegation is consideredadequate. All the shares received for transfer till 31 March2007 has been duly processed.

6. ETHICS AND COMPLIANCE COMMITTEE

In accordance with the Securities and Exchange Board ofIndia (Prohibition of Insider Trading) Regulations, 1992, asamended, the Board of Directors of the Company adoptedthe “VSNL Code of Conduct for Prevention of Insider Tradingand Code of Corporate Disclosure Practices” to be followedby “Directors”, “Designated Employees”, “Designated Persons”and “Insiders”. The code is based on the principle thatDirectors, Designated Employees, Designated Persons andInsiders should not have undue advantage over othershareholders, in their personal security transactions, due totheir possible advance knowledge of Price SensitiveInformation. The code, therefore, seeks to ensure timely andadequate disclosure of Price Sensitive Information to theinvestor community by the Company to enable them totake informed investment decisions with regard to theCompany’s securities.

In terms of the said code, an Ethics and ComplianceCommittee was constituted in 2003. The present committeeconsists of three members. The Chairman of the committeeis Mr. Kishor A. Chaukar, who is the Managing Director ofTata Industries Limited, Mr. Pankaj Agrawala, governmentnominee director and Dr. V.R.S. Sampath, Independent



24

Director are the members. Mr. Satish Ranade, CompanySecretary and Chief Legal Officer is the convener of theCommittee.

7. GENERAL BODY MEETINGS

The location and time of the last three general body meetings are as follows:

Meeting Date Location, Description and Type of Resolutions Voting

13 September 2006 The 20th Annual General Meeting was All the resolutions were put to voteheld at 1100 hours at MC Ghia Hall, by show of hands and were carriedBhogilal Hargovindas Building, Second Floor, unanimously.18/20 Kaikhushru Dubash Marg, Kalaghoda,Mumbai 400023. There were Ten resolutions(2 special and 8 ordinary).

1 March 2006 An Extraordinary General Meeting was held Both the resolutions were put toat 1500 hours at Birla Matushri Sabhagar, vote by show of hands and wereNew Marine Lines, Mumbai 400020. There were carried unanimously.two resolutions, both of which were Special.

14 September 2005 The 19th Annual General Meeting was held All the resolutions were put to voteat 1100 hours at Birla Matushri Sabhagar, by show of hands and were carriedNew Marine Lines, Mumbai – 400020. There were unanimously.Six resolutions (1 special and 5 ordinary).

2 September 2004 The 18th Annual General Meeting was held All the resolutions were put to voteat 1100 hours at Birla Matushri Sabhagar, by show of hands and were carriedNew Marine Lines, Mumbai 400020. There were unanimously.Six resolutions (1 special and 5 ordinary).

Four meetings of the committee were held during the year2006-07 on 26 June 2006, 29 July 2006, 31 October 2006and 30 January 2007.

8. DISCLOSURES

i) There were no significant related-party transactions ofthe Company with its promoters, directors ormanagement, their subsidiaries or relatives that mayhave potential conflict with the interest of theCompany at large. Note number B.20 of the Notes onAccounts may also be referred to in this respect. Nonon-compliance notice has been issued and nopenalties or strictures have been imposed on theCompany by SEBI, any stock exchange or any statutoryauthority on any matter related to capital marketsduring the last three years.

ii) The Company has adopted a Whistle Blower Policy andhas established necessary mechanisms for employeesto report concerns about unethical behaviour. Noperson has been denied access to the AuditCommittee.

iii) SECRETARIAL AUDIT

A qualified practicing Company Secretary carried outquarterly secretarial audit to reconcile the totaladmitted capital with National Securities DepositoryLimited (NSDL) and Central Depository Services (India)Limited (CDSL) and the total issued and listed capital.The audits confirm that the total issued/paid-up capitalis in agreement with the total number of shares inphysical form and the total number of dematerializedshares held with NSDL and CDSL.

iv) The Company fulfilled the following non-mandatoryrequirements:

a. The Company has setup a RemunerationCommittee. Please see the paragraph onRemuneration Committee.

b. The Auditors’ Report on the financial statementsof the Company is unqualified.

25

9. DISCLOSURE REQUIRED BY CLAUSE 32 OF THE LISTING AGREEMENT

Amount of loans and advances in the nature of loans outstanding from subsidiaries during the year ended 31 March 2007

Name of the Company Outstanding Maximum Investment in Investmentas at amount shares of the in shares of

31 March, 2007 outstanding Company subsidiaries ofduring the year the Company

Rs. in crores Rs. in crores No of shares No of Shares

a) Subsidiaries

(i) VSNL Broadband Ltd. - - - -

(ii) VSNL America Inc. - 25.61 - *

(iii) VSNL Lanka Ltd - - - -

(iv) VSNL International Pte Ltd.(formerly VSNL Singapore Pte Ltd.) 28.31 255.11 - **

(v) VSNL SNOSPV Pte. Ltd - - - -

(vi) Direct Internet Limited - - - ***

(vii ) VSNL Global Services Ltd. 1.29 1.29 - -

Name of the Subsidiary No of Shares

* VSNL UK Ltd 1

** VSNL Netherlands BV 16,718,000

** VSNL International (Bermuda) Ltd 1,200,000

** VSNL International Japan K.K 300

** VSNL Telecommunications (Bermuda) Ltd. 1,200,000

** VSNL HongKong Ltd 1

*** VSNL Internet Services Ltd. (formerly DIL Internet Limited) 500,004

Subsidiaries of VSNL Netherland B.V

VSNL International (US) Inc 3,000

VSNL Telecommunications(UK) Limited 6,500,002

VSNL France SAS 1,847,000

VSNL Spain Srl 4,13,006

VSNL (Portugal) Unipessoal Limitada 1,055,000

VSNL Belgium BVBA 186

VSNL(Germany) GMBH 1

VSNL International (Portugal) Instalacao e Manutencao de Redes LDA 12,447,000

VSNL International (Guam) L.L.C NA

Subsidiaries of VSNL Telecommunications (Bermuda)Ltd

Teleglobe Bermuda Ltd. 1,200,000

TLGB Luxembourg Holdings S.ar.l 500

Subsidiary of VSNL Telecommunications(US) Inc.

VSNL International (Guam) Llc NA

Subsidiaries of TLGB Luxembourg Holdings S. ar.l

TLGB Netherlands Holdings B.V 18



26

Name of the Subsidiary No of Shares

Subsidiaries of Teleglobe Bermuda Ltd

VSNL International(Poland) Sp. Zo.o 1

ITXC IP Holdings S.a.r.l 500

Teleglobe International Ltd 8,416,801

VSNL International HongKong Ltd 10,000

VSNL International Australia Pty. Ltd 555,001

VSNL International GBRM Ltd 12,000

VSNL International Puerto Rico Inc 1,000

Teleglobe Asia Pte. Ltd 100,000

Teleglobe Asia Data Transport Pte. Ltd 2

Teleglobe Global Japan YK 120

Teleglobe International Luxembourg S.a.r.l 500

ITXC Global UK Ltd. (Under liquidation) NA

ITXC (UK)Ltd. (Under liquidation) NA

ITXC Global HongKong Ltd. (Under liquidation) 1,180,000

Subsidiary of TLGB Netherlands Holdings B.V

VSNL International(ITXC) Corp. 1,000

Subsidiaries of Teleglobe International Luxembourg S.a.r.l

Teleglobe International Belgium S.P.R.L 1

VSNL International (Italy) S.r.l 500

Teleglobe Netherlands B.V 22

Subsidiaries of Teleglobe Netherlands B.V

VSNL International (Italy) S.r.l 9,500

Teleglobe France International S.A.S 37,000

TLGB International Germany GmbH 1

Teleglobe Spain Communications S.L 278,939

Teleglobe International Belgium S.P.R.L 99

Teleglobe Canada ULC 402

VSNL International(Poland) Sp. Zo.o 999

VSNL International ( Nordics) AS 1,000

Subsidiary of VSNL Portugal Unipessol Limitada

VSNL International (Portugal) Instalacao e Manutencao de Redes LDA 12,447,000

Subsidiaries of VSNL International (ITXC) Corp.

Teleglobe America Inc 100

VSNL International (Global) Corp. 100

Enhanced Services Inc (Under liquidation) NA

Subsidiaries of Teleglobe America Inc

VSNL International IPCO LLC NA

27

10. MEANS OF COMMUNICATION

VSNL’s quarterly results are ordinarily published in the IndianExpress and Loksatta among others, and are also hosted onVSNL’s website: www.vsnl.in. The Company’s press releases,details of significant developments and investor updatesare also made available on the website. The Companygenerally holds a press conference/investors’ meet after thehalf-yearly results are taken on record by the board relatingto the period ending 30 September and 31 March everyyear.

The management discussion and analysis forms part of thedirectors’ report and is included in the annual report forthe year 2006-07. Segmental information may be referredto in Note number B.19 of the Notes on Accounts.

11. SHAREHOLDER INFORMATION

DATE AND VENUE OF THE AGM

The twenty first annual general meeting of Videsh SancharNigam Limited will be held at 1100 hours on Thursday, 2August 2007, at MC Ghia Hall, Bhogilal Hargovindas Building,Second Floor, 18/20 Kaikhushru Dubash Road Marg,Kalaghoda, Mumbai - 400023.

FINANCIAL CALENDAR

Fiscal year ending : 31 March 2007Annual General Meeting : 2 August 2007

KEY FINANCIAL REPORTING DATES FOR THE FINANCIALYEAR 2007-08

First quarter ending 30 June 2007 : On or before31 July 2007

Second quarter ending : On or before30 September 2007 31 October 2007

Third quarter ending : On or before 3131 December 2007 January 2008

Fourth quarter ending : On or before31 March 2008 30 April 2008 or

if audited, on orbefore 30 June 2008.

BOOK CLOSURE DATES FOR THE PURPOSE OF DIVIDEND

VSNL’s register of members and share transfer books willremain closed from 17 July 2007 to 2 August 2007 (bothdays inclusive) for the purpose of ascertaining eligibility toshareholders to receive the final dividend as may bedeclared for the year ended 31 March 2007.

DIVIDEND PAYMENT

The dividend as recommended by the Board of Directors, ifdeclared at this Annual General Meeting, shall be paid onor after Wednesday 8 August 2007.

(i) to those shareholders whose names appear on theCompany’s Register of Members after giving effect toall valid share transfers in physical form lodged withthe Registrar & Transfer Agents (R&T Agents) of theCompany on or before the end of business on Monday,16 July 2007.

(ii) in respect of shares held in electronic form, to those“deemed members” whose names appear in thestatements of beneficial ownership furnished by NationalSecurities Depository Limited (NSDL) and CentralDepository Services (India) Limited (CDSL) as at the endof business on Monday, 16 July 2007. In respect of sharesheld in demat mode, the dividend will be paid on thebasis of beneficial ownership as per details to befurnished by NSDL and CDSL for this purpose.

BANK DETAILS

In order to provide protection against fraudulentencashment of dividend warrants, members are requestedto provide, if they have not already provided, their bankaccount numbers, bank account type and names andaddresses of bank branches, quoting folio numbers, to theR&T agents (in case of physical shareholding) to enable themto incorporate the same on the dividend warrants. In caseof dematerialised holding the bank account details shouldbe intimated and updated with the shareholder’s DepositoryParticipant.

LISTING ON STOCK EXCHANGES IN INDIA AND LISTINGFEES

The Company’s shares are listed on the stock exchanges atMumbai (BSE) and National Stock Exchange (NSE) in India.Annual listing fees as due to each of the above stockexchanges for 2006-2007 have been paid.

LISTING ON STOCK EXCHANGE OUTSIDE INDIA

The Company’s ADRs are listed on the New York StockExchange (NYSE) and have been traded on the NYSE since15 August 2000. The annual listing fee payable to the NYSEis being paid regularly.

DEPOSITORY BANK FOR ADR HOLDERS

The Bank of New York, 101, Barclays Street, 22nd Floor West,New York, NY 10286, Telephone: +1 (212) 815 8365, Facsimile:+1 (212) 571 3050.

Local Address : The Bank of New York, Express Towers, 12thFloor, Nariman Point, Mumbai 400 021, Telephone: (022) 22044941/43, Facsimile: (022) 2204 4942.

CUSTODIAN FOR THE DEPOSITORY IN INDIA

ICICI Bank Limited, Securities Markets Services, 1st Floor,Empire Complex, 414 Senapati Bapat Marg, Lower Parel,Mumbai – 400013. Telephone: 91-22-6667 2026, 6667 2030Facsimile: 91-22-6667 2779/2740.



28

STOCK CODE

Bombay Stock Exchange : 500483National Stock Exchange : VSNLNew York Stock Exchange : VSLISIN No. for equity shares : INE151A01013ISIN No. for ADRs : US92659G6008CUSIP No. for ADRs : 92659G600

STOCK MARKET DATA RELATING TO SHARES LISTED IN INDIA

Monthly high and low quotations and volume of shares traded at BSE & NSE for 2006-2007 are:

MonthBSE Share Price (In Rs.) NSE Share Price (In Rs.) NYSE ADR Price (in USD)

High Low Volume High Low Volume High Low Volume

Apr-06 515.35 374.00 19150716 515.80 380.00 44380002 23.67 16.65 2120900

May-06 506.65 320.00 22045024 506.90 317.00 64905040 22.00 16.26 3018900

Jun-06 416.20 300.05 29911996 415.80 300.10 69118023 17.65 13.01 2910400

Jul-06 429.70 337.80 19760170 425.00 337.40 43459228 18.20 14.65 1822200

Aug-06 427.45 349.00 14968880 427.50 348.00 30410470 18.19 15.30 1452000

Sep-06 431.65 385.00 8730190 431.90 384.25 17076452 18.46 16.35 1025400

Oct-06 452.00 393.95 11411057 452.40 393.55 29659293 20.49 17.02 2280400

Nov-06 472.00 424.00 8278599 472.90 392.00 24230314 21.08 18.50 1955200

Dec-06 447.85 371.55 3525479 448.00 370.05 12921346 20.33 17.15 1782900

Jan-07 495.95 409.05 5724369 496.00 409.00 18347762 22.56 18.36 1770500

Feb-07 514.90 359.75 4213429 514.90 352.25 14990004 23.20 16.26 2064930

Mar-07 428.40 342.20 4087477 433.00 336.60 12269762 19.96 15.30 2149500

Reuters Codes

VSNL.BO (BSE)VSNL.NS (NSE)VSNLq.L (LSE).

29

0

2000

4000

6000

8000

10000

12000

14000

16000

0

100

200

300

400

500

600

1-Ap

r-06

02-M

ay-0

6

08-Ju

n-06

07-Ju

l-06

08-A

ug-0

6

08-S

ep-0

6

07-O

ct-0

6

10-N

ov-0

6

09-D

ec-0

6

09-Ja

n-07

10-F

eb-0

7

02-M

ar-0

7

31-M

ar-0

7

Clo

sin

g S

har

e Pr

ice

at B

SE

Sen

sex

Closing Price at BSE V/S Sensex Close

BSE Closing Share Price Sensex Close

0

500

1000

1500

2000

2500

3000

3500

4000

4500

0

100

200

300

400

500

600

1-Ap

r-06

13-M

ay-0

6

10-Ju

n-06

08-Ju

l-06

05-A

ug-0

6

02-S

ep-0

6

14-O

ct-0

6

11-N

ov-0

6

09-D

ec-0

6

06-Ja

n-07

03-F

eb-0

7

03-M

ar-0

7

31-M

ar-0

7

Clo

sin

g S

har

e Pr

ice

at N

SE

Nift

y

NSE Closing Share Price Nifty Close

VSNL Closing Share Price at NSE V/S Nifty Close



30

SHARE TRANSFER SYSTEM

Share transfers in physical form can be lodged with the R&T agents of VSNL. The transfers are normally processed within15 days from the date of receipt if the documents are complete in all respects. The Investor Grievances Committee isempowered to approve the share transfers. However, in the interests of shareholder friendliness, the R&T Agents have beenempowered to approve the share transfers up to 500 shares per folio per transfer.

DISTRIBUTION OF SHAREHOLDING

Number of ShareholdersNumber of ordinary shares held

31.03.2007 31.03.2006

1 to 500 58054 51536

501 to 1000 1206 1295

1001 to 10000 1507 1624

Over 10000 156 183

Total 60923 54638

VSN

L C

losi

ng

Pri

ce a

t N

YSE

(USD

)

NYS

E C

om

po

site

Ind

ex

VSNL ADR Closing Price NYSE Composite Index

Closing Price at NYSE V/S NYSE Composite Index

0

5

10

15

20

25

31-M

ay-0

7

1-M

ar-0

7

1-Fe

b-0

7

3-Ja

n-0

7

1-D

ec-0

6

1-N

ov-0

6

2-O

ct-0

6

1-Se

p-0

6

1-A

ug

-06

3-Ju

l-06

1-Ju

n-0

6

1-M

ay-0

6

3-A

pr-

06

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Dematerialisation of Shares and Liquidity

Approx 99.91% of the Company’s share capital available in the market is dematerialised as on 31 March 2007. The Company’sshares are regularly traded on the Stock Exchange Mumbai and the National Stock Exchange, as is evident from the tablecontaining stock market data.

31

CATEGORIES OF SHAREHOLDERS AS OF 31 MARCH

Category Number of Voting Strength Number of Shares HeldShareholders (Percentage)

2007 2006 2007 2006 2007 2006

PROMOTERS

Tata Group

– Panatone Finvest Limited 2 2 40.70 40.61 115988857 115738857

– Tata Sons Limited 2 2 8.51 3.64 24260497 10360497

– The Tata Power Company Limited 1 1 0.90 0.90 2575837 2575837

– Tata Iron & Steel Company Limited 0 0 0.00 0.00 0 0

– Tata Industries Limited 0 0 0.00 0.00 0 0

Central Government 1 1 26.12 26.12 74446885 74446885

NON-PROMOTERS

Indian Public Financial Institutions 76 43 11.22 9.36 31988206 26686978

Indian Nationalised Banks 13 12 0.12 0.09 341893 248448

Foreign Financial Institutions 62 88 2.83 9.66 8076944 27528395

Foreign companies (shares heldby The Bank of New York asdepository for ADRs) 2 2 6.18 5.99 17608384 17081284

Non-resident individuals /Overseas Corporate Bodies 555 446 0.05 0.05 149617 144635

Other Indian Bodies Corporate 1412 1730 0.81 0.88 2306837 2494521

Indian Public 58797 52310 2.56 2.70 7256043 7691428

Total 60923 54638 100 100 285000000 285000000

Outstanding ADRs

8804192 ADRs (each representing two ordinary share of the Company) are outstanding as of 31 March 2007. In respect ofthese ADRs, the option to convert into shares is alive.



32

SHARE CAPITAL HISTORYDetails of share capital history since incorporation is as follows

Dates Particulars of Issue Number of Total Number Nominal Value

Shares of Shares of Shares (Rs.)

19.3.86 Allotted as Purchase consideration forassets & liabilities of OCS 126 126 126,000

1.4.86 Allotted as Purchase consideration forassets & liabilities of OCS +599,874 600,000 600,000,000

March’91 Shares of Rs.1000/- each subdividedinto shares of Rs.10/- each NIL 60,000,000 600,000,000

06.02.92 Bonus of 1:3 issued to Government of India. +20,000,000 80,000,000 800,000,000

Jan-Feb 92 12 million shares disinvested in favourof Indian Financial Institutions by GOI@ Rs.123/- per share NIL 80,000,000 800,000,000

1994-95 2,382,529 Shares transferred todisinvested parties as bonus shares NIL 80,000,000 800,000,000

27.03.97 VSNL raised its share capital by wayof GDR Issue, and also GOI Divested39 lakh shares in GDR markets@ US$13.93 per GDR equivalent toRs.1000 per share. +12,165,000 92,165,000 921,650,000

04.04.97 VSNL raised its capital by way of GDRIssue Green Shoe option @ US$13.93per GDR equivalent Rs.1000 per share. +2,835,000 95,000,000 950,000,000

Feb. 1999 10million shares divested by GOI inGDR markets @ US$9.25 per GDRequivalent to Rs.786.25 per share. NIL 95,000,000 950,000,000

May 1999 396,991 shares Divested by GOI by wayof offer of shares to employees of VSNL@ Rs.294 per share locked in for aperiod of 3 years. NIL 95,000,000 950,000,000

Sept’99 10,lakh shares Divested by GOI indomestic markets @ Rs.750 per share. NIL 95,000,000 950,000,000

15.8.2000 Listing of ADRs on New York StockExchange NIL 95,000,000 950,000,000

24.11.2000 Bonus shares in the ratio of 2:1. +190,000,000 285,000,000 2,850,000,000

27.9.2001 VSNL declares dividend @ 500% i.e.Rs.50/- per share at 15 AGM. NIL 285,000,000 2,850,000,000

January 2002 VSNL pays special interim Dividendof 750% i.e. Rs.75/- per share NIL 285,000,000 2,850,000,000

33

13.02.2002 25% of VSNL Stake transferred to TataGroup’s investment vehicle PanatoneFinvest Ltd. Govt holdings reducedto 27.97% from 52.97%. VSNL ceasesto be a Government of India Enterprise NIL 285,000,000 2,850,000,000

21.02.2002 5264555 shares Divested by GOI by wayof offer of shares to employees of VSNL@ Rs.47.85 per share locked in for aperiod of 1 year. NIL 285,000,000 2,850,000,000

10.04.02 Open Offer by Panatone Finvest Limitedin accordance with SEBI guidelines toacquire upto 57 million shares@ Rs.202/- per share NIL 285,000,000 2,850,000,000

08.06.02 Open offer complete with Panatoneholding total of 128249910 sharesincluding 57 million shares as above. NIL 285,000,000 2,850,000,000

Locations of Other OfficesRegional Offices : Mumbai, Chennai, Kolkata and New Delhi.Branches : Ambattur, Arvi, Bangalore, Bhubaneswar, Chandigarh, Coimbatore, Dehradun, Ernakulam, Gandhinagar, Goa,Guwahati, Hyderabad, Indore, Jaipur, Jalandhar, Kanpur, Patna, Pondicherry, Pune, Thiruvananthapuram.

Address for Correspondence

Dates Particulars of Issue Number of Total Number Nominal Value

Shares of Shares of Shares (Rs.)

Registered OfficeVidesh Sanchar Bhavan (VSB)Mahatma Gandhi Road,Mumbai - 400 001.Tel : +91 22 6657 8765Fax : +9122 6639 5162Email : [email protected] : www.vsnl.in

Corporate OfficeLokmanya Videsh Sanchar Bhavan (LVSB)Kashinath Dhuru MargPrabhadevi Mumbai – 400 028.Tel : +91 22 6657 8765Fax : +9122 6639 5162Email : [email protected] : www.vsnl.in

Compliance OfficerMr. Satish RanadeCompany Secretary & Chief Legal OfficerLokmanya Videsh Sanchar BhavanKashinath Dhuru Marg, Prabhadevi,Mumbai - 400 028.Tel : +91 22 6657 8765Fax : +91 22 6659 1962Email : [email protected]

Any shareholder complaints/queries may be addressedto:Registrar and Transfer AgentsM/s. Sharepro Services (India) Pvt. Ltd.Unit : Videsh Sanchar Nigam LimitedSatam Estate, 3rd Floor,Above Bank of Baroda,Chakala, Andheri (East),Mumbai - 400 099.Tel : (022) 2821 5168Fax : (022) 2837 5646E-mail : [email protected]

Any queries relating to financial statements of theCompany may be addressed to:Investor Relations CellVidesh Sanchar Nigam LimitedLokmanya Videsh Sanchar BhavanKashinath Dhuru Marg, Opposite Kirti College,Prabhadevi, Mumbai - 400 028.Tel : +91 (22) 66578765Fax: +91 (22) 66395162Email: [email protected]



34

DECLARATION REGARDING COMPLIANCE BY BOARDMEMBERS AND SENIOR MANAGEMENT PERSONNEL

WITH THE COMPANY’S CODE OF CONDUCT

This is to confirm that the Company has adopted a Code of Conduct for its Board Members and senior management ofthe Company.

I confirm that the Company has in respect of the financial year ended March 31, 2007, received from the senior managementteam of the Company and the Members of the Board a declaration of compliance with the Code of Conduct as applicableto them.

Place: Mumbai N. SrinathDate: 26 May 2007 Managing Director

CHIEF EXECUTIVE OFFICER (CEO) AND CHIEF FINANCIAL OFFICER (CFO)CERTIFICATION FOR THE YEAR 2006-07

As required under Clause 49(V) of the Listing Agreement with Indian Stock Exchanges, the under signed hereby confirmthe following:

a) We have reviewed financial statements and the cash flow statement for the year and that to the best of ourknowledge and belief:

i) these statements do not contain any materially untrue statement or omit any material fact or contain statementsthat might be misleading;

ii) these statements together present a true and fair view of the company’s affairs and are in compliance withexisting accounting standards, applicable laws and regulations.

b) There are, to the best of our knowledge and belief, no transactions entered into by the company during the yearwhich are fraudulent, illegal or violative of the Company’s code of conduct.

c) We accept responsibility for establishing and maintaining internal controls for financial reporting and that we haveevaluated the effectiveness of internal control systems of the Company pertaining to financial reporting and havedisclosed to the Auditors and the Audit Committee, deficiencies in the design or operation of such internal controls,if any, of which we are aware and the steps we have taken or propose to take to rectify these deficiencies.

d) We have indicated to the Auditors and the Audit Committee the following:

i) significant changes in internal control over financial reporting during the year, if any;

ii) significant changes in accounting policies during the year and that the same have been disclosed in the notesto the financial statements, if any; and

iii) There have been no instances of significant fraud of which we have become aware.

Place: Mumbai Rajiv Dhar N. SrinathDate: 26 May 2007 (Chief Financial Officer) (Managing Director)

35

Secretary Responsibility Statement

The Company Secretary & Chief Legal Officer confirms that the company has:

(i) maintained all the books of account and statutory registers required under the Companies Act,1956(“the Act”) and the rules made thereunder;

(ii) filled all the forms and returns and furnished all the necessary particulars to the Registrar of Companies and/orauthorities as required by the Act;

(iii) issued all notices required to be given for convening of board meetings and the general meeting, within the timelimit prescribed by law;

(iv) conducted the board meetings and annual general meeting as per the Act;

(v) complied with all the requirements relating to the minutes of the proceedings of the meetings of the directors andthe shareholders;

(vi) made due disclosures required under the Act including those required in pursuance of the disclosures made bythe directors;

(vii) obtained all the necessary approvals of directors, shareholders, the central government and other authorities asper the requirements;

(viii) effected share transfers and dispatched the certificates within the statutory time limit;

(ix) paid dividend amounts to the shareholders and transferred unpaid dividend amounts, if applicable, to the generalrevenue account of the central government or the investor education and protection fund within the time limitprescribed;

(x) complied with the requirements of the listing agreement entered into with the stock exchanges in India and therequirements of the New York Stock Exchange.

The Company has also complied with other statutory requirements under the Companies Act, 1956 and other relatedstatutes in force.

Satish RanadeCompany Secretary

Dated : 26 May 2007 & Chief Legal Officer



36

AUDITORS’ CERTIFICATE ON COMPLIANCE WITH THE CONDITIONS OF CORPORATEGOVERNANCE UNDER CLAUSE 49 OF THE LISTING AGREEMENTS

To the Members of


We have examined the compliance of conditions of corporate governance by VIDESH SANCHAR NIGAM LIMITED(the ‘Company’), for the year ended on 31 March, 2007, as stipulated in Clause 49 of the Listing Agreement of the saidCompany with stock exchanges.

The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination hasbeen limited to a review of the procedures and implementation thereof, adopted by the Company for ensuring compliancewith the conditions of corporate governance. It is neither an audit nor an expression of opinion on the financial statementsof the Company.

In our opinion and to the best of our information and according to the explanations given to us and the representationsmade by the Directors and the Management, we certify that the Company has complied with the conditions of corporategovernance as stipulated in the above mentioned Listing Agreement.

We further state that such compliance is nether an assurance as to the future viability of the Company nor the efficiencyor effectiveness with which the management has conducted the affairs of the Company.

For S. B. BILLIMORIA & CO.Chartered Accountants

N VENKATRAMPartner

Membership No: 71387

Mumbai, 3 July, 2007

37

AUDITORS’ REPORT

TO THE MEMBERS OF VIDESH SANCHAR NIGAM LIMITED

1. We have audited the attached balance sheet ofVIDESH SANCHAR NIGAM LIMITED (“the Company”)as at 31 March, 2007, and also the profit and lossaccount and the cash flow statement for the yearended on that date both annexed thereto. Thesefinancial statements are the responsibility of theCompany’s Management. Our responsibility is toexpress an opinion on these financial statementsbased on our audit.

2. We conducted our audit in accordance with auditingstandards generally accepted in India. Those standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the financialstatements are free of material misstatement. An auditincludes examining, on a test basis, evidencesupporting the amounts and disclosures in thefinancial statements. An audit also includes assessingthe accounting principles used and significantestimates made by the management, as well asevaluating the overall financial statementpresentation. We believe that our audit provides areasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order,2003 issued by the Central Government of India interms of sub-section (4A) of Section 227 of theCompanies Act, 1956, we enclose in the Annexure astatement on the matters specified in paragraphs 4and 5 of the said Order to the extent applicable.

4. Further to our comments in the Annexure referred toin paragraph 3 above, we report that:

(i) we have obtained all the information andexplanations, which to the best of our knowledgeand belief were necessary for the purpose of ouraudit;

(ii) in our opinion, proper books of account asrequired by law have been kept by the Companyso far as appears from our examination of thosebooks;

(iii) the balance sheet, profit and loss account andcash flow statement dealt with by this report arein agreement with the books of account;

(iv) in our opinion, the balance sheet, profit and lossaccount and cash flow statement dealt with bythis report comply with the accounting standardsreferred to in sub-section (3C) of Section 211 ofthe Companies Act, 1956;

(v) on the basis of written representations receivedfrom the directors, as on 31 March, 2007, andtaken on record by the Board of Directors, wereport that none of the directors is disqualifiedas on 31 March, 2007 from being appointed as adirector in terms of clause (g) of sub-section (1)of Section 274 of the Companies Act, 1956; and

(vi) in our opinion and to the best of our informationand according to the explanations given to us,the said accounts give the information requiredby the Companies Act, 1956, in the manner sorequired and give a true and fair view inconformity with the accounting principlesgenerally accepted in India:

(a) in the case of the balance sheet, of the stateof affairs of the Company as at 31 March,2007;

(b) in the case of the profit and loss account, ofthe profit for the year ended on that date;and

(c) in the case of the cash flow statement, ofthe cash flows for the year ended on thatdate.


N. VENKATRAMPartner


Mumbai, 26 May, 2007



38

ANNEXURE TO THE AUDITORS’ REPORT(Referred to in paragraph 3 of our report of even date)

(i) (a) The Company has maintained proper recordsshowing full particulars including quantitativedetails and situation of fixed assets.

(b) As explained to us, physical verification of amajor portion of fixed assets was conductedby the Management during the year. In ouropinion, the frequency of physical verificationis reasonable. The material differences identifiedpursuant to the physical verification have beenduly adjusted in the books of account. Havingregard to the size of the operations of theCompany and on the basis of explanationsreceived, in our opinion, the net unadjusteddifferences were not significant.

(ii) (a) As explained to us, the stocks of stores andspares have been verified during the year. Inour opinion, the frequency of verification isreasonable.

(b) In our opinion and according to the informationand explanations given to us, the proceduresof physical verification of stocks followed by theManagement are reasonable and adequate inrelation to the size of the Company and thenature of its business.

(c) In our opinion and according to the informationand explanations given to us, the Company ismaintaining proper records of inventory. Thediscrepancies noticed on verification betweenthe physical stocks and the book records werenot material having regard to the size of theoperations of the Company.

(iii) The Company has not taken or granted any loansduring the year to parties covered in the registermaintained under Section 301 of the Companies Act,1956.

(iv) In our opinion and according to the information andexplanations given to us, there is adequate internalcontrol system commensurate with the size of theCompany and the nature of its business for thepurchase of inventory and fixed assets. The internalcontrol systems for rendering of certain enterprisedata services need to be suitably strengthened.During the course of our audit, we have not

observed any major weakness in the internal controlsystems.

(v) (a) To the best of our knowledge and belief andaccording to the information and explanationsgiven to us, we are of the opinion that thetransactions that need to be entered into theregister maintained under Section 301 of theCompanies Act, 1956 have been so entered.

(b) In our opinion and having regard to ourcomments in paragraph (v)(a) above, andaccording to the information and explanationsgiven to us, transactions made in pursuance ofcontracts or arrangements entered in theregister maintained under Section 301 of theCompanies Act, 1956 and exceeding the valueof Rupees five lakhs in respect of any partyduring the year have been made at prices whichare reasonable having regard to prevailingmarket prices at the relevant time, where suchmarket prices are available.

(vi) In our opinion and according to the information andexplanations given to us, the Company has notaccepted deposits from the public to which theprovisions of Section 58A, 58AA or any other relevantprovisions of the Companies Act, 1956 are applicableduring the period covered by our audit report.

(vii) In our opinion, the Company has an internal auditsystem commensurate with the size and nature ofits business.

(viii) We have broadly reviewed the books of account andrecords maintained by the Company relating totelecommunication activities pursuant to the Rulesmade by the Central Government for themaintenance of cost records under Section 209 (1)(d) of the Companies Act, 1956 and, are of theopinion that prima facie, the prescribed accounts andrecords have been made and maintained. We havenot, however, made a detailed examination of therecords with a view to determining whether theyare accurate or complete.

(ix) (a) According to the information and explanationsgiven to us, the Company is generally regularin depositing with appropriate authoritiesundisputed statutory dues including providentfund, investor education and protection fund,income tax, sales tax, wealth tax, service tax,

39

customs duty, excise duty, cess and othermaterial statutory dues applicable to it. TheCompany has received exemption from theoperation of Employees’ State Insurance Act,1948.

(b) According to the information and explanationsgiven to us, no undisputed amounts payable inrespect of income tax, wealth tax, sales tax,service tax, customs duty, excise duty and cesswere in arrears, as at 31 March, 2007 for a periodof more than six months from the date theybecame payable.

(c) According to the information and explanationsgiven to us, details of dues of sales tax, servicetax and cess which have not been depositedon account of any dispute are given below:

Particulars Period to which Forum where Amountthe amount relates the dispute is in Rs.

pending crores

Sales Tax 1990-91 Tribunal 0.01

Sales Tax 2001-02, 2002-03,

2003-04, 2004-05 High Court 1.55

Sales Tax 2002-03, 2003-04 Commissioner 0.01

Sales Tax 2003-04 Dy. Commissioner 0.69

Sales Tax 2001-02, 2002-03 Asst. Commissioner 1.07

Service Tax 2003-04 Tribunal 0.22

Cess 2005-06, 2006-07 Dy. Commissioner 0.35

(x) The Company does not have accumulated losses.The Company has not incurred cash losses duringthe financial year covered by our audit and theimmediately preceding financial year.

(xi) In our opinion and according to the information andexplanations given to us, the Company has notdefaulted in repayment of dues to a financialinstitution, bank or debenture holder.

(xii) The Company has not granted any loans andadvances on the basis of security by way of pledgeof shares, debentures and other securities duringthe year. Accordingly, the provisions of clause 4 (xii)of the Companies (Auditor’s Report) Order, 2003 arenot applicable to the Company.

(xiii) In our opinion, the Company is not a chit fund or anidhi/mutual benefit fund/society. Accordingly, theprovisions of clause 4 (xiii) of the Companies(Auditor’s Report) Order, 2003 are not applicable tothe Company.

(xiv) In our opinion and according to the information andexplanations given to us, the Company is not dealingin or trading in shares, securities, debentures andother investments. Accordingly, the provisions ofclause 4 (xiv) of the Companies (Auditor’s Report)Order, 2003 are not applicable to the Company.

(xv) In our opinion and according to the information andexplanations given to us, the terms and conditionson which the Company has given guarantee forloans taken by others from banks or financialinstitutions are not prejudicial to the interest of theCompany.

(xvi) In our opinion and according to the information andexplanations given to us, no term loans have beenraised during the financial year covered by our audit.

(xvii) In our opinion and according to the information andexplanations given to us, and on an overallexamination of the balance sheet of the Company,we report that no funds raised on short-term basishave been used for long-term investment.

(xviii) According to the information and explanations givento us, the Company has not made any preferentialallotment of shares to parties and companiescovered in the register maintained under Section301 of the Companies Act, 1956.

(xix) In our opinion and according to the information andexplanations given to us, the Company has notissued any secured debentures during the periodcovered by our report. Accordingly, the provisionsof clause 4 (xix) of the Companies (Auditor’s Report)Order, 2003 are not applicable to the Company.

(xx) During the period covered by our audit report, theCompany has not raised any money by public issues.

(xxi) To the best of our knowledge and belief andaccording to the information and explanations givento us, no material instances of fraud on or by theCompany has been noticed or reported during thecourse of our audit.


N. VENKATRAMPartner





40

BALANCE SHEET AS AT 31 MARCH, 2007As at

Schedule 31 March, 2006Rs. in crores Rs. in crores

FUNDS EMPLOYED:1 SHARE CAPITAL 1 285.00 285.002 RESERVES AND SURPLUS 2 6,074.50 5,776.17

3 TOTAL SHAREHOLDERS’ FUNDS 6,359.50 6,061.174 UNSECURED LOANS 3 197.61 98.255 DEFERRED TAX LIABILITY (NET) 71.68 75.09

(Refer Note B15, Schedule 18)

6 TOTAL FUNDS EMPLOYED 6,628.79 6,234.51

APPLICATION OF FUNDS:7 FIXED ASSETS 4

(a) Gross Block 4,582.98 4,099.63(b) Less: Accumulated Depreciation/Amortisation 1,428.81 1,091.08

(c) Net Block 3,154.17 3,008.55(d) Capital work-in-progress 340.44 147.81

3,494.61 3,156.36

8 INVESTMENTS 5 2,673.58 2,499.349 CURRENT ASSETS, LOANS AND ADVANCES

A. CURRENT ASSETS(a) Inventories 6 4.72 3.80(b) Sundry Debtors 7 955.19 737.57(c) Cash and Bank Balances 8 104.31 256.88(d) Other Current Assets 9 104.75 98.30

1,168.97 1,096.55B. LOANS AND ADVANCES 10 1,147.75 1,315.05

2,316.72 2,411.6010 Less:CURRENT LIABILITIES AND

PROVISIONS(a) Current Liabilities 11 1,585.69 1,576.17(b) Provisions 12 270.43 256.62

1,856.12 1,832.79

11 NET CURRENT ASSETS [ (9) less (10)] 460.60 578.81

12 TOTAL ASSETS (NET) 6,628.79 6,234.51

SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS 18

As per our report attached For and on behalf of the BoardFor S.B. BILLIMORIA & CO.Chartered Accountants

N. VENKATRAM SUBODH BHARGAVA N. SRINATHPartner Chairman Managing Director &

Chief Executive Officer

RAJIV DHAR SATISH RANADEChief Financial Officer Company Secretary & Chief Legal Officer

MUMBAI MUMBAIDATED: 26 May, 2007 DATED: 26 May, 2007

41

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH , 2007Schedule Year ended

31 March, 2006 Rs. in crores Rs. in crores

INCOME:1 REVENUES FROM TELECOMMUNICATION SERVICES 4,041.83 3,780.952 OTHER INCOME 13 202.74 189.853 INTEREST INCOME 14 9.44 38.93

4 TOTAL INCOME 4,254.01 4,009.73EXPENDITURE:

5 SALARIES AND RELATED COSTS 15 243.69 209.066 NETWORK COSTS 16 2,204.47 2,095.877 OPERATING AND OTHER EXPENSES 17 663.07 589.278 INTEREST EXPENSE (Refer note B31, Schedule 18) 6.91 1.809 DEPRECIATION AND AMORTISATION 391.33 359.38

(Net of transfer from Capital Reserve)

10 TOTAL EXPENDITURE 3,509.47 3,255.38

PROFIT BEFORE TAXES AND EXCEPTIONAL ITEMS 744.54 754.3511 EXCEPTIONAL ITEMS:

(a) Expenditure on Voluntary Retirement Schemes/Voluntary Separation Schemes (Refer Note B10,Schedule 18) 23.86 —

(b) Provision for recoverable pension obligation — 6.42(c) Fixed Assets written-off 8.05 61.21

PROFIT BEFORE TAXES 712.63 686.7212 TAXES

(a) CURRENT TAX 229.97 227.53(b) DEFERRED TAX EXPENSE/ (BENEFIT) 8.40 (24.59)(c) FRINGE BENEFIT TAX 5.70 4.24

PROFIT AFTER TAXES 468.56 479.5413 BALANCE BROUGHT FORWARD FROM PREVIOUS YEAR 1,471.26 1,185.91

AMOUNT AVAILABLE FOR APPROPRIATIONS 1,939.82 1,665.4514 APPROPRIATIONS :

(a) PROPOSED DIVIDEND (Refer Note B3, Schedule 18) 128.25 128.25(b) TAX ON DIVIDEND 21.80 17.99(c) GENERAL RESERVE 46.86 47.95

BALANCE CARRIED TO BALANCE SHEET 1,742.91 1,471.26

EARNINGS PER SHARE (EPS)15 Basic/Diluted earnings per share, before

exceptional items(Rs.) (Refer Note B18, Schedule 18) 17.18 18.4016 Basic/Diluted earnings per share, including exceptional

items (Rs.) (Refer Note B18, Schedule 18) 16.44 16.83









42

CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH, 2007Year ended

31 March 2006Rs. in crores Rs. in crores

1 CASH FLOWS FROM OPERATING ACTIVITIESPROFIT BEFORE TAXES AND EXCEPTIONAL ITEMS 744.54 754.35Adjustments for:Depreciation and amortisation 391.33 359.38(Profit)/loss on sale of fixed assets (11.34) 2.11Interest income (9.44) (38.93)Interest expense 6.91 1.80Interest on income tax refund (6.34) (56.42)Dividend income/profit on sale of current investments (58.26) (48.31)Exchange difference on cash and cash equivalents 0.07 0.09

OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 1,057.47 974.07Inventories (0.92) (1.84)Sundry debtors (217.62) (223.16)Other current assets (13.20) (36.01)Loans and advances (18.60) (11.32)Current liabilities and provisions 54.99 229.06

Cash generated from operations before tax and exceptional items 862.12 930.80Income tax (paid)/refunds (288.15) 26.56Interest on income tax refunds 6.34 56.42

Cash generated from operations before exceptional items 580.31 1,013.78Expenditure on voluntary retirement schemes/voluntary separation schemes (21.11) —

NET CASH FROM OPERATING ACTIVITIES 559.20 1,013.78

2 CASH FLOWS FROM INVESTING ACTIVITIESPurchase of fixed assets (839.62) (796.95)Purchase of long-term investments — (175.52)Investments in equity share capital of subsidiaries (94.97) (203.78)Advance paid against equity share capital (7.27) —Investments in preference share capital of subsidiaries (31.02) (108.31)Sale/(Purchase) of current investments (net of mutual funds dividend re-invested) (net) 85.02 (614.26)Payment made for acquisition of Seven Star Dot Com business (net of cash acquired ) — (3.05)Proceeds from sale of fixed assets 42.12 0.70Sale of investments in subsidiaries — 0.05Loans to subsidiaries(net) 160.01 (217.51)Dividend income from current investments 15.97 4.43Fixed deposits (net) 11.17 1,175.07Interest received 10.76 44.94

NET CASH USED IN INVESTING ACTIVITIES (647.83) (894.19)

3 CASH FLOWS FROM FINANCING ACTIVITIESProceeds from unsecured loans (net) 99.36 98.25Dividends paid including dividend tax (146.14) (194.97)Interest paid (6.01) (0.51)

NET CASH USED IN FINANCING ACTIVITIES (52.79) (97.23)

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (141.42) 22.36CASH AND CASH EQUIVALENTS AS AT 1 APRIL, 2006 244.53 222.26(Refer note B14, Schedule 18)Effect of exchange on cash and cash equivalents (0.07) (0.09)

CASH AND CASH EQUIVALENTS AS AT 31 MARCH, 2007 103.04 244.53(Refer note B14, Schedule 18)

Notes :1. Loans to VSNL International Pte Ltd. of Rs. 90.98 crores have been converted into equity during the year ended 31 March, 2007(2006:Rs 130.44 crores)2. Advance paid for equity investment in VSNL International Pte Ltd. and VSNL Lanka Ltd. of Rs. 22.62 crores have been converted into equity

during the year ended 31 March, 2006

As per our report attached For and on behalf of the Board

For S.B. BILLIMORIA & CO.Chartered Accountants





43

SCHEDULES FORMING PART OF THE BALANCE SHEET

SCHEDULE - 1 As at As at31 March, 2007 31 March, 2006

SHARE CAPITAL Rs. in crores Rs. in croresAUTHORISED :300,000,000 (2006:300,000,000) Equity Shares of Rs.10 each 300.00 300.00

ISSUED, SUBSCRIBED AND PAID UP285,000,000 (2006: 285,000,000) Equity Shares of Rs.10 each, fully paid-up 285.00 285.00

Notes:1) 60,000,000 (2006: 60,000,000) shares have been fully paid up, pursuant

to a contract without payment being received in cash

2) 210,000,000 (2006: 210,000,000) shares have been allotted as fully paidbonus shares by capitalisation of General Reserve

3) 15,000,000 (2006:15,000,000) shares are allotted as fully paid up by wayof Euro issue, represented by 30,000,000 American Depository Receipts(ADRs)

SCHEDULE - 2RESERVES AND SURPLUS

(a) CAPITAL RESERVE (Refer Note B2, Schedule 18)Balance at the beginning of the year 205.81 205.99Add: Assets gifted during the year 3.73 —

209.54 205.99Less : Depreciation on assets gifted transferred to Profit and Loss account (0.63) (0.18)

208.91 205.81

(b) SECURITIES PREMIUM ACCOUNTBalance at the beginning of the year 834.88 834.88

(c) GENERAL RESERVEBalance at the beginning of the year 3,264.22 3,216.27Add: Transferred from profit and loss account 46.86 47.95Less: Adjustments pursuant to transitional provision of AccountingStandard - 15 (Refer Note B12, Schedule 18) (23.28) —

3,287.80 3,264.22

(d) PROFIT AND LOSS ACCOUNTBalance carried forward 1,742.91 1,471.26

6,074.50 5,776.17

SCHEDULE - 3UNSECURED LOANSShort - Term Loans From Banks 197.61 98.25

197.61 98.25



44

SCH

EDU

LES

FOR

MIN

G P

AR

T O

F TH

E B

ALA

NC

E SH

EET

SCH

EDU

LE -

4

FIX

ED A

SSET

S(R

s. in

cro

res)

SL.

FIX

ED A

SSET

SG

RO

SS B

LOC

KA

CC

UM

ULA

TED

DEP

REC

IATI

ON

/AM

OR

TISA

TIO

NN

ET B

LOC

K

NO

.1

Ap

ril,

Ad

dit

ion

sD

edu

ctio

ns/

31 M

arch

,1

Ap

ril,

Dep

reci

atio

n/

Ded

uct

ion

s/31

Mar

ch,

31

Mar

ch,

31

Mar

ch,

20

06

Ad

just

men

t20

072

00

6A

mo

rtis

atio

nA

dju

stm

ents

2007

2007

20

06

Exp

ense

(a)

LAN

D7

8.2

31

35

.16

-2

13

.39

4.4

62

.63

-7

.09

20

6.3

07

3.7

778

.23

--

78.2

33.

630.

83-

4.46

73.7

774

.60

(b)

BU

ILD

ING

S2

59

.44

--

25

9.4

43

7.1

54

.13

-4

1.2

82

18

.16

22

2.2

925

7.66

1.80

(0.0

2)25

9.44

33.0

44.

11-

37.1

522

2.29

224.

62

(c)

PLA

NT

AN

D M

AC

HIN

ERY

3,3

64

.94

39

4.9

0(7

3.9

0)

3,6

85

.94

87

2.8

83

29

.84

(38

.01

)1

,16

4.7

12

,52

1.2

32

,49

2.0

62,

515.

041,

013.

67(1

63.7

7)3,

364.

9467

4.51

299.

20(1

00.8

3)87

2.88

2,49

2.06

1,84

0.53

(d)

FUR

NIT

UR

E A

ND

FIX

TU

RES

47

.87

4.3

6(0

.05

)5

2.1

81

7.4

25

.82

(0.0

3)

23

.21

28

.97

30

.45

43.2

34.

75(0

.11)

47.8

712

.29

5.21

(0.0

8)17

.42

30.4

530

.94

(e)

OFF

ICE

EQU

IPM

ENT

S3

8.7

96

.85

(2.3

6)

43

.28

12

.36

2.3

6(1

.31

)1

3.4

12

9.8

72

6.4

336

.48

2.84

(0.5

3)38

.79

10.6

51.

87(0

.16)

12.3

626

.43

25.8

3

(f)

CO

MP

UT

ERS

19

5.4

33

5.1

6(1

6.5

8)

21

4.0

11

04

.45

24

.64

(14

.85

)1

14

.24

99

.77

90

.98

153.

4345

.25

(3.2

5)19

5.43

78.7

128

.74

(3.0

0)10

4.45

90.9

874

.72

(g)

MO

TOR

VEH

ICLE

S1

.79

-(0

.19

)1

.60

1.1

10

.12

(0.0

4)

1.1

90

.41

0.6

81.

660.

23(0

.10)

1.79

1.03

0.14

(0.0

6)1.

110.

680.

63

(h)

GO

OD

WIL

L1

13

.14

--

11

3.1

44

1.2

52

2.4

3-

63

.68

49

.46

71

.89

96.9

516

.19

-11

3.14

21.7

919

.46

-41

.25

71.8

975

.16

TOTA

L4

,09

9.6

35

76

.43

(93

.08

)4

,58

2.9

81

,09

1.0

83

91

.97

(54

.24

)1

,42

8.8

13

,15

4.1

73

,00

8.5

53,

182.

681,

084.

73(1

67.7

8)4,

099.

6383

5.65

359.

56(1

04.1

3)1,

091.

083,

008.

552,

347.

03

(i)

CA

PIT

AL

WO

RK

-IN

-3

40

.44

PR

OG

RES

S14

7.81

[in

clu

din

g a

dva

nce

s fo

rca

pit

al e

xpen

dit

ure

Rs.

11.

98 c

rore

s(2

006

: Rs.

3.7

8 cr

ores

)]

GR

AN

D T

OTA

L3

,49

4.6

13,

156.

36

NO

TES

:

1La

nd

incl

ud

es R

s.1

98

.99

cro

res

un

der

leas

e. T

his

incl

ud

es:

(i)

Rs.

0.26

cro

res

(200

6 : R

s. 0.

26 c

rore

s) in

res

pec

t o

f w

hic

h c

onv

eyan

ce is

no

t d

on

e.

(ii)

Leas

eho

ld L

and

in S

rin

agar

in r

esp

ect

of

wh

ich

leas

e d

eed

is n

ot

avai

lab

le.

(iii)

Rs.

1.2

1 cr

ore

s (2

006

: Rs.

1.2

1 cr

ores

) in

res

pec

t o

f w

hic

h le

ase

agre

emen

t h

as n

ot

bee

n e

xecu

ted

/ re

gis

tere

d.

(iv)

Rs.

0.1

6 cr

ore

s (2

006

: Rs.

0.16

cro

res)

iden

tifi

ed a

s Su

rplu

s la

nd

.

2G

ross

blo

ck o

f b

uil

din

gs

incl

ud

e:

(i)

Rs.

7.7

9 cr

ore

s (2

006

: Rs.

7.79

cro

res)

fo

r le

aseh

old

off

ice

spac

e, o

f w

hic

h R

s. 1

.84

cro

res

(200

6: R

s. 1

.84

cro

res)

per

tain

s to

ass

ets

acq

uir

ed o

n o

r af

ter

31 M

arch

200

1.

(ii)

Rs.

0.4

4 cr

ore

s (2

006

: Rs.

0.4

4 cr

ores

) b

ein

g c

ost

of

flat

s in

Co

-op

erat

ive

Soci

etie

su

nd

er fo

rmat

ion

.

(iii)

Rs.

33.5

2 cr

ore

s (2

006

: Rs.

33.

52 c

rore

s) fo

r fl

ats

at M

um

bai

an

d R

s. 1

.00

cro

res

(200

6: R

s. 1

.00

cro

res)

for

off

ice

spac

e at

New

Del

hi i

n r

esp

ect

of w

hic

h a

gre

emen

ts h

ave

no

t b

een

exe

cute

d.

3A

dd

itio

ns

to p

lan

t an

dm

ach

iner

y/ c

apit

al w

ork

-in

-pro

gre

ss a

re n

et o

fR

s. 0

.50

cro

res.

(20

06: R

s. 0.

09 c

rore

s) o

n a

cco

un

t o

f in

crea

se i

n l

iab

iliti

esco

nse

qu

ent

to f

luct

uat

ion

s in

fore

ign

exc

han

ge

rate

s.

4Pl

ant

and

mac

hin

ery

incl

ud

es t

he

net

blo

ck o

f In

def

easi

ble

Rig

hts

of

Use

(IRU

s) fo

r d

om

esti

c an

d in

tern

atio

nal

tel

eco

mm

un

icat

ion

cir

cuit

s R

s. 19

3.97

cro

res

(200

6: R

s. 2

05.6

7 cr

ores

).

5D

edu

ctio

n/a

dju

stm

ents

fo

r th

e ye

ar e

nd

ed 3

1 M

arch

20

04

, in

clu

des

red

uct

ion

in

co

st o

f g

ross

blo

ck a

nd

co

rre

spo

nd

ing

re

du

ctio

n i

nac

cum

ula

ted

dep

reci

atio

n a

gg

reg

atin

g R

s. 1,

557.

75 c

rore

s (2

006

: Rs.

1,55

7.75

cror

es)

and

Rs.

601

.34

cro

res

(200

6 : R

s. 6

01.3

4 cr

ores

) re

spec

tive

ly. T

he

net

red

uct

ion

in

ca

rryi

ng

co

st

ag

gre

ga

tin

g

Rs.

9

56

.41

cr

ore

s(2

006

: Rs

. 956

.41

cror

es)

was

deb

ited

to

Sec

uri

ties

Pre

miu

m A

cco

un

t in

acco

rdan

ce w

ith

th

e te

rms

of

the

app

rova

l o

f th

e sh

areh

old

ers

and

th

eH

igh

Co

urt

of

Jud

icat

ure

at

Bo

mb

ay.

6Fi

gu

res

in it

alic

s ar

e fo

r th

e p

revi

ou

s ye

ar.

45


SCHEDULE - 5 Number of shares As at As at31 March, 2007 31 March, 2006

INVESTMENTS Rs. in crores Rs. in crores

I. TRADE INVESTMENTS (At Cost)

A. Fully Paid Equity Shares (Unquoted)

(a) Tata Teleservices Ltd. 952,812,000 1,011.32 1,011.32(Refer Note B4, Schedule 18)

(b) New ICO Global Communications(Holdings) Limited 180,373 0.01 0.01(Class A common stock of US$ 0.01 each)

(c) United Telecom Limited - Joint Venture 3,732,400 23.33 23.33(Equity shares of NRS 100)(Refer Note B5, Schedule 18)

B. Investment in Subsidiary Companies

(i) Fully Paid Equity Shares (Unquoted)

(a) VSNL Lanka Limited 15,179,358 8.24 8.24(Equity shares of LKR 10 each)

(b) VSNL International Pte. Ltd (Formerly known asVSNL Singapore Pte. Ltd) 60,000,000 265.77 174.78(20,000,000 equity shares of US$ 1 eachsubscribed during the year)

(c) VSNL America Inc. 3,000 1.31 1.31(Equity shares of US$ 0.01 each)

(d) VSNL SNOSPV Pte. Ltd 401,655 1.68 1.68(Equity shares of US$ 1 each)

(e) VSNL Broadband Ltd 70,000,000 202.09 202.09(Equity shares of Rs. 10 each)

(f ) Direct Internet Limited 348,000 94.46 —(348,000 equity shares of Rs. 10 each acquiredduring the year) (Refer Note B8, Schedule 18)

(g) DIL Internet Limited (formerly known as PrimusTelecommunications India Limited) 50 0.01 —(50 equity shares of Rs. 10 each acquiredduring the year) (Refer Note B8, Schdule 18)

(h) VSNL Global Services Limited 500,000 0.50 —(500,000 equity shares of Rs. 10 each subscribedduring the year) (Refer Note B9, Schedule 18)

(ii) Fully Paid Preference Shares (Unquoted)

(a) VSNL International Pte. Ltd (Formerly known asVSNL Singapore Pte. Ltd) 30,955,250 139.32 108.31(6,750,000 cumulative convertible redeemablePreference Shares of US$1 each subscribedduring the year)

1,748.04 1,531.07



46

SCHEDULE - 5 No of Units As at As at31 March, 2007 31 March, 2006

INVESTMENTS (Contd.) Rs. in crores Rs. in crores

II. OTHERSINVESTMENTS IN MUTUAL FUNDS ( Unquoted)(a) Liquid Dividend Plan (including dividend reinvestment)

ABN AMRO Long Term Floater-Weekly Dividend 41,267,431 41.27 —Birla Cash Plus-Daily Dividend — — 10.14Birla Sunlife Cash Manager Institutional Plan- DailyDividend 25,001,403 25.01 —DSP Merrill Lynch Liquid Fund- Daily Dividend — — 39.56Grindlays Liquidity 25,009,725 25.01 —HDFC Cash Managemant Call Plan Daily DividendReinvestment 24,001,287 25.03 —HSBC Liquid Plus 37,767,813 37.77 —ICICI Prudential Sweep Cash Plan- Daily Dividend 15,009,303 15.01 13.56JM Money Manager Super Plus Plan Daily DividendReinvestment 34,708,214 34.71 —Prudential Liquid Institutional Plan 526454 23,786,724 23.79 —Reliance Liquid Plus Daily Dividend Option 200,452 20.05 —Standard Chartered Liqudity Manager-Plus-Daily Dividend — — 45.02Standard Chartered Arbitrage Fund-Monthly DividendReinvestment 10,138,048 10.14 —Tata Liquid Daily Dividend Reinvestment 0306 499,205 50.03 56.01Templeton Floating Reinvestment Income Fund LongTerm Quarter Dividend Reinvestment 34,756,659 35.94 —UTI Money Market Fund- Daily Dividend option — — 66.38

(b) Fixed Maturity PlanABN AMRO Fixed Term Plan Series 2 QuarterlyPlan A Dividend — — 30.00ABN AMRO Fixed Maturity Plan- Yearly Growth 10,000,000 10.00 10.00ABN AMRO Fixed Maturity Plan-17 Months GR 10,001,612 10.00 —ABN AMRO Quarterly Fixed Term Plan Series 6 20,000,000 20.00 —Birla Fixed Term Plan-Quarterly Series 1 Dividend Payout — — 30.00Birla Fixed Term Plan-Quarterly Series 2 Dividend Payout — — 30.00Birla Fixed Term Plan 16 Months 20,000,000 20.00 —Chola Fixed Maturity Plan- Series 2 (Quarterly Plan-I)-Dividend — — 20.00Chola Fixed Maturity Plan-Series 2 (Quarterly Plan II)-Dividend — — 20.00Chola Fixed Maturity Plan-Series 3 (Quarterly Plan I)-Dividend — — 20.00Deutsche Fixed Term Fund Series 8-Dividend Option — — 20.00DSP Merrill Lynch -Fixed Term Plan-Series 1B Dividend — — 30.12DSP Mrrill Lynch-Fixed Term Plan -Series 2-Dividend — — 30.20HDFC Fixed Maturity Plan 3 Months March 2006 — — 10.00HSBC Fixed Term Series-3-Dividend — — 30.12HSBC Fixed Term Series-7-Dividend — — 30.18HDFC Fiixed Maturity Plan 16 Months-December 06 25,003,996 24.99 —HSBC Fixed Tem Plan- Series 21-15 Months 15,000,000 15.00 —HSBC 15 Months Fixed Maturity Plan 0107 10,001,678 10.00 —JM 3 Months Fixed Maturity Plan 0107 10,000,000 10.00 —

47



Kotak Fixed Maturity Plan Series 20-Dividend — — 20.00Kotak Fixed Maturity Plan Series 23 -Dividend — — 10.00Kotak Fixed Maturity Plan Series XV-Dividend — — 25.28Kotak Fixed Maturity Plan Series XVIII-Dividend — — 30.00Kotak 3 Months Fixed Maturity Plan 0107 10,001,721 10.00 —Kotak Fixed Maturity Plan 3M SER 13 25,000,000 25.00 —Kotak 16 Months Fixed Maturity Plan Series 1 10,000,000 10.00 —LIC 3 Months Fixed Maturity Plan0107 10,000,000 10.00 —LIC Mutual Fund Fixed Maturity Plan Series 15 29,500,000 29.50 —Principal Deposit Fund (Fixed Maturity Plan-3-20)91 Days Plan — — 40.26Principal PNB Fixed Maturity Plan 91 Days Series II — — 30.15Prudential ICICI Fixed Maturity Plan-YearlySeries XXIV Dividend — — 30.10Prudential ICICI Fixed Maturity Plan-YearlySeries XXV Dividend — — 60.81Principal PNB Fixed Maturity Plan 385 Days-Series III 25,000,000 25.00 —Principal 540 Days Fixed Maturity Plan 15,002,472 14.98 —Prudential Fixed Maturity Plan 15 Months Growth 0207 10,000,000 10.00 —Prudential Fixed Maturity Plan 18 Months - Series 34 20,000,000 19.99 —Prudential ICICI Fixed Maturity Plan Series 37-3Months Plan A 25,000,000 25.00 —Prudential ICICI Fixed Maturity Plan-Series 34-17Months Plan 15,000,000 15.00 —Reliance Fixed Horizon Fund II -16 Months FixedMaturity Plan 20,000,000 19.97 —Reliance Fixed Maturity Plan 1006 25,000,000 24.98 —Standard Chartered Fixed Maturity- 4th Plan Dividend — — 20.08Standard Chartered Fixed Maturity-3rd Plan Dividend — — 30.17Sundaram Fixed Term Plan Series 1 Feb 06(100 days)-Dividend Plan — — 20.00Sundaram 16 Months Fixed Maturity Plan Series- 21 15,000,000 15.00 —Standard Chartered 1 Year Fixed Maturity Plan 10 06 10,000,000 10.00 —Standard Chartered 3 Months Quarterly Fixed MaturityPlan 0107 10,000,000 10.00 —Standard Chartered Fixed Maturity Plan Quarter Series 2 20,002,485 20.00 —Tata Fixed Horizon Fund-Series 7-Scheme B Growth-13Months 25,000,000 25.00 —Tata Fixed Horizon Fund Series 3 Scheme D (13 Months)-Growth — — 10.00Tata Fixed Horizon Fund Series 3 Scheme F (18 Months)-Growth — — 10.00Tata Fixed Horizon Fund Series 5 Scheme B (6 Months)-Dividend — — 30.13Tata Fixed Horizon Fund- Yearly 10,000,000 10.00 10.00Tata 18 Months Fixed Maturity Plan- Growth 10,000,000 10.00 10.00Tata 13 Months Fixed Maturity Plan 0306 10,000,000 10.00 10.00Tata 16 Months Fixed Maturity Plan Series 7 Scheme D-IP 10,000,000 10.00 —Tata Fixed Horizon Fund Series-6 13 Months 15,000,000 15.00 —



48

Tata 2 Quarterly Fixed Maturity Plan Series 9 SchemeP- Periodic Dividend 10,000,000 10.00 —Tata Fixed Horizon Fund (Fixed Maturity Plan) Series 6Scheme C -13 Months Growth 10,000,000 10.00 —Tata 3 Months Fixed Maturity Plan 0107 15,223,393 15.22 —UTI-Fixed Maturity Plan (Quarterly Fixed MaturityPlan/0206/11) Dividend Plan — — 30.00UTI Fixed Maturity Plan Yearly 10,000,000 10.00 —UTI Quarterly Fixed Maturity Plan 0107 12,143,084 12.14 —UTI 16 Months Fixed Maturity Plan-Series II-Plan 16-Growth 10,000,000 10.00 —UTI Fixed Maturity Plan Quarterly March 07 20,013,802 20.01 —

925.54 968.27

2,673.58 2,499.34

Notes:(1) Book Value of unquoted investments 2,673.58 2,499.34(2) All investments other than investments in Mutual Funds are long-term investments(3) Current Investment bought and sold during the year

Scheme Name Face Value No. of Units Purchase CostIn Rs. Rs. in crores

ABN AMRO Fixed Term Plan Series- 3-Quartely Plan G Dividend 10 31,097,800 31.10ABN AMRO Fixed Term Plan Series-3-Quartely Plan A 10 30,615,782 30.62ABN AMRO Cash Fund Daily Dividend Reinvestment 10 20,002,822 20.00ABN AMRO Fixed Term Plan 10 30,417,460 30.42ABN AMRO Fixed Term Plan-Series-2- Quarterly Dividend 10 25,000,000 25.00ABN AMRO Short Term Floating Rate Fund 10 10,001,465 10.00ABN AMRO Fixed Term Plan Series-3-Quarterly Plan B 10 30,857,238 30.86ABN AMRO Fixed Term Plan Series-2-Half Yearly Plan A 10 25,744,486 25.75ABN AMRO Fixed Term Plan- 4-Quartely Plan B 10 20,000,000 20.00ABN AMRO Fixed Term Plan - Series 2 Quarterly Plan C- Dividend 10 30,409,777 30.41Birla Cash Plus Institutional Premium Plan Dividend Reinvestment 10 290,380,370 290.95Birla Bond Plus- Institutional- Fortnightly Dividend Reinvestment 10 29,092,426 30.54Birla Fixed Maturity Plan - Series 2 - Quarterly - Dividend -Payout 10 24,932,260 25.00Birla Quarterly Fixed Maturity Plan 0606 10 14,978,880 15.00Birla Fixed Term Plan - Quarterly -Series 4 - Dividend -Payout 10 20,433,862 20.43Birla Sunlife Cash Manager Institutional Plan- Daily Dividend 10 57,465,145 57.48DBS Chola Freedom Income Short Term Plan-Institutional Plan-Monthly Dividend 10 18,654,397 20.38DBS Chola Fixed Maturity Plan-Series 3(Qtrly Plan-III)- Dividend 10 20,008,600 20.01DBS Chola Fixed Maturity Plan-Series 4 (Quarterly Plan 1) 10 20,000,000 20.00Chola Fixed Maturity Plan-Series 4(Quarterly Plan III) Dividend 10 20,019,405 20.02Deutsche Money Plus-Liquid 10 19,889,997 20.06DWS Money Plus Fund Regular Plan Weekly Dividend 0406 10 105,859,200 106.01DSP Half Yearly Fixed Maturity Plan Dividend Reinvestment 10 690,198 0.69DSP Liquid Plus Fund 1000 201,750 20.18DSP Merrill Lynch Liquidity Institutional Plan Daily Dividend Reinvestment 1000 1,301,471 130.17DSP Quarterly Fixed Maturity Plan 006 1000 3,503 0.35Deutsche Insta Cash Plus- Institutional Plan- Daily Dividend Reinvestment 10 117,758,523 117.99



49

SCHEDULE 5

INVESTMENTS

(3) Current Investment bought and sold during the year (Contd.)


Deutsche Fixed term Fund-Series 13 10 15,000,000 15.00DWS Fixed Term Fund Series -13 -Dividend Plan 10 15,000,000 15.00Deutsche Fixed Maturity Plan Quarterly 0806 10 15,000,000 15.00Fidelity Cash Fund-Daily Dividend Reinvestment 10 10,031,684 10.03Fidelity Cash Fund- Super Institutional Plan-Daily Dividend Reinvestment 10 40,188,660 40.19Grindlays Super Saver Income Fund Medium Term Plan 10 40,436,693 40.45Grindlays Short Term 10 30,161,788 30.25Grindlays Quarterly Fixed Maturity Plan-Dividend Reinvestment -June 06 10 30,000,000 30.00Standard Chartered Liquidity Manager - Daily Dividend 10 35,036,056 35.04Standard Chartered Liquidity Manager - Plus - Daily Dividend 1000 2,570,300 257.06HDFC Cash Management Fund- Savings Daily Dividend 10 30,154,488 32.07HDFC Fixed Maturity Plan- 3 Months August 06 10 30,845,037 30.85HDFC Fixed Maturity Plan 3 Months June 2006 (1) - InstuitionalPlan-Dividend Payout 10 10,173,229 10.17HDFC Fixed Maturity Plan 3 Months September 2006 (1) - InstitutionalPlan - Dividend Payout 10 10,175,162 10.18HDFC Fixed Maturity Plan 90 Days November 2006 - WholesalePlan Dividend Payout 10 15,000,000 15.00HDFC Fixed Maturity Plan 6 Months June 2006 (1) - InstitutionalPlan - Dividend Reinvestment 10 25,708,000 25.71HDFC Cash Management Call Plan-Daily Dividend Reinvestment 10 41,296,566 43.06HDFC Fixed Maturity Plan 3 Months March 2006 (1) - InstitutionalPlan - Dividend Reinvestment 10 171,500 0.17HDFC Fixed Maturity Plan 3 Months May 2006 (1) - InstitutionalPlan - Dividend Reinvestment 10 30,409,500 30.41HSBC Half Yearly Fixed Maturity Plan 0306 10 274,172 0.27HSBC Fixed Maturity Plan Quarterly 10 875,888 0.88HSBC Income Fund-Short Term Plan-Monthly Dividend 10 10,075,254 10.09HSBC Cash Fund Institutional Plus Daily Dividend Reinvestment 10 40,757,183 40.78JM Money Manager-Super Plan 10 10,011,664 10.01JM Fixed Maturity Plan Series-III, One Monthly Plan 10 25,000,000 25.00JM FMF Series-III, Monthly Plan FMF-M2-Dividend Reinvestment 10 25,123,456 25.12JM Money Manager Super Plus Daily Dividend Reinvestment 10 94,000,000 94.00JM Fixed Maturity Plan Series-III, Quarterly Plan 10 15,220,629 15.22Kotak Floater Long Term- Weekly Dividend Reinvestment 10 20,303,337 20.37Kotak Fixed Maturity Plan 6 Months Series-1, 180 DAYS 10 25,705,360 25.71Kotak Fixed Maturity Plan Series 24 - Dividend 10 30,401,571 30.40Kotak Fixed Maturity Plan Serires 27-Dividend QuarterlyFixed Maturity Plan 0606 10 30,013,270 30.01Kotak Fixed Maturity Plan 3 Months Series 3 - Dividend 10 15,220,304 15.22Kotak Liquid (Institutional) - Daily Dividend Reinvestment 10 173,130,952 211.71Kotak Flexi Debt Scheme 10 66,683,557 66.70Kotak Quarterly Fixed Maturity Plan- Dividend reinvestment 10 52,555 0.05Kotak Quarterly Fixed Maturity Plan 10 340,432 0.34Kotak Short Term Bond Fund- Monthly Dividend 10 10,154,086 10.25Kotak Fixed Maturity Plan 3 Months Series 7 - Dividend 10 20,000,000 20.00Kotak Fixed Maturity Plan 3 Months Series 1 - Dividend 10 20,287,398 20.29LIC Mutual Fund Liquid Fund-Dividend Plan 10 198,204,282 217.63Principal PNB Fixed Maturity Plan 91 Days Series V 10 25,000,000 25.00Principal Short term Income Plan -Weekly Dividend 10 55,741,035 60.92Principal Quarterly Fixed Maturity Plan 0206 10 585,739 0.59



50

Principal Deposit Fund (Fixed Maturity Plan-3) 91 Days Plan Mar04 -Dividend Reinvestment 10 20,000,000 20.00Principal Deposit Fund 91 Days 10 621,278 0.62Principal Liquid Institutional Premier Plan Daily Dividend Reinvestment 10 289,467,414 289.49Prudential ICICI 110 days Fixed Maturity Plan- Daily Reinvestment 10 580,255 0.58Prudential ICICI 1 Month Fixed Maturity Plan Dividend 0306 10 136,086 0.14Prudential ICICI Quarterly Fixed Maturity Plan 0606 10 20,261,089 20.26Prudenial ICICI Short Term Plan Inst Plan- Fortnightly Dividend Reinvestment10 18,215,026 20.04ICICI Prudential Institutional Liquid Plan - Daily Dividend Option 10 722,400,972 722.40ICICI Prudential Sweep Cash Plan 10 23,069,579 23.07Reliance Liquidity Fund- Daily Dividend Reinvestment 10 57,569,709 57.59Reliance Liquid -Cash Plan-Daily Dividend Reinvestment 10 25,159,822 28.03Reliance 1Month Fixed Maturity Plan 0207 10 10,000,000 10.00Reliance Floating Rate Fund 10 3,494,548 3.52SBI Debt Fund Series 180 Days 10 25,611,736 25.61SBI Debt Fund Series 180 Days 10 25,000,000 25.00SBI Magnum Insta- Weekly Dividend Reinvestment 10 8,483,903 9.02SBI Magnum Institution Saving Plan 10 24,937,449 25.02SBI Debt Fund Series 90 Days 10 25,000,000 25.00SBI Debt Fund Series 90 Days(August 06) 10 15,000,000 15.00SBI Debt Fund Series - 90 Days (September 06) - Dividend 10 10,000,000 10.00SBI 2 Months Fixed Maturity Plan 0606 10 25,000,000 25.00Sundaram Liquid Super Inst Plan Daily Dividend Reinvestment 10 48,655,794 49.12Sundaram BNP Paribas Fixed Term Plan 10 15,226,275 15.23Sundaram Fixed Term Plan Series XI 90 Days 10 10,049,090 10.05Sundaram Fixed Maturity plan Series VIII 10 10,049,090 10.05Sundaram Quarterly Fixed Maturity Plan Series XVII 10 15,226,275 15.23Standard Chartered Fixed Maturity Plan0606 - 7th Plan 10 20,000,000 20.00Standard Chartered Fixed Maturity Plan QS2 10 20,001,885 20.00Tata Fixed Horizon Fund Series 3 - Scheme B (6 Months)-Dividend 10 314,564 0.31Tata Liquidity Managemant Fund Daily Dividend 1000 2,787,213 279.35Tata Quarterly Fixed Maturity Plan 0306 10 172,171 0.17Tata Fixed Horizon Fund Series 5 Scheme C 3 Months 10 10,140,173 10.14Tata Fixed Horizon Fund Series 6 Scheme Growth 10 20,602,237 20.60Tata Fixed Horizon-1 Month Fixed Maturity Plan 0207 10 10,050,787 10.05Tata Fixed Horizon Fund Series 5 10 10,045,091 10.05Tata Fixed Horizon Quarterly - Income / Bonus (August 2004) 10 30,428,760 30.43Templeton Short Term Income Fund Institutional Plan Weekly Dividend 1000 699,923 70.40Templeton Treasury Mangement Account Daily Dividend Reinvestment 1000 2,857,348 285.81UTI Liquid Cash Plan Instiutional - Daliy Income Option 1000 3,802,790 387.67UTI Money Market Fund Liquid Fund-Daily Dividend Reinvestment 10 84,622,967 148.21UTI Fixed Maturity Plan Quarterly Fixed Maturity Plan (05-06) 10 30,000,000 30.00UTI Quarterly Fixed Maturity Plan September 06 10 10,000,000 10.00UTI Fixed Maturity Plan Quarterly series QuarterlyFixed Maturity Plan/1106/II Dividend Plan - Payout 10 10,000,000 10.00UTI Fixed Maturity Plan Quarterly series QuarterlyFixed Maturity Plan/0806/II Dividend Plan - Payout 10 50,038,100 50.04UTI Fixed Maturity Plan Quarterly series Quarterly

SCHEDULE 5

INVESTMENTS

(3) Current Investment bought and sold during the year (Contd.)


51

SCHEDULES FORMING PART OF THE BALANCE SHEETAs at As at

SCHEDULE - 6 31 March, 2007 31 March, 2006INVENTORIES Rs. in crores Rs. in croresEquipment for resale 0.31 1.02Less: Provision for obsolescence (0.01) (0.01)

0.30 1.01Consumable stores and spares 4.42 2.79

4.72 3.80

SCHEDULE - 7SUNDRY DEBTORS(a) Over six months (Unsecured)

Considered good 161.56 70.59Considered doubtful 162.83 124.98

324.39 195.57Less: Provision for doubtful debts (Refer Note B13, Schedule 18) (162.83) (124.98)

161.56 70.59(b) Other debts (unsecured)

Considered good 793.63 666.98

955.19 737.57

SCHEDULE - 8CASH AND BANK BALANCES(a) Cash in hand 0.03 0.04(b) Cheques in hand 33.66 163.51(c) Remittances in transit 9.09 63.03(d) Current accounts with Scheduled Banks 36.53 19.08(e) Deposit accounts with Scheduled Banks 25.00 11.22

104.31 256.88

SCHEDULE - 9OTHER CURRENT ASSETS(a) Interest receivable 2.46 9.12(b) Service tax recoverable 41.73 30.61(c) Pension contributions recoverable from Government of India

(net of provision of Rs. 53.71 crores; 2006: Rs. 53.71 crores)(Refer note B6, Schedule 18) 7.44 7.44

(d) NLD licence fees reimbursement recoverable from Government of India 52.16 51.12(e) Others 0.96 0.01

104.75 98.30

Note:(1) Interest receivable includes interest due from subsidiaries of Rs. 0.38 crores (2006: Rs. 5.50 crores)



52


As at As atSCHEDULE - 10 31 March, 2007 31 March, 2006

LOANS AND ADVANCES Rs. in crores Rs. in crores

(a) Unsecured - Considered good

(i) Prepaid expenditure 38.02 26.55

(ii) Staff advances (note 1) 6.49 11.32

(iii) Deposits

a) Public bodies 4.79 4.94

b) Others 14.67 12.46

(iv) Advance recoverable in cash or kind for value to be received 71.93 41.69

(v) Advance payment of tax (net of provision for tax) 954.10 901.62

(vi) Advance against equity investments in subsidiaries and joint ventures 7.27 —

(vii) Loans and advances to subsidiaries and joint ventures (note 2) 50.48 316.47

1,147.75 1,315.05

(b) Unsecured - Considered doubtfulOther loans and advances 8.51 7.38

Less: Provision for doubtful advances (8.51) (7.38)

1,147.75 1,315.05

Notes:

(1) Staff Advances includes loans due by an officer of the Company Rs. 0.01 crores (2006:Rs. 0.02 crores)

(Maximum amount due at any time during the year is Rs. 0.02 crores (2006: Rs. 0.02 crores)

(2) Loans and advances to subsidiary companies and joint venture

a) VSNL International Pte. Ltd. 28.37 261.80

b) VSNL Telecommunications(Bermuda) Limited 1.67 14.56

c) VSNL HongKong Ltd. — 0.08

d) VSNL International (Japan) K.K — 0.24

e) VSNL America Inc. — 31.91

f ) VSNL SNOSPV Pte.Ltd. 3.10 2.87

g) Neotel (Pty)Ltd. 6.38 3.36

h) VSNL Netherlands BV 1.07 0.34

i) VSNL Broadband Limited 0.94 —

j) VSNL Lanka Ltd. 0.12 0.20

k) VSNL Telecommunications(UK) Limited 0.02 0.05

l) VSNL International (US) Inc. 0.24 0.13

m) VSNL UK Limited — 0.93

n) VSNL Global Services Limited 8.57 —

53


As at As atSCHEDULE - 11 31 March, 2007 31 March, 2006CURRENT LIABILITIES Rs. in crores Rs. in crores

(a) Sundry Creditors:

(i) Creditors for interconnect charges 414.78 443.15

(ii) Others (note 4) 399.75 490.59

(b) Deferred revenues and advance received from customers 389.45 321.22

(c) Liability towards Investors Education and Protection Fund underSection 205C of the Companies Act, 1956 (not due): Unpaid dividend (note 2) 1.28 1.19

(d) Government of India Current Account 20.57 20.57

(e) Provision for taxes (net of advance taxes) 8.70 8.70

(f ) Other liabilities (note 3) 348.96 289.45

(g) Interest accrued but not due on short term bank loans 2.20 1.30

1,585.69 1,576.17

Notes:

(1) Rs. 0.93 crores dues to Micro, Small and Medium enterprise for more than 30 days (Refer Note B30, Schedule 18)

(2) Dividends are not due and outstanding for a period exceeding seven years.

(3) Includes Rs. 11.25 crores overdrawn book bank balance (2006: Rs. 24.88 crores)

(4) Sundry creditor- others includes due to subsidiary companies and joint venture

a) VSNL Broadband Limited 9.66 5.18

b) Teleglobe America Inc. — 2.35

c) Teleglobe Canada ULC 1.64 0.21

d) VSNL Lanka Ltd. 0.07 0.03

e) VSNL America Inc. 0.29 —

f ) VSNL International (US) Inc. 0.30 —

g) United Telecom Limited 4.66 —

SCHEDULE - 12PROVISION

(a) Provision for employee benefits 101.64 91.74

(b) Provision for proposed dividend 128.25 128.25

(c) Tax on dividend 21.80 17.98

(d) Provision for contingencies and Asset Retirement Obligation(Refer Note B22, Schedule 18) 18.74 18.65

270.43 256.62



54

SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNTYear ended Year ended

SCHEDULE-13 31 March, 2007 31 March, 2006OTHER INCOME Rs. in crores Rs. in crores

(a) Dividend income from current investments 57.13 40.65

(b) Profit on sale of of current investments (net) 1.13 7.66

(c) Profit on sale of fixed assets (net) 11.34 —

(d) Rent 11.16 10.22

(e) Exchange gain (net) 5.07 7.09

(f ) Provisions no longer required - written back 74.44 34.40

(g) Interest on income tax refund 6.34 56.42

(h) Other 36.13 33.41

202.74 189.85

SCHEDULE-14INTEREST INCOME

(a) On bank deposits 0.06 27.52(Tax deducted at source Rs. 0.01 crores, 2006:Rs. 5.86 crores)

(b) On other loans and advances 9.38 11.41(Tax deducted at source Rs. 1.10 crores 2006:Rs. 1.27 crores)

9.44 38.93

Note:(1) Interest income includes Rs. 9.00 crores (2006: Rs. 10.62 crores) from

subsidiaries. Tax Deducted at source on such income is Rs. 1.05 crores(2006: Rs. 1.14 crores)

SCHEDULE - 15SALARIES AND RELATED COSTS

(a) Salaries and related costs 202.52 167.73

(b) Contributions to provident,gratuity and other funds 10.65 15.60

(c) Staff welfare expenses 30.52 25.73

243.69 209.06

55

SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNTYear ended Year ended

31 March, 2007 31 March, 2006SCHEDULE-16 Rs. in crores Rs. in croresNETWORK COSTS

(a) Charges for use of transmission facilities (net of excess provisionwritten back Rs. 17.56 crores (2006: Rs. 8.24 crores) 1,997.05 1,764.15

(b) Royalty and licence fee to Department of Telecommunications 111.33 203.79

(c) Rent of satellite channels 58.19 88.24

(d) Rent of landlines 28.07 27.93

(e) Administrative lease charges 9.83 11.76

2,204.47 2,095.87

SCHEDULE - 17OPERATING AND OTHER EXPENSES

(a) Consumption of stores 1.61 1.95

(b) Light and power 43.09 36.92

(c) Repairs and Maintenance:

(i) Buildings 12.45 12.16

(ii) Plant and Machinery 149.99 159.43

(iii) Others 9.77 15.64

(d) Bad debts written off 24.60 17.55

(e) Provision for doubtful debts/(written back) (Refer Note B13, Schedule 18) 44.20 (6.07)

(f ) Provision for doubtful advances 1.13 —

(g) Rent 34.08 17.70

(h) Rates and taxes 8.14 9.83

(i) Travelling expenses 22.65 24.63

(j) Telephone and telex 14.40 11.82

(k) Printing, postage and stationery 3.61 3.59

(l) Legal and professional fees 46.05 49.64

(m) Advertising and publicity 47.43 109.50

(n) Commissions 29.87 20.08

(o) Services rendered by agencies 103.66 68.32

(p) Insurance 11.95 5.31

(q) Donations 0.08 2.79

(r) Loss on sale of fixed assets (net) — 2.11

(s) Prior period adjustments (net) (Refer Note B13, Schedule 18) 5.25 (10.90)

(t) Other expenses 49.06 37.27

663.07 589.27



56

SCHEDULE 18

SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTSA. SIGNIFICANT ACCOUNTING POLICIES

1. Basis of preparation

The financial statements are prepared under the historical cost convention, in accordance with the accountingstandards issued by the Institute of Chartered Accountants of India (ICAI) and with the applicable requirements ofthe Companies Act, 1956.

2. Use of estimates

The preparation of financial statements requires the management of the Company to make estimates and assumptionsthat affect the reported balances of assets and liabilities and disclosures relating to the contingent liabilities as atthe date of the financial statements and reported amounts of income and expenses during the period. Examples ofsuch estimates include provisions for doubtful debts and advances, employee retirement benefit obligations, provisionfor income taxes, impairment of assets and useful lives of fixed assets.

3. Fixed assets

a) Fixed assets are stated at cost less accumulated depreciation. Cost includes freight, duties, taxes and all incidentalexpenses incurred to bring the assets to their present location and condition.

b) Fixed assets received as gifts from other Foreign Telecom Administrations/vendors are capitalised and creditedto capital reserve on the basis of notional cost (cost assessed by customs authorities). Cost includes freight,insurance and customs duty.

c) Intangible assets in the nature of Indefeasible Rights of Use (IRUs) for international and domestictelecommunication circuits are classified under fixed assets. IRU agreements in respect of these intangiblestransfer substantially all the risks and rewards of ownership.

d) Jointly owned assets are capitalised in proportion to the Company’s ownership interest in such assets.

e) Consideration for purchase of business in excess of the value of net assets acquired is recognised as goodwill.

f ) Assets acquired pursuant to an agreement for exchange of similar assets are recorded at the net book value ofthe assets given up, with an adjustment for any balancing receipt or payment of cash or any other form ofconsideration.

4. Depreciation

Depreciation is provided on the straight line basis (SLM), at the rates and in the manner prescribed in Schedule XIVto the Companies Act, 1956 except as follows:

Assets Rates of depreciation/ period of amortisation

i) Plant and Machinerya. Land cables 6.33 %b. Earth station and switches 7.92 %c. Other networking equipment 11.88 %d. Overhead fibre cables 19.00 %

ii) Goodwill 60 monthsiii) Indefeasible Rights of Use (IRU’s) Life of IRU or period of agreement, whichever is loweriv) Leasehold land Over the lease period

5. Operating leases

Lease arrangements where the risk and rewards incidental to ownership of an asset substantially vest with the lessorare classified as operating lease.

Rental income and rental expense on assets given or obtained under operating lease arrangements are recognisedon a straight - line basis over the term of the lease.

The initial direct costs relating to operating leases are recorded as expense as they are incurred.

57

SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (Contd.)

6. Impairment

At each balance sheet date, the Company reviews the carrying amounts of its fixed assets to determine whetherthere is any indication that those assets suffered an impairment loss. If any such indication exists, the recoverableamount of the asset is estimated in order to determine the extent of the impairment loss. The recoverable amount isthe higher of an asset’s net selling price and value in use. In assessing the value in use, the estimated future cashflows expected from the continuing use of the asset and from its ultimate disposal are discounted to their presentvalues using a pre-determined discount rate that reflects the current market assessments of the time value ofmoney and risks specific to the asset.

7. Investments

Long-term investments are valued at cost less provision for diminution in value. Provision for diminution in the valueis made to recognise a decline, which is other than temporary. Current investments comprising investments inmutual funds are stated at the lower of cost or fair value, determined on an individual investment basis.

8. Inventories

Inventories are valued at the lower of cost or net realisable value. Cost is determined on a weighted average basis.

9. Employee Benefits

(i) Short-term employee benefits:

Short-term employee benefits including compensated absences are determined on an undiscounted basis andrecognized over the period of service which entitles the employees to such benefits.

(ii) Post-employment benefit plans:

Payments to defined contribution retirement benefit schemes are charged as an expense when employeeshave rendered service entitling them to contributions.

For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit CreditMethod, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses arerecognised in full in the profit and loss account for the period in which they occur. Past service cost is recognisedimmediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-linebasis over the average period until the benefits become vested.

The retirement benefit obligation recognised in the balance sheet represents the present value of the definedbenefit obligation as adjusted for unrecognised past service cost, and as reduced by the fair value of schemeassets. Any asset resulting from this calculation is limited to past service cost, plus the present value of availablerefunds and reductions in future contributions to the scheme.

10. Revenue recognition

a) Revenues from telephony services are recognised at the end of each month based upon minutes of incomingor outgoing traffic completed in such month. A substantial portion of revenues are on account of recoveriesfrom Foreign Telecommunication Administrations for incoming traffic and recovery from domestic carriers fordelivery of calls on foreign networks.

b) Revenues from data services are recognised over the period of arrangement based on contracted fee schedules.

c) Revenues from right to use of fibre capacity provided based on IRU are recognised over the period of sucharrangements.

d) Revenues from internet services are recognised based on usage.

e) Dividend from investments is recognized when the right to receive payment is established and no significantuncertainty as to measurability or collectibility exists.

f ) Transactions relating to exchange or swapping of capacities, which results in insignificant or no considerationrepresent the exchange of productive assets not held for sale in the ordinary course of business. Such exchangesdo not result in the culmination of the earnings process and hence the Company does not recognize anyrevenue for these types of transactions.



58


g) Transactions with providers of telecommunication services such as buying, selling, swapping and/or exchangeof traffic are accounted for as non-monetary transactions depending on the terms of the agreements enteredinto with such telecommunication service providers.

11. Taxationa) Current tax expense is determined in accordance with the provisions of the Income Tax Act, 1961. Deferred tax

assets and liabilities are measured using the tax rates, which have been enacted or substantively enacted at thebalance sheet date. Deferred tax expense or benefit is recognized on timing differences being the differencebetween taxable income and accounting income that originate in one period and are capable of reversing inone or more subsequent periods.

b) In the event of unabsorbed depreciation and carry forward of losses, deferred tax assets are recognised only tothe extent that there is virtual certainty that sufficient taxable income will be available to realise these assets. Inother situations, deferred tax assets are recognised only to the extent that there is reasonable certainty thatsufficient future taxable income will be available to realise these assets.

c) Provision for current income taxes and advance taxes arising in the same jurisdiction are presented in thebalance sheet after off-setting on an assessment year basis.

12. Foreign currency transactionsa) Foreign currency transactions are converted into Indian Rupees at rates of exchange approximating those

prevailing at the transaction date. Foreign currency monetary assets and liabilities are translated to IndianRupees at the closing rate prevailing on the balance sheet date. Exchange differences, other than on foreigncurrency liabilities to purchase fixed assets from countries outside India are recognised in the profit and lossaccount. Exchange differences on translation of foreign currency liabilities incurred to purchase fixed assetsfrom countries outside India are adjusted in the cost of such assets.

b) Premium or discount on forward contracts is amortised over the life of such contracts and is recognised in theprofit and loss account, except in respect of forward contracts taken for liabilities for fixed assets where suchamortisation is adjusted in the carrying cost of fixed assets. Forward contracts outstanding as at the balancesheet date are stated at exchange rate prevailing at the reporting date and any gains or losses are recognised inthe profit and loss account. Profit or loss arising on cancellation or renewal of a forward exchange contract isrecognised in the profit and loss account in the period of such cancellation or renewal, except in case of aforward contract relating to liabilities for purchase of fixed assets from countries outside India, in which casesuch profit or loss is adjusted to the carrying cost of such fixed assets.

B. NOTES TO ACCOUNTS1. The Company was incorporated on 19 March, 1986. The Government of India vide its Order No. G-25015/6/86-OC

dated 27 March, 1986, transferred all the assets and liabilities of the Overseas Communications Service (OCS) (part ofthe Department of Telecommunications, Ministry of Communications) as appearing in the Balance Sheet as at 31March, 1986 to the Company with effect from 01 April, 1986. As per the letter no. G-25015/6/86-OC dated 23 October,2001 of Government of India, Department of Telecommunications, there was no requirement to register a formaltransfer deed or deed of sale in the matter of such transfer of assets.

2. Capital reserve includes Rs. 205.22 crores (2006: Rs. 205.22 crores) in respect of foreign exchange gains on unutilisedproceeds from Global Depository Receipts credited to Capital Reserve in a previous year.

3. The Board of Directors have recommended a dividend of Rs. 4.50 (2006: Rs. 4.50) per share for the year ended 31March, 2007.

4. The Company has an investment of Rs. 1,011.32 crores in Tata Teleservices Ltd.(“TTSL”) representing an equityinterest of 15.61 percent (2006: 16.14 percent) in the issued and paid-up capital of TTSL. TTSL has accumulated losses,which have significantly eroded its net worth. In the opinion of the management, having regard to the long gestationperiod inevitable to the nature of its business, there is no permanent diminution in value of the investment.

5. The Company has an investment of Rs. 23.33 crores in United Telecom Ltd. Nepal (“UTL”) representing an equityinterest of 26.66 percent in the issued and paid-up capital of UTL. UTL has accumulated losses, which have significantlyeroded its net worth. In the opinion of the management, having regard to the long gestation period inevitable tothe nature of its business and future business projections, there is no permanent diminution in value of the investment.

59


6. As at 1 April, 2004 proportionate share of pension obligation and payments to erstwhile OCS employees of Rs. 54.73crores were recoverable from the Government of India (“the Government”). Pursuant to discussions with theGovernment, the Company had made a provision of Rs. 47.29 crores in the year ended 31 March, 2005, therebyhaving a net amount due from the Government towards its share of pension obligation of Rs. 7.44 crores.

During year ended 31 March, 2006, consequent to an actuarial valuation a further amount of Rs. 6.42 crores, in theopinion of the Company, was due from the Government towards pension obligation. Pending resolution of thematter the Company had provided for this additional amount of Rs. 6.42 crores during the said year in the profit andloss account.

7. Pursuant to acquisitions of Tyco Global Network (TGN) and Teleglobe (TLGB), the Company w.e.f. 1 April, 2006adopted “Residual Profits Split Method” (RPSM) for recording transactions under its Transfer Pricing Policy. This policygoverns majority of the transactions between the Company and its international subsidiaries. The Company’s subsidiaryin Netherlands is designated as the Central Contracting Party (CCP) and Transfer Pricing Administrator (TPA).

8. On 23 June, 2006, the Company completed its acquisition of Direct Internet Limited (DIL) and its wholly-ownedsubsidiary, DIL Internet Limited (formerly Primus Telecommunications India Limited) for a purchase consideration ofRs. 94.47 crores.

9. On 6 October, 2006, the Company incorporated a wholly owned subsidiary, VSNL Global Services Limited (VGSL) toengage in the business of providing business process outsourcing services.

10. During the year, the Company introduced a Voluntary Retirement Schemes (VRS) / Voluntary Separation Scheme(VSS) exercisable by eligible employees between 29 November, 2006 to 5 January, 2007. The expenditure of Rs. 23.86crores under these schemes has been charged to the profit and loss account.

11. The Board of Directors of the Company at its meeting held on 14 March, 2007, have approved a Scheme ofArrangement (“Scheme”) to hive-off its Retail Business Undertaking to its wholly owned subsidiary, DIL InternetLimited, with effect from 1 March, 2007. The scheme is subject to obtaining necessary approvals, permission andsanctions including approval of the shareholders of the Company in accordance with the requirements of theCompanies Act, 1956. The Company has received “No Objection” from the Bombay Stock Exchange Limited andNational Stock Exchange of India Limited and has filed an application with the Honourable High Court of Judicatureat Bombay seeking its permission for the said hive-off. Pending such approval no effect of the proposed hive-off hasbeen considered in these financial statements.

12. Employee Benefits:

Consequent to the early adoption of Accounting Standard on Employee Benefits (AS-15) issued by The Institute ofChartered Accountants of India, effective from 1 April, 2006 the Company has reviewed and revised its accountingpolicy in respect of employee benefits. Consequent upon the change, profit before tax for the year ended 31 March,2007 is lower by Rs 9.49 crores. In accordance with the transitional provisions contained in this accounting standardthe difference of Rs. 23.28 crores (net of tax of Rs 11.82 crores) between the liability in respect of short-term benefitsand post- retirement benefits existing on the date of adoption and the liability that would have been recognized atthe same date under the previous accounting policy have been adjusted against the opening balance in the generalreserve.

Retirement Benefits

(a) Defined Contribution Plan

- Provident Fund

The Company makes contribution towards provident fund to a defined contribution retirement benefit plan forqualifying employees. The provident fund is administered by the Trustees of the VSNL Employee Provident FundTrust. Under this scheme, the Company is required to contribute a specified percentage of payroll cost to fundthe benefits.

On account of provident fund a sum of Rs. 8.99 crores (2006: Rs. 6.97 crores) has been charged to the profit andloss account.



60


(b) Defined Benefit Plans- GratuityThe Company makes annual contributions for Employee’s Gratuity scheme to a fund administered by trusteescovering all eligible employees. The plan provides for lump sum payment to vested employees at retirement,death while in employment or on termination of employment in an amount equivalent to 15 days salarypayable for each completed year of service or part thereof in excess of six months. Vesting occurs uponcompletion of five years of service.- Medical BenefitsThe Company reimburses domiciliary and hospitalisation expenses incurred by eligible and qualifying employeesand their dependent family members not exceeding certain specified limits under the VSNL employee’s medicalreimbursement scheme. The scheme provides for cashless hospitalisation where the claims are directly settledby VSNL.- Pension PlanThe Company’s pension obligation is in respect of certain employees transferred to the Company from theOverseas Communications Service (OCS). The plan provides for pension payments to these employees atretirement, death in service or on resignation.During the year, the Company purchased a life annuity policy (with return of capital) of Rs. 36.57 crores from aninsurance company to settle the unfunded vested obligation of Rs. 29.11 crores.The details in respect of funded status and the amounts recognised in the Company’s financial statement as at31 March, 2007 for these defined benefit schemes are as under:(i) Changes in the defined benefit obligation:

Defined Benefit PlansGratuity Medical Benefit Pension

(Funded) (Unfunded) (Unfunded)As at As at As at

31 March, 2007 31 March, 2007 31 March, 2007Rs. in crores Rs. in crores Rs. in crores

Projected defined benefit obligation,beginning of the year (1 April, 2006) 30.37 25.18 31.00Current Service Cost 2.74 4.02 —Interest Cost 2.13 1.76 —Actuarial (gain) / loss (1.02) 1.49 —Benefits paid (4.80) (3.97) (1.89)Extinguishment of liability on Settlement — — (29.11)

Projected benefit obligation at the end of the year 29.42 28.48 —

(ii) Changes in the fair value of plan assets for gratuity:Particulars As at

31 March, 2007(Funded)

Rs. in croresFair value of plan assets, beginning of theyear (1 April, 2006) 30.37Expected return on plan assets 2.13Employer’s contribution 2.01Actuarial (loss)/ gain 0.32Benefits paid (4.80)

Fair value of plan assets at the end of the year 30.03

61


(iii) The amounts recognised in the Profit and Loss accountfor the year ended 31 March, 2007:

Defined Benefit PlansGratuity Medical Benefits

(Funded) (Unfunded)Year ended Year ended

31 March, 2007 31 March, 2007Rs. in crores Rs. in crores

Current service cost 2.74 4.02Interest cost 2.13 1.76Expected return on plan assets (2.13) —Net actuarial loss/(gain) recognised in the year (1.34) 1.49

Net Gratuity and Medical benefits costs 1.40 7.27

iv) The amounts recognized in the Balance Sheet is as follows:Defined Benefit PlansGratuity Medical

Benefits(Funded) (Unfunded)

Year ended Year ended31 March, 2007 31 March, 2007

Rs. in crores Rs. in croresPresent value of funded obligations 29.42 —Fair value of plan assets (30.02) —Present value of unfunded obligations — 28.48

Net (asset)/liability in balance sheet (0.60) 28.48

(v) Categories of plan assets as a percentage of total plan assets:

Category of assets As at31 March, 2007

GOI/PSU Bonds 94%Deposits 6%

Total 100%

The Company’s policy and objective for plan assets management is to maximize return on plan assets to meetfuture benefit payment requirements while at the same time accepting a low level of risk. The asset allocationfor plan assets is determined based on investment criterion approved under the Income Tax Act, 1961 and isalso subject to other exposure limitations.

(vi) Principal actuarial assumptions used in accounting for gratuity and medical benefit obligations:

Gratuity MedicalBenefits

(Funded) (Unfunded)Assumptions As at As at

31 March, 2007 31 March, 2007Discount rate 8% 8%Expected return on plan assets 8% —Increase in compensation cost 6% 6%Health care cost increase rate — 2%

The estimates of future compensation cost considered in actuarial valuation take account of inflation, seniority,promotion and other relevant factors.



62


vii) Effect of change in Assumed Health Care Cost Trend Rate. A one-percentage-point change in assumedhealth care cost trend rates would have the following effects:

31 March, 20071 Percentage point

Increase DecreaseRs. in crores Rs. in crores

Effect on service cost 3.69 4.07Effect on interest cost 1.84 1.52Effect on post-employment benefit obligation 25.99 28.84

The Company expects to contribute Rs. 1.62 crores to its funded defined benefit plans in 2007-2008.

13. The profit and loss account includes prior period expense (net) of Rs. 5.25 crores. (2006: prior period income (net) ofRs. 10.90 crores). These primarily comprise of network cost expenses of Rs. 9.73 crores (2006: write back of networkcost expenses of Rs. 18.69 crores) and provisions written back of Rs. 6.35 crores (2006: Nil).

14. Cash and cash equivalents represent:

As at As at31 March, 2007 31 March, 2006

Rs. in crores Rs. in crores

Cash and Cheques on hand and balances held with scheduled banks 70.22 182.63Remittances in transit 9.09 63.03Deposit accounts held with scheduled banks 25.00 11.22

104.31 256.88Deposits with original maturity over three months — (11.17)Current Account / Deposits held for unpaid dividends (1.27) (1.18)

Cash and cash equivalents 103.04 244.53

15. Deferred tax liability:



Deferred tax liability

Difference between accounting and tax depreciation 202.38 181.61

Deferred tax assets

Provision for doubtful debts 54.81 42.07

Provision for post-employment medical benefits 8.48 —

Expenditure on VRS and VSS 13.36 13.86

Expenditure incurred on NLD license fees 24.80 26.57

Unearned income and deferred revenues 16.83 18.18

Others 12.42 5.84

130.70 106.52

Net deferred tax liability 71.68 75.09

63


16. Included in operating and other expenses:


Rs. in crores Rs. in croresAuditors’ remuneration and expenses(i) Audit fees 1.10 0.83(ii) Tax audit fees 0.20 0.15(iii) Other professional services 0.42 0.26(iv) Service tax 0.21 0.13

Auditors’ remuneration excludes fees of Rs. 0.45 crores (2006: Rs.0.48 crores) payable/paid for professional services toa firm of chartered accountants in which some partners of the firm of statutory auditors are partners.

17. Managerial Remuneration

a) Managerial Remuneration for managing director and non-executive directors.

The above is inclusive of :


Rs. in crores Rs. in croresi. Salaries 0.42 0.40ii. Contribution to provident and other funds 0.02 0.04iii. Estimated monetary value of perquisites 0.06 0.04iv. Commission 0.63 0.53v. Non-executive directors’ sitting fees * 0.16 0.06

1.29 1.07

The appointment of the Manging Director is subject to approval of the shareholders.

(* Includes Rs. 0.02 crores for prior years)

b) Computation of Net Profit in accordance with Section 309(5) of the Companies Act,1956



Profit before taxes as per profit and loss account 712.63 686.72

Add:

Managerial Remuneration 1.29 1.07

Provision for doubtful debts 44.20 —

Provision for doubtful advances 1.13 —

759.25 687.79

Less:

Provision for doubtful debts written back (net) — 6.07

Net profit as per Section 309(5) of the Companies Act, 1956 759.25 681.72

c) Commission

(i) Managing Director 0.35 0.25

(ii) Non-executive Directors 0.28 0.28



64


18. Earnings per Share

Rs. in crores,except Number of Shares and

Earnings per share data


Profit before taxes and exceptional items 744.54 754.35

Income tax expense on profit excluding exceptional items 254.81 229.94

Profit after tax excluding exceptional items 489.73 524.41

Exceptional expense (31.91) (67.63)

Income tax benefit on exceptional items 10.74 22.77

Net Profit after tax and exceptional items 468.56 479.54

Number of Shares 285,000,000 285,000,000

Earnings per share excluding exceptional items Rs. 17.18 Rs.18.40

Earnings per share including exceptional items Rs. 16.44 Rs.16.83

19. Segment reporting

a) Business Segments

The reportable segments for the year ended 31 March, 2007 and 31 March, 2006 are “Wholesale Voice”, “Enterpriseand Carrier Data” and “Others” . The composition of the reportable segments is as follows:

- Wholesale Voice: includes International and National Voice services.

- Enterprise and Carrier Data: includes corporate data transmission services like International Private LeasedCircuits (IPLC), Frame Relay (FR), Internet Leased Line Circuits (ILL) and National Private Leased Circuits(NPLC).

- Others: includes Internet, TV up-linking, Transponder lease and other services.

Year ended 31 March, 2007Rs. in crores

Wholesale Enterprise andVoice Carrier Data Others Total

Revenues 2,216.86 1,380.66 444.31 4,041.83

Segment Result 423.03 1,134.11 146.67 1,703.81

Unallocable expenses (net) 959.27

Profit before taxes and exceptional items 744.54

Exceptional expenses 31.91

Profit before taxes 712.63

Tax expense (net) 244.07

Profit after taxes 468.56

65




Revenues 2,162.66 1,261.80 356.49 3,780.95

Segment Result 460.00 1,025.86 86.21 1,572.07Unallocable expenses (net) 817.72

Profit before taxes and exceptional items 754.35Exceptional expenses 67.63

Profit before taxes 686.72Tax expense (net) 207.18


i). Revenues and expenses, which are directly identifiable to segments, are attributed to the relevant segment.Expenses on rent of satellite channels and landlines, and royalty and license fee are allocated on the basis ofusage. Segment result is segment revenues less segment expenses. Certain costs, including depreciation whichare not allocable to segments have been classified as “unallocable expense”.

ii). Telecommunication services are provided utilizing the Company’s assets which do not generally make adistinction between the types of services. As a result, fixed assets are used interchangeably between segments.In the absence of a meaningful basis to allocate assets and liabilities between segments, no allocation has beenmade.

b) Geographical Segment:Segment revenues byGeographical Market

Year ended31 March, 2007

Rs. in crores

India 2,301.57United States of America 302.08Saudi Arabia 222.45United Arab Emirates 211.34Others* 1,004.39

4,041.83

Segment revenues byGeographical Market

Year ended31 March, 2006

Rs. in crores

India 2,087.08United States of America 483.32United Kingdom 324.28United Arab Emirates 260.02Others 626.25

3,780.95

*Others include amounts recorded as revenues from VSNL Netherlands BV of Rs 480.90 crores. VSNL Netherlands BVis a central contracting party and a transfer pricing administrator for inter-company transactions between VSNL andits international subsidiaries (Refer Note B7, Schedule 18)



66


20. Related Party Disclosures:

(a) List of related parties and relationship:

I. Investing party

• Panatone Finvest Limited

II. Subsidiaries (Held directly)

• VSNL International Pte. Ltd. * (formerly VSNL Singapore Pte. Ltd.)

• VSNL Broadband Limited

• Direct Internet Limited

• VSNL Lanka Ltd.

• VSNL SNOSPV Pte. Ltd.

• VSNL America Inc. *

• VSNL Global Services Limited

III. Other Subsidiaries (Held indirectly)

• DIL Internet Limited

• VSNL UK Limited *

• VSNL Telecommunications (Bermuda) Limited

• VSNL International (Bermuda) Limited * (formerly VSNL Bermuda Limited)

• VSNL Hong Kong Limited *

• VSNL International (Japan) K.K. * (formerly VSNL Japan K.K)

• VSNL Netherlands BV *

• VSNL France SAS *

• VSNL Belgium BVBA *

• VSNL Telecommunications (UK) Limited *

• VSNL International (US) Inc. *

• Videsh Sanchar Nigam Spain Srl. * (formerly VSNL Spain Srl)

• VSNL (Germany) GMBH *

• VSNL (Portugal) Unipessoal Lda. *

• VSNL International (Guam) LLC *

• VSNL International (Portugal) Instalacao E Manutencao De Redes Lda.

• TLGB Luxembourg Holdings S.a.r.l

• TLGB Netherlands Holdings BV.

• VSNL International (ITXC) Corp. *

• VSNL International (Global) Corp.

67

• Teleglobe America Inc. *

• VSNL International (IPCO) LLC.

• Teleglobe Bermuda Limited *

• ITXC IP Holdings S.a.r.l *

• Teleglobe International Limited *

• VSNL International (Hong Kong) Limited * (formerly Teleglobe International Hong Kong Limited)

• VSNL International (Australia) Pty Ltd. *

• VSNL International (GBRM) Ltd.

• VSNL International (Puerto Rico) Inc. *

• Teleglobe Asia Pte. Ltd.

• Teleglobe Asia Data Transport Pte Ltd. *

• Teleglobe Global Japan YK. *

• Teleglobe International Luxembourg S.a.r.l.*

• Teleglobe Netherlands B.V. *

• VSNL International (Italy) S.r.l. * (formerly Teleglobe Italy S.r.l)

• Teleglobe France International S.A.S. *

• TLGB International Germany GMBH. *

• Teleglobe Spain Communications SL. *

• Teleglobe Canada ULC. *

• VSNL International (Nordic) As. *

• VSNL International (Poland) Sp.Zo.o *

• Teleglobe International Belgium S.P.R.L. *

• ITXC Global UK Ltd. (under liquidation)

• ITXC (UK) Ltd. (under liquidation)

• ITXC Global Hong Kong Limited (under liquidation)

• Enhanced Services Inc. (under liquidation)

IV. Joint Venture

• United Telecom Limited

V. Joint Venture of wholly owned subsidiary

• SEPCO Communications Pty. Ltd.

• Neotel (Pty) Ltd. (formerly SNO Telecommunications (Pty) Ltd.) – (subsidiary of SEPCO)

VI. Key Managerial Personnel

• N.Srinath - Managing Director and Chief Executive Officer

• Vinod Kumar - Director/Managing Director of a wholly owned subsidiary

Entities marked with (*) above are covered under the Transfer Pricing Policy w.e.f. 1 April,2006




68

(b) Related party transactions and balances(Rs. in crores)

Investing Subsidiaries Key Joint Joint TotalCompany Managerial Venture Venture of

Personnel whollyowned

subsidiaryTransactionsDividend PaidPanatone Finvest Limited 52.08 — — — — 52.08

69.44 — — — — 69.44Total 52.08 — — — — 52.08

69.44 — — — — 69.44Revenues from Teleco-mmunication servicesVSNL Netherlands BV — 480.90 — — — 480.90

— — — — — —VSNL International Pte. Ltd. — 16.39 — — — 16.39

— 44.95 — — — 44.95VSNL Telecommunications(UK) Limited — 6.49 — — — 6.49

— 122.53 — — — 122.53VSNL America Inc. — 6.01 — — — 6.01

— 111.22 — — — 111.22United Telecom Limited — — — 4.08 — 4.08

— — — 1.99 — 1.99Others — 31.05 — — — 31.05

— 34.05 — — — 34.05Total — 540.84 — 4.08 — 544.92

— 312.75 — 1.99 — 314.74Network CostVSNL Netherlands BV — 354.39 — — — 354.39

— — — — — —VSNL International Pte. Ltd. — — — — — —

— 31.37 — — — 31.37VSNL Lanka Ltd. — — — — — —


— — — 1.00 — 1.00Others — 4.95 — — — 4.95

— 5.06 — — — 5.06Total — 359.34 — 16.82 — 376.16

— 41.61 — 1.00 — 42.61Purchase of Fixed AssetsVSNL Broadband Limited — — — — — —

— 0.85 — — — 0.85VSNL International (US) Inc. — — — — — —

— 0.15 — — — 0.15Total — — — — — —

— 1.00 — — — 1.00


69

Sale of Fixed AssetsVSNL International (US) Inc. — — — — — —

— 0.01 — — — 0.01VSNL Telecommunications(UK) Limited — — — — — —

— 0.00 — — — 0.00Total — — — — — —

— 0.01 — — — 0.01Sale of Investments in subsidiaryVSNL International Pte. Ltd. — — — — — —

— 0.05 — — — 0.05Total — — — — — —

— 0.05 — — — 0.05Services renderedVSNL Netherlands BV — 2.95 — — — 2.95

— 0.34 — — — 0.34VSNL Broadband Limited — 0.75 — — — 0.75

— — — — — —VSNL International Pte. Ltd. — 0.11 — — — 0.11

— 0.64 — — — 0.64Neotel (Pty) Ltd. — — — — 1.55 1.55

— — — — — —Others — 0.25 — — — 0.25

— 0.30 — — — 0.30Total — 4.06 — — 1.55 5.61

— 1.28 — — — 1.28Services receivedVSNL Broadband Limited — 5.25 — — — 5.25

— 0.60 — — — 0.60Total — 5.25 — — — 5.25

— 0.60 — — — 0.60Equity capital contributionVSNL International Pte. Ltd.(Refer Note. 2 to Cash FlowStatement) — 90.99 — — — 90.99

— 152.17 — — — 152.17Others — — — — — —

— 0.90 — — — 0.90Total — 90.99 — — — 90.99

— 153.07 — — — 153.07Preference capital contributionVSNL International Pte. Ltd. — 31.01 — — — 31.01

— 108.31 — — — 108.31Total — 31.01 — — — 31.01

— 108.31 — — — 108.31

SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (Contd.)(b) Related party transactions and balances (Contd.)

(Rs. in crores)



subsidiary



70

Interest IncomeVSNL International Pte. Ltd. — 6.82 — — — 6.82

— 7.42 — — — 7.42VSNL America Inc. — 1.45 — — — 1.45

— 1.10 — — — 1.10VSNL Telecommunications(Bermuda) Limited — 0.41 — — — 0.41

— 2.10 — — — 2.10Others — 0.32 — — — 0.32

— — — — — —Total — 9.00 — — — 9.00

— 10.62 — — — 10.62Loan givenVSNL International Pte. Ltd. — 254.16 — — — 254.16

— 1,565.07 — — — 1,565.07Others — 1.29 — — — 1.29

— 11.69 — — — 11.69Total — 255.45 — — — 255.45

1,576.76 — — — 1,576.76Loan repaidVSNL International Pte. Ltd. — 388.67 — — — 388.67

— 1,290.43 — — — 1,290.43Others — 25.18 — — — 25.18

— 68.82 — — — 68.82Total — 413.85 — — — 413.85

— 1,359.25 — — — 1,359.25Advances given by the CompanyVSNL SNOSPV Pte. Ltd. — 20.20 — — — 20.20

— 4.55 — — — 4.55VSNL International Pte. Ltd. — 10.01 — — — 10.01

— 95.23 — — — 95.23VSNL Global Services Ltd. — 7.28 — — — 7.28

— — — — — —VSNL Telecommunications(Bermuda) Limited — 5.37 — — — 5.37


— — — — — —Neotel (Pty) Ltd — — — — 3.02 3.02

— — — — 3.36 3.36Others — 8.91 — — — 8.91

— 9.29 — — — 9.29Total — 51.77 — 5.67 3.02 60.46

— 123.63 — — 3.36 126.99


(Rs. in crores)



subsidiary

71

Advances repaid by the CompanyVSNL International Pte. Ltd. — 19.90 — — — 19.90

— — — — — —VSNL Telecommunications(Bermuda) Limited — 18.74 — — — 18.74

— — — — — —VSNL SNOSPV Pte. Ltd — 18.20 — — — 18.20

— — — — — —VSNL America Inc — 10.96 — — — 10.96

— — — — — —Others — 6.13 — — — 6.13

— — — — — —Total — 73.93 — — — 73.93

— — — — — —Managerial RemunerationN. Srinath — — 0.86 — — 0.86

— — 0.73 — — 0.73Total — — 0.86 — — 0.86

— — 0.73 — — 0.73BalancesReceivablesVSNL Netherlands BV — 126.51 — — — 126.51

— — — — — —United Telecom Limited — — — 0.50 — 0.50

— — — 1.61 — 1.61VSNL International Pte. Ltd. — 2.07 — — — 2.07

— 53.42 — — — 53.42VSNL America Inc — 1.82 — — — 1.82

— 48.68 — — — 48.68VSNL Telecommunications(UK) Limited — 2.63 — — — 2.63

— 43.10 — — — 43.10Others — 15.77 — — — 15.77

— 17.56 — — — 17.56Total — 148.80 — 0.50 — 149.30

— 162.76 — 1.61 — 164.37Provision for doubtful receivablesTeleglobe Amercia Inc — 0.10 — — — 0.10

— — — — — —United Telecom Limited — — — — — —

— — — 1.40 — 1.40Total — 0.10 — — — 0.10

— — — 1.40 — 1.40

SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (Contd.)SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS (Contd.)(b) Related party transactions and balances (Contd.)

(Rs. in crores)



subsidiary



72

Bad Debts written backUnited Telecom Limited — — — 1.40 — 1.40

— — — — — —Total — — — 1.40 — 1.40

— — — — — —PayablesVSNL Broadband Limited — 9.66 — — — 9.66

— 5.18 — — — 5.18Teleglobe Canada ULC — 1.64 — — — 1.64

— 0.21 — — — 0.21Teleglobe Amercia Inc — — — — — —

— 2.35 — — — 2.35N. Srinath — — 0.50 — — 0.50

— — 0.33 — — 0.33United Telecom Limited — — — 4.66 — 4.66

— — — — — —Others — 0.66 — — — 0.66

— 0.03 — — — 0.03Total — 11.96 0.50 4.66 — 17.12

— 7.77 0.33 — — 8.10Loans GivenVSNL International Pte. Ltd. — 28.30 — — — 28.30

— 251.93 — — — 251.93Others — 1.30 — — — 1.30

— 23.32 — — — 23.32Total — 29.60 — — — 29.60

— 275.25 — — — 275.25Advance ReceivableVSNL Global Services Ltd — 7.28 — — — 7.28

— — — — — —VSNL SNOSPV Pte.Ltd. — 3.10 — — — 3.10

— 2.87 — — — 2.87VSNL Telecommunications(Bermuda) Limited — 1.67 — — — 1.67

— 14.56 — — — 14.56VSNL Amercia Inc — — — — — —

— 8.59 — — — 8.59VSNL International Pte. Ltd. — 0.07 — — — 0.07

— 9.87 — — — 9.87Neotel(Pty)Ltd — — — — 6.38 6.38

— — — — 3.36 3.36Others — 2.38 — — — 2.38

— 1.97 — — — 1.97Total — 14.50 — — 6.38 20.88

— 37.86 — — 3.36 41.22


(Rs. in crores)



subsidiary

73

Advance against equityUnited Telecom Limited — — — 5.67 — 5.67

— — — — — —VSNL SNOSPV Pte. Ltd — 1.60 — — — 1.60

— — — — — —Total — 1.60 — 5.67 — 7.27

— — — — — —Guarantees on behalf ofsubsidiariesVSNL Netherlands BV — 2,133.95 — — — 2,133.95

— 981.42 — — — 981.42Others — 38.23 — — — 38.23

— 34.58 — — — 34.58Total — 2,172.18 — — — 2,172.18

— 1,016.00 — — — 1,016.00Letter of Comfort on behalfof subsidiariesVSNL International (US) Inc. — 217.75 — — — 217.75

— — — — — —VSNL Broadband Limited — 60.00 — — — 60.00

— — — — — —VSNL International Pte. Ltd.* — — — — — —

— 802.98 — — — 802.98Total — 277.75 — — — 277.75

— 802.98 — — — 802.98

Note: Figures in italics are in respect of the previous year.

* The letters of comfort given by the Company for bank loan taken by VSNL International Pte. Ltd. as on 31 March, 2006have been converted to guarantees on behalf of VSNL Netherlands BV in the current year, on renewal of the loan.


(Rs. in crores)



subsidiary



74


21. Operating lease arrangements:

(a) As lessee:Year ended Year ended


Minimum lease payments under operating leasesrecognized as expense in the year 57.31 80.13

At the balance sheet date, minimum lease paymentsunder non- cancellable operating leases fall due as follows:



Due not later than one year 30.70 51.81Due later than one year but not later than five years 43.43 71.50Later than five years 1.16 4.52

75.29 127.83

Operating lease payments represent rentals payable by the Company for certain buildings and satellite channels.

(b) As lessor:

(i) The Company has leased under operating lease arrangements certain IRU’s with gross carrying amountand accumulated depreciation of Rs. 84.33 crores and Rs. 11.29 crores respectively as at 31 March, 2007.Depreciation expense of Rs. 5.50 crores (2006: Rs. 4.33 crores) in respect of these assets has been recognisedin the profit and loss account for the year ended 31 March, 2007.

In respect of the above, rental income of Rs. 6.83 crores (2006: Rs. 4.25 crores) has been recognised in theprofit and loss account for the year ended 31 March, 2007.

Future lease rental receipts will be recognised in the profit and loss account of subsequent years as follows:


Rs. In crores Rs. In crores

Not later than one year 6.85 6.83Later than one year but not later than five years 27.41 27.32Later than five years 55.62 62.24

89.88 96.39

(ii) The Company has leased certain premises under operating lease arrangements. Future lease rental incomein respect of these leases will be recognised in the profit and loss account of subsequent years as follows:


Rs. In crores Rs. In crores


1.25 5.96

Lease rental income of Rs. 4.09 crores (2006: Rs. 6.48 crores) in respect of the above leases have beenrecognised in the profit and loss account for the year ended 31 March, 2007.

75

22. Provision for Contingencies and Assets Retirement Obligation:

Asset Others TotalRetirementObligation

(“ARO”)Rs. in crores Rs. in crores Rs. in crores

Balance as on 1 April, 2006 6.07 12.58 18.65Provision made during the year 5.86 — 5.86Obligations settled during the year (5.77) — (5.77)

Balance as at 31 March, 2007 6.16 12.58 18.74

Notes:

1) Provision for ARO has been recorded in the books of the Company in respect of undersea cables and switchesowned by the Company.

2) Others include amounts provided towards claims made by a creditor of the Company.

23. Contingent Liabilities and Capital Commitments:

A. Contingent Liabilities:As at As at


Guarantees given on behalf of subsidiaries 2,172.18 1,016.00

i. Claims for taxes on income (Refer Note 1)

(a) Income tax disputes where the department is in appealagainst the Company 198.47 193.55

(b) Income tax disputes where the Company has a favourabledecision in other assessment year for the same issue 6.52 7.82

(c) Income tax disputes other than the above 1,655.30 925.77

ii. Claims for other taxes 6.15 21.20

iii. Other claims 540.94 397.45

Notes:

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

(a) expenditure on licence fees for the Assessment Year 1995-96 disallowed by the revenue authorities. TheCompany’s appeal was allowed at the Tribunal stage, and the matter is now pending before the High Court.The Company has obtained favourable decisions in other assessment years, which have not been contestedby the revenue authorities, and the Company is of the view that the claims will eventually be decided in itsfavour.

(b) deductions claimed under Section 80 IA of the Income Tax Act,1961 from Assessment years 1996-97 onwardshave been disallowed by the revenue authorities. The Company has contested the disallowance and haspreferred appeals.

(c) reimbursement by the Department of Telecommunications (DoT) of income tax paid by the Company onthe DoT levy during Assessment Year 1994-95, that was taxed by the revenue authorities. The Commissionerof Income Tax (Appeals) has upheld the disallowance. The Company is in appeal with the Income TaxAppellate Tribunal.

(2) A claim of Rs.6,691.50 crores (US $ 1,500 million) was made against the Company by a former strategic businessalliance associate, for breach of contract relating to access and sale of bandwidth capacity on the Company’sTGN network, acquired during year ended 31 March, 2006. The claim was made in the US Federal District Court




76

for the Southern District of New York. The Company has filed its reply to the complaint denying all liability andbelieves that the probability of the claim succeeding is remote.

(3) In May 2006, an Arbitration Tribunal of the International Chamber of Commerce (ICC), International Court ofArbitration issued a ruling on certain issues in a matter initiated by FLAG Telecom Group Limited (FLAG) inDecember 2004.The matter concerned the interpretation of certain provisions of the Construction andMaintenance Agreement (C&MA) governing the FLAG Europe Asia (FEA) cable system to which FLAG and theCompany and various other parties are signatories. The Arbitration Tribunal by a majority decision ordered theCompany to grant FLAG access to the Mumbai cable landing station of the FEA cable system for the purposes ofinstallation, inspection, testing, training and other functions so as to equip capacity of the FEA cable system toany level. The Arbitration Tribunal further declared that the Company is entitled to such terms and conditionspursuant to the C&MA to enable FLAG to lease assignable capacity in the FEA to International Telecom Entities(ITEs) as are reasonable under all the circumstances.In September 2006, the Company filed a Writ in the Netherlands courts to seek to set aside the award of the ICC,International Court of Arbitration. Those proceedings are ongoing.During February 2007, consequent to the order by the Arbitration Tribunal to grant access to FLAG, the Companyhas raised an invoice of Rs 22.89 crores (US $ 5 million) on FLAG for capacity access charges. Considering theuncertainty regarding the final pricing for access, which will be decided by the ICC Tribunal in a further pendingaward, the Company has prudently not recognized the revenue for the invoice sent in the current year.During February 2007, the Company was in receipt of a communication from FLAG to the Arbitration Tribunal ofthe ICC seeking monetary relief of about Rs. 1,768.13 crores (US $ 406 million) plus interest in the Arbitration inrelation to the aforesaid dispute.The Company is of the view that the said claim is not tenable and it has submitted a detailed response to theArbitration Tribunal. Further submissions will be made in writing by both parties prior to an oral hearing onFLAG’s claim.

(4) During the year, the Company issued Letters of Comfort for credit facility agreements, aggregating toRs. 217.75 crores (US $ 50 million) and Rs. 60 crores availed by VSNL International (US) Inc. (“VIU”), a whollyowned subsidiary of VIPL and VSNL Broadband Limited (“VBL”) respectively.

The Company has undertaken to the lenders of VIU and VBL that it shall retain full management control in VIUand VBL so long as amounts are due to the lenders.

B. Capital CommitmentsEstimated amount of contracts remaining to be executed on capital account and not provided for Rs. 353.04crores (2006: Rs. 130.79 crores).

24. Value of Imports on C.I.F. basisYear ended Year ended


Stores and Spares 6.32 11.15Capital Goods 234.06 163.99

25. Earnings in foreign currenciesYear ended Year ended


i. Revenues from telecommunications services 1,739.05 1,693.87ii. Interest income 9.00 10.62iii. Other income 11.07 7.52

1,759.12 1,712.01


77

26. Expenditure in foreign currencies



i. Charges for use of transmission facilities 917.76 594.19

ii. Rent of satellite channels 57.56 88.24

iii. Administrative lease charges 9.83 11.71

iv. Repairs and maintenance 69.75 58.92

v. Legal and professional fees 11.75 34.95

vi. Others 7.12 7.80

1,073.77 795.81

27. Value of imported and indigenous stores/spares consumed



Value % Value %

Imported 6.32 45 11.18 90

Indigenous 7.77 55 1.23 10

14.09 100 12.41 100

28. UTL is a Joint Venture between the Company, Mahanagar Telephone Nigam Limited, Telecommunications ConsultantIndia Limited and Nepal Ventures Private Limited. The Company has 26.66 percent equity ownership in UTL. UTLoperates basic telephony services in Nepal based on Wireless-in-local loop technology.

The Company’s share in income, expenses, assets and liabilities of UTL for the year ended 31 March, 2007 and 31March, 2006 are as follows:



Income 8.80 7.18

Expenses 7.65 13.76



Assets 37.53 32.88

Liabilities 28.46 24.86

Contingent liability in respect of claims of taxes and duties Rs. Nil (2006: Nil).



78

29. Net Dividend remitted to non-resident shareholders in foreign currency

The Company has not remitted any amount in foreign currencies on account of dividends during the year and doesnot have information as to the extent to which remittances, if any, in foreign currencies on account of dividendshave been made by/on behalf of non-resident shareholders. The particulars of final dividends for the year ended 31March, 2006 paid to non-resident shareholders, for which dividends were declared during the year, are as under:


i. Number of non-resident shareholders 610 383

ii. Number of shares held by them 30,205,745 41,265,837

iii. Year to which dividend relates 2005-2006 2004-2005

iv. Amount remitted net of tax (Rs. in crores) 13.59 24.76

30. (i) The names of Micro, Small and Medium enterprises to whom the Company owes retention monies which areoutstanding for more than 30 days as at 31 March, 2007 are as under:

1 Selrack Electronics Enclosure P Ltd.

2 Hulasi Metals Pvt Ltd.

3 Ecom Associates

4 Indochem Industries

5 Inventa Power & Communication

6 Progressive Technology

7 Pristine Metal Form Pvt Ltd.

8 CA Metals Pvt Ltd.

9 Surge Technology Controls

10 Aarem Electronic Pvt Ltd.

11 Fortune Polymat Pvt Ltd.

12 Shakti Steel Works

13 Atlas CATV System

14 Vision Mass Communication

15 Optilink Networks Pvt Ltd.

16 Valrack Modular System P Ltd.

17 Veliyil Engineers

(ii) The identification of Micro, Small and Medium Enterprises suppliers is based on management’s knowledge oftheir status.

31. Of the total interest expense charged to Profit and Loss Account, interest on fixed loans is Rs. 6.19 crores (2006 : Rs.1.24 crores) and other interest is Rs. 0.72 crores (2006:Rs. 0.38 crores).

32. Previous year’s figures have been regrouped and reclassified wherever necessary.

79

Balance Sheet Abstract and Company’s General Business Profile in terms of Part IV of Schedule VI to the CompaniesAct, 1956.

I. Registration Details

Registration No. 3 9 2 6 6 State Code 1 1 (REFER CODE LIST)

Balance Sheet Date 3 1 0 3 2 0 0 7

Date Month Year

II. Capital Raised during the year (Amount in Rs. Crores)Public Issue Right Issue

N I L N I L

Bonus Shares Private Placement

N I L N I L

III. Position of Mobilisation and Deployment of Funds (Amount in Rs. Crores)Total Liabilities Total Assets

8 4 8 4 . 9 1 8 4 8 4 . 9 1

Source of FundsPaid-up Capital Reserves & Surplus

2 8 5 6 0 7 4 . 5 0

Secured Loans Unsecured Loans

N I L 1 9 7 . 6 1

Deferred Tax Liability

7 1 . 6 8

Application of FundsNet Fixed Assets Investments

3 4 9 4 . 6 1 2 6 7 3 . 5 8

*Net Current Assets Misc. Expenditure

4 6 0 . 6 0 N I L

Accumulated Losses

N I L

IV. Performance of Company (Amount in Rs. Crores)Turnover Total Expenditure

4 2 5 4 . 0 1 3 5 4 1 . 3 8

✓ Profit/Loss Before Tax ✓ Profit/Loss After Tax

+ - 7 1 2 . 6 3 + - 4 6 8 . 5 6

(Please tick appropriate box + for Profit, - for Loss)Earning per Share in Rs. Dividend%

1 6 . 4 4 4 5



80

V. Generic Names of Three Principal Products/Services of Company (as per monetary terms)

Item Code No. (ITC Code)

Product Description I N T E R N A T I O N A L T E L E C O M

M U N I C A T I O N S S E R V I C E S


Product

Description


Product

Description

* Note : For ITC code of products please refer to the publication Indian Trade Classification based on harmonized commoditydescription and coding system by Ministry of Commerce, Directorate General of Commercial Intelligence & Statistics,Calcutta - 700 001

ANNEXURE ICode List 1 : State Codes

State Code State Name State Code State Name

01 Andhra Pradesh 02 Assam03 Bihar 04 Gujarat05 Haryana 06 Himachal Pradesh07 Jammu & Kashmir 08 Karnataka09 Kerala 10 Madhya Pradesh11 Maharashtra 12 Manipur13 Meghalaya 14 Nagaland15 Orissa 16 Punjab17 Rajasthan 18 Tamil Nadu20 Uttar Pradesh 21 West Bengal22 Sikkim 23 Arunachal Pradesh24 Goa 52 Andaman Islands53 Chandigarh 54 Dadra Islands55 Delhi 56 Daman & Diu57 Lakshwadeep 58 Mizoram59 Pondicherry

For and on behalf of the Board of the Board of directorsVidesh Sanchar Nigam Limited

SUBODH BHARGAVA N. SRINATHChairman Managing Director &


RAJIV DHAR SATISH RANADEChief Financial Officer Company Secretary & Chief Legal OfficerMUMBAIDATED: 26 May, 2007

81

Stat

emen

t Pu

rsua

nt t

o Se

c 21

2(8)

of t

he C

ompa

nies

Act

, 195

6, re

latin

g to

sub

sidi

ary

com

pani

es

Sr.

Nam

e of

Sub

sidi

ary

Com

pany

Repo

rtin

gEx

chan

geSh

are

Capi

tal

Rese

rves

Tota

l Ass

ets

Tota

lIn

vest

men

tTo

tal

Prof

it be

fore

Prov

isio

n fo

rPr

ofit

afte

rPr

opse

dN

o. C

urre

ncy

Rat

e L

iabi

litie

s D

etai

lsTu

rnov

erTa

xati

onTa

xati

onTa

xati

onD

ivid

end

(exc

ept

in c

ase

ofin

vest

men

tin

the

subs

idia

ries

)

1VS

NL B

road

band

Ltd

.IN

R1.

0070

.00

24.5

715

2.70

58.1

3-

37.5

74.

090.

473.

62-

2VS

NL G

loba

l Ser

vice

s Lt

dIN

R1.

000.

500.

232.

411.

68-

8.26

0.36

0.13

0.23

-

3Di

rect

Inte

rnet

Ltd

INR

1.00

0.35

14.6

915

.39

0.35

13.2

71.

540.

680.

110.

48-

4D

IL In

tern

et L

imite

dIN

R1.

000.

5025

.31

41.7

115

.90

12.1

440

.78

8.17

0.87

7.83

-

5VS

NL L

anka

Ltd

LKR

0.40

6.07

18.8

846

.35

21.3

9-

46.4

911

.32

0.00

11.3

2-

6VS

NL S

NOSP

V Pt

e. Lt

dUS

D43

.55

1.68

(4.5

8)15

.38

18.2

85.

00-

(1.9

2)-

(1.9

2)-

7VS

NL A

mer

ica

Inc.

USD

43.5

51.

31(5

1.77

)57

.01

107.

47-

67.5

2(5

.55)

-(5

.55)

-

8VS

NL S

inga

pore

Pte

Ltd

.US

D43

.55

396.

11(4

3.05

)54

8.37

195.

31-

105.

46(1

8.14

)-

(18.

14)

12.8

3

9VS

NL N

ethe

rland

s BV

USD

43.5

588

.88

(49.

47)

2,70

8.77

2,66

9.37

-77

.20

131.

00-

131.

00-

10VS

NL T

elec

omm

unic

atio

ns(B

erm

uda)

Ltd

.US

D43

.55

157.

77(6

9.15

)1,

215.

901,

127.

28-

-28

.65

-28

.65

-

11Te

legl

obe

Glob

al J

apan

YK

USD

43.5

50.

350.

060.

410.

00-

-0.

20-

0.20

-

12IT

XC IP

Hol

ding

s S.

a.r.l

USD

43.5

5-

71.4

010

6.23

34.8

4-

-0.

291.

06(0

.77)

-

13Te

legl

obe

Amer

ica

Inc

USD

43.5

589

7.76

(91.

26)

2,47

6.27

1,66

9.78

-19

02.2

2(2

7.16

)9.

62(3

6.78

)-

14Te

legl

obe

Asia

Pte

. Ltd

USD

43.5

50.

26(2

.69)

(2.8

3)(0

.39)

--

(2.3

5)-

(2.3

5)-

15Te

legl

obe

Asia

Dat

a Tr

ansp

ort P

te. L

tdUS

D43

.55

0.00

(0.0

3)0.

010.

03-

-0.

00-

0.00

-

16Te

legl

obe

Berm

uda

Ltd.

USD

43.5

537

6.59

76.5

350

5.26

52.1

4-

19.1

011

.52

-11

.52

-

17Te

legl

obe

Cana

da U

LCUS

D43

.55

37.1

0(2

99.8

0)84

1.22

1,10

3.92

-1,

389.

67(2

2.32

)11

.07

(33.

38)

-

18Te

legl

obe

Fran

ce In

tern

atio

nal S

.A.S

USD

43.5

50.

19(5

.95)

28.0

033

.76

-29

.03

0.28

-0.

28-

19Te

legl

obe

Inte

rnat

iona

l Bel

gium

S.P.

R.L

USD

43.5

50.

100.

032.

132.

00-

-(0

.17)

-(0

.17)

-

20Te

legl

obe

Inte

rnat

iona

l( H

ongK

ong

)Ltd

USD

43.5

51.

672.

8124

.68

20.1

9-

18.6

30.

920.

160.

76-

21Te

legl

obe

Inte

rnat

iona

l Ltd

USD

43.5

541

.88

(62.

82)

153.

8417

4.77

-55

9.34

(417

.23)

-(4

17.2

3)-

22Te

legl

obe

Inte

rnat

iona

l Lux

embo

urg

S.a.

r.lUS

D43

.55

0.07

(18.

51)

42.2

760

.71

--

(9.4

0)0.

02(9

.42)

-

23VS

NL In

tern

atio

nal(I

taly

) S.r.

lUS

D43

.55

0.07

(1.1

6)74

.57

75.6

6-

51.3

5(1

.66)

0.02

(1.6

8)-

24Te

legl

obe

Net

herla

nds

B.V

USD

43.5

542

.25

(8.0

9)46

4.79

430.

63-

20.2

90.

92(0

.01)

0.93

-

25Te

legl

obe

Spai

n Co

mm

unic

atio

ns S

.LUS

D43

.55

2.03

(8.9

1)23

.11

30.0

0-

102.

133.

941.

662.

28-

26TL

GB In

tern

atio

nal G

erm

any

GmbH

USD

43.5

52.

16(6

.50)

197.

9620

2.30

-17

2.63

1.02

0.50

0.52

-

27TL

GB L

uxem

bour

g H

oldi

ngs

S.ar

.lUS

D43

.55

421.

25(1

74.2

8)90

0.79

653.

83-

-(1

02.5

5)0.

00(1

02.5

5)-

28TL

GB N

ethe

rland

s H

oldi

ngs

B.V

USD

43.5

589

8.81

(0.3

6)89

8.42

(0.0

3)-

-0.

030.

000.

03-

29VS

NL In

tern

atio

nal (

Nor

dic)

AS

USD

43.5

50.

07(2

.29)

4.64

6.86

-1.

39(0

.07)

-(0

.07)

-

30VS

NL B

elgi

um B

VBA

USD

43.5

5-

(0.1

3)0.

650.

78-

0.04

0.33

-0.

33-



82

Stat

emen

t Pur

suan

t to

Sec

212(

8) o

f the

Com

pani

es A

ct, 1

956,

rel

atin

g to

sub

sidi

ary

com

pani

es (C

ontd

.)

Sr.

Nam

e of

Sub

sidi

ary

Com

pany

Repo

rtin

gEx

chan

geSh

are

Capi

tal

Rese

rves

Tota

l Ass

ets

Tota

lIn

vest

men

tTo

tal

Prof

it be

fore

Prov

isio

n fo

rPr

ofit

afte

rPr

opse

dN

o. C

urre

ncy

Rat

e L

iabi

litie

s D

etai

lsTu

rnov

erTa

xati

onTa

xati

onTa

xati

onD

ivid

end

(exc

ept

in c

ase

ofin

vest

men

tin

the

subs

idia

ries

)

31VS

NL In

tern

atio

nal B

erm

uda

Ltd

USD

43.5

50.

05(1

27.3

5)10

3.62

230.

92-

-(2

10.2

5)-

(210

.25)

-

32VS

NL F

ranc

e SA

SUS

D43

.55

10.8

0(1

2.78

)31

.97

33.9

6-

0.41

17.0

8-

17.0

8-

33VS

NL H

ongK

ong

Ltd

USD

43.5

50.

00(7

.13)

5.32

12.4

5-

40.2

10.

76-

0.76

-

34VS

NL In

tern

atio

nal (

Glob

al) C

orp.

USD

43.5

512

.33

2.21

14.6

40.

10-

-0.

66-

0.66

-

35VS

NL In

tern

atio

nal (

Guam

) Llc

USD

43.5

5-

22.1

129

.40

7.30

--

(0.0

3)-

(0.0

3)-

36VS

NL (P

ortu

gal)

Unip

esso

al L

daUS

D43

.55

-(1

7.14

)29

.95

47.0

9-

0.82

5.96

-5.

96-

37VS

NL In

tern

atio

nal (

Port

ugal

) Ins

tala

cao

eM

anut

enca

o de

Red

es L

DA

USD

43.5

56.

070.

064.

43(1

.70)

--

0.11

-0.

11-

38VS

NL In

tern

atio

nal (

US) I

ncUS

D43

.55

0.00

(446

.47)

1,19

2.78

1,63

9.25

-24

1.86

(1.3

8)2.

44(3

.83)

-

39VS

NL In

tern

atio

nal (

Aust

ralia

) Pty

. Ltd

USD

43.5

51.

55(2

.75)

0.25

1.44

--

0.20

-0.

20-

40VS

NL In

tern

atio

nal (

GBRM

) Ltd

USD

43.5

546

.21

80.2

712

8.98

2.50

2.47

194.

4011

3.80

-11

3.80

-

41VS

NL In

tern

atio

nal I

PCO

LLC

USD

43.5

510

8.88

10.0

411

8.92

--

-3.

85-

3.85

-

42VS

NL In

tern

atio

nal (

Puer

to R

ico)

Inc

USD

43.5

50.

00(1

.05)

(0.3

3)0.

72-

-0.

12-

0.12

-

43VS

NL In

tern

atio

nal(I

TXC)

Cor

p.US

D43

.55

117.

13-

117.

13-

--

--

--

44VS

NL In

tern

atio

nal(P

olan

d) S

p. Z

o.o

USD

43.5

50.

070.

050.

420.

30-

-0.

050.

010.

04-

45VS

NL In

tern

atio

nal J

apan

K.K

USD

43.5

515

.80

177.

7828

9.27

95.6

9-

29.4

020

.28

21.0

9(0

.81)

-

46VS

NL S

pain

Srl

USD

43.5

511

.64

(47.

74)

70.8

410

6.94

-0.

88(5

.78)

-(5

.78)

-

47VS

NL T

elec

omm

unic

atio

ns(U

K) L

td.

USD

43.5

551

.86

(39.

40)

177.

0516

4.58

-30

.98

74.4

5-

74.4

5-

48VS

NL U

K Lt

dUS

D43

.55

0.00

(27.

62)

11.3

839

.00

-83

.87

(89.

96)

-(8

9.96

)-

49VS

NL(G

erm

any)

GM

BHUS

D43

.55

-5.

5618

.74

13.1

8-

0.09

10.7

7-

10.7

7-

50En

hanc

ed S

ervi

ces

Inc

USD

43.5

5-

--

--

--

--

-

51IT

XC L

td.

USD

43.5

5-

--

--

--

--

-

52IT

XC G

loba

l Hon

gKon

g Lt

d.US

D43

.55

--

--

--

--

--

53IT

XC G

loba

l UK

Ltd.

USD

43.5

5-

--

--

--

--

-

54IT

XC G

loba

l Zag

reb

d.o.

oUS

D43

.55

--

--

--

--

--

Com

pani

es fr

om s

eria

l num

ber 5

0 to

53

are

unde

r liq

uida

tion

and

the

Com

pany

at s

eria

l num

ber 5

4 ha

s be

en li

quid

ated

.

For a

nd b

ehal

f of t

he B

oard

of D

irect

ors

SUBO

DH

BH

ARG

AVA

N. S

RIN

ATH

RAJI

V D

HAR

SATI

SH R

ANAD

ECh

airm

anM

anag

ing

Dire

ctor

and

Chi

ef E

xecu

tive

Offi

cer

Chie

f Fin

anci

al O

ffice

rCo

mpa

ny S

ecre

tary

& C

hief

Leg

al O

ffice

r

MUM

BAI

DATE

D: 2

6 M

ay, 2

007

83

CONSOLIDATED ACCOUNTS2006-07

84



85

AUDITORS’ REPORT ON CONSOLIDATED FINANCIAL STATEMENTS

TO THE BOARD OF DIRECTORS OF VIDESH SANCHAR NIGAM LIMITED

1. We have audited the attached consolidated balancesheet of Videsh Sanchar Nigam Limited (“theCompany”) and its subsidiaries (collectively referred as“the VSNL Group”) as at 31 March, 2007 and also theconsolidated profit and loss account and theconsolidated cash flow statement for the year endedon that date annexed thereto. These financialstatements are the responsibility of the Company’smanagement and have been prepared by themanagement on the basis of separate financialstatements and other financial information regardingcomponents. Our responsibility is to express an opinionon these financial statements based on our audit.

2. We conducted our audit in accordance with theauditing standards generally accepted in India. ThoseStandards require that we plan and perform the auditto obtain reasonable assurance about whether thefinancial statements are free of material misstatement.An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financialstatements. An audit also includes assessing theaccounting principles used and significant estimatesmade by the management, as well as evaluating theoverall financial statement presentation. We believethat our audit provides a reasonable basis for ouropinion.

3. (a) We did not audit the financial statements ofcertain subsidiaries, whose financial statementsreflect total assets of Rs. 4,628.12 crores as at31 March, 2007, total revenues of Rs. 5,225.31crores and net cash outflows amounting toRs. 72.52 crores for the year then ended. Thesefinancial statements and other financialinformation have been audited by other auditorswhose reports have been furnished to us, and ouropinion is based solely on the report of otherauditors.

(b) The financial statements of a subsidiary and a jointventure which represents total assets of Rs. 65.04crores as at 31 March, 2007, total revenues ofRs. 7.18 crores and net cash flows amounting toRs. 2.80 crores for the year then ended have beenincorporated in the consolidated financialstatements on the basis of unaudited financialstatements as provided by the management ofthat subsidiary and joint venture.

4. Subject to our remark in paragraph 3 (b) :

(a) We report that the consolidated financialstatements have been prepared by the Company’smanagement in accordance with therequirements of the Accounting Standard (AS) 21,Consolidated Financial Statements, AccountingStandard (AS) 23, Accounting for Investments inAssociates in Consolidated Financial Statementsand Accounting Standard (AS) 27, FinancialReporting of Interests in Joint Ventures issued bythe Institute of Chartered Accountants of India.

(b) Based on our audit and on consideration of reportsof other auditors on separate financial statementsand on the other financial information of thecomponents, and to the best of our informationand according to the explanations given to us, weare of the opinion that the attached consolidatedfinancial statements give a true and fair view inconformity with the accounting principlesgenerally accepted in India:

(i) in the case of the consolidated balance sheet,of the state of affairs of the VSNL Group as at31 March, 2007;

(ii) in the case of consolidated profit and lossaccount, of the profit for the year ended onthat date; and

(iii) in the case of the consolidated cash flowstatement, of the cash flows for the yearended on that date.


N. VENKATRAMPartner

Membership No. 71387


86



CONSOLIDATED BALANCE SHEET AS AT 31 MARCH, 2007

Schedule As at31 March, 2006

Rs. in crores Rs. in croresFUNDS EMPLOYED:1 SHARE CAPITAL 1 285.00 285.002 RESERVES AND SURPLUS 2 4,967.41 5,115.19

3 TOTAL SHAREHOLDERS’ FUNDS 5,252.41 5,400.194 SECURED LOANS 3 130.08 78.085 UNSECURED LOANS 4 2,381.37 1,890.076 OBLIGATIONS UNDER FINANCE LEASE 56.61 74.537 DEFERRED TAX LIABILITY (NET) 81.12 75.35

(Refer Note B18, Schedule 20)

8 TOTAL FUNDS EMPLOYED 7,901.59 7,518.22

APPLICATION OF FUNDS:9 FIXED ASSETS: 5

(a) Gross Block 8,081.59 7,193.45(b) Less: Accumulated Depreciation/ Amortisation 1,971.49 1,251.58

(c) Net Block 6,110.10 5,941.87(d) Capital work-in-progress 730.04 403.60

6,840.14 6,345.47

10 GOODWILL (ON CONSOLIDATION) 167.41 118.87(Refer Note B8, Schedule 20)

11 INVESTMENTS 6 1,763.60 1,786.2512 DEFERRED TAX ASSET (NET) 4.27 —

(Refer Note B18, Schedule 20)13 CURRENT ASSETS, LOANS AND ADVANCES

A. CURRENT ASSETS(a) Inventories 7 8.16 9.62(b) Sundry Debtors 8 1,664.81 1,499.44(c) Cash and Bank Balances 9 245.40 487.39(d) Other Current Assets 10 143.39 119.65

2,061.76 2,116.10B. LOANS AND ADVANCES 11 1,273.66 1,200.59

3,335.42 3,316.6914 Less: CURRENT LIABILITIES AND PROVISIONS

(A) Current Liabilities 12 3,820.47 3,728.90(B) Provisions 13 388.78 320.16

4,209.25 4,049.06

15 NET CURRENT LIABILITIES [(13) less (14)] (873.83) (732.37)

16 TOTAL ASSETS (NET) 7,901.59 7,518.22



N. VENKATRAM SUBODH BHARGAVA N. SRINATHPartner Chairman Managing Director

& Chief Executive Officer


MUMBAIDATED: 26 May, 2007

87

CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH, 2007Schedule Year ended

31 March, 2006Rs. in crores Rs. in crores

INCOME:1 REVENUES FROM TELECOMMUNICATION SERVICES 8,611.21 4,562.422 OTHER INCOME 14 238.25 203.203 INTEREST INCOME 15 7.14 31.75

4 TOTAL INCOME 8,856.60 4,797.37EXPENDITURE:

5 SALARIES AND RELATED COSTS 16 866.21 379.656 NETWORK COSTS 17 5,242.78 2,580.667 OPERATING AND OTHER EXPENSES 18 1,448.59 966.208 INTEREST EXPENSE 19 143.58 39.849 DEPRECIATION, AMORTISATION AND IMPAIRMENT 783.00 485.65

(Net of transfer from Capital Reserve)

10 TOTAL EXPENDITURE 8,484.16 4,452.00

PROFIT BEFORE TAXES AND EXCEPTIONAL ITEMS 372.44 345.3711 EXCEPTIONAL ITEMS:

(a) Expenditure on Voluntary Retirement Schemes/VoluntarySeparation Schemes (Refer Note B10, Schedule 20) 23.86 —

(b) Restructuring Costs (Refer Note B11, Schedule 20) 59.45 —(c) Provision for recoverable pension obligation — 6.42

(Refer Note B6, Schedule 20)(d) Fixed Assets written off 8.05 61.21

PROFIT BEFORE TAXES 281.08 277.7412 TAXES

(a) CURRENT TAX 255.88 228.26(b) DEFERRED TAX EXPENSE/ (BENEFIT) 17.67 (24.59)(c) FRINGE BENEFIT TAX 5.86 4.27

NET PROFIT BEFORE MINORITY INTEREST 1.67 69.8013 MINORITY INTEREST (Share of Loss) 13.73 —

NET PROFIT 15.40 69.80

14 BALANCE BROUGHT FORWARD FROM PREVIOUS YEAR 808.59 933.0115 AMOUNT AVAILABLE FOR APPROPRIATIONS 823.99 1,002.8116 APPROPRIATIONS :

(a) PROPOSED DIVIDEND (Refer Note B4, Schedule 20) 128.25 128.25(b) TAX ON DIVIDEND 21.80 17.99(c) GENERAL RESERVE 46.86 47.95

BALANCE CARRIED TO BALANCE SHEET 627.08 808.62EARNINGS PER SHARE (EPS)

17 Basic/Diluted earnings per share, excluding exceptionalitems (Rs.) (Refer Note B19, Schedule 20) 2.89 4.02

18 Basic/Diluted earnings per share, including exceptionalitems (Rs.) (Refer Note B19, Schedule 20) 0.54 2.45



N. VENKATRAM SUBODH BHARGAVA N. SRINATHPartner Chairman Managing Director




88



CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH, 2007Year ended

31 March, 2006Rs. in crores Rs. in crores

1 CASH FLOWS FROM OPERATING ACTIVITIESPROFIT BEFORE TAXES AND EXCEPTIONAL ITEMS 372.44 345.37Adjustments for:Depreciation, amortisation and impairment 783.00 485.65Profit on sale of fixed assets (42.74) (3.59)Interest income (7.14) (31.75)Interest expense 143.58 39.84Interest on income tax refunds (6.34) (56.42)Dividend income/profit on sale of current investments (59.44) (48.40)

OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 1,183.36 730.70Inventories 4.68 (2.03)Sundry debtors (178.57) (195.65)Other current assets, loans and advances (73.77) (77.91)Current liabilities and provisions 209.66 417.17

Cash generated from operations before tax and exceptional items 1,145.36 872.28Expenditure on voluntary retirement schemes/voluntary separation schemes (21.11) —Expenditure on restructuring costs (10.01) —

Cash generated from operations before taxes 1,114.24 872.28Income tax (paid)/refunds (293.44) 24.60Interest on income tax refunds 6.34 56.42

NET CASH FROM OPERATING ACTIVITIES 827.14 953.30

2 CASH FLOWS FROM INVESTING ACTIVITIESPurchase of fixed assets (1,365.46) (1,063.15)Business acquisitions, net of cash (74.97) (1,332.65)Purchase of long-term investments — (175.52)Sale/ (Purchase) of current investments (net of mutual funds dividend reinvested) (net) 65.66 (617.75)Proceeds from sale of fixed assets 76.60 12.74Dividend income from current investments 16.38 4.44Fixed deposits (net) 29.73 1,155.58Interest received 9.08 39.94

NET CASH USED IN INVESTING ACTIVITIES (1,242.98) (1,976.37)3 CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from unsecured loans (net) 540.48 0.66(Repayment) of / proceeds from secured loans (net) (12.53) 1,444.45Payments for finance lease (16.15) (4.29)Dividends paid including dividend tax (146.14) (194.97)Interest paid (150.83) (21.81)

CASH FLOW FROM FINANCING ACTIVITIES 214.83 1,224.04

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (201.01) 200.97CASH AND CASH EQUIVALENTS AS AT 1 APRIL, 2006 440.16 239.33(Refer note B17, Schedule 20)Effect of exchange on cash and cash equivalents (18.59) (0.14)

CASH AND CASH EQUIVALENTS AS AT 31 MARCH, 2007 220.56 440.16

(Refer note B17, Schedule 20)

Note : During the year fixed assets amounting to Rs. 64.75 crores were acquired by a Joint Venture from one of the co-veturer’s by utilising a loanwith the said co-venturer which is secured against those assets.


N. VENKATRAM SUBODH BHARGAVA N. SRINATHPartner Chairman Executive Director




89

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEETAs at As at


SCHEDULE - 1SHARE CAPITALAUTHORISED :300,000,000 (2006:300,000,000) Equity Shares of Rs.10 each 300.00 300.00

ISSUED, SUBSCRIBED AND PAID UP285,000,000 (2006: 285,000,000) Equity Shares of Rs.10 each, fully paid up 285.00 285.00

SCHEDULE - 2RESERVES AND SURPLUS(a) Capital Reserve 208.91 205.81(b) Securities Premium 834.88 834.88(c) General Reserve 3,287.80 3,264.22(d) Profit and Loss Account 627.08 808.62

4,958.67 5,113.53(e) Exchange Translation Reserve (net) 8.74 1.66

4,967.41 5,115.19

Notes:1. Depreciation on gifted assets of Rs. 0.63 crores (2006: Rs. 0.18 crores) has been transferred from capital reserve to the

profit and loss account for the year ended 31 March, 20072. Capital reserve includes Rs. 205.22 crores (2006: Rs. 205.22 crores) in respect of foreign exchange gains on unutilised

proceeds from Global Depository Receipts credited to capital reserve in a previous year3. As at 31 March, 2007 Rs. 46.86 crores (2006: Rs. 47.95 crores) has been transferred from the profit and loss account to

general reserve4. Pursuant to the transitional provisions of AS-15 amounts of Rs. 23.28 crores and Rs. 0.03 crores have been debited to

general reserve & profit and loss account respectively.

SCHEDULE - 3SECURED LOANSFrom BanksTerm-Loan from Hongkong and Shanghai Banking Corporation Limited 52.94 60.00(Secured by hypothecation of moveable properties both present and future)Term-Loan from Punjab National Bank (Refer note 1) 13.74 16.72Term-Loan from Everest Bank Limited (Refer note 1) 0.83 0.88Loans against fixed deposits of Joint Venture 0.94 0.48From Others (Refer note 1) 61.63 —

130.08 78.08

Notes:1. Secured against fixed assets of Joint Ventures2. Loans repayable within one year Rs. 10.53 crores (2006: NIL)

SCHEDULE - 4UNSECURED LOANSFrom Banks 2,358.39 1,887.55From Others 22.98 2.52

2,381.37 1,890.07

Note:1. Loans repayable within one year Rs. 200.67 crores (2006: Rs. 906.61 crores)

90



NO

TES:

1La

nd in

clud

es R

s. 1

98.9

9 cr

ores

(20

06: R

s. 6

3.83

cro

res)

und

er le

ase.

Thi

s in

clud

es:

(i)Rs

. 0.2

6 cr

ore

(200

6: R

s. 0.

26 c

rore

) in

res

pect

of

whi

ch c

onve

yanc

e is

not

don

e

(ii)

Leas

ehol

d La

nd in

Srin

agar

in r

espe

ct o

f w

hich

leas

e de

ed is

not

ava

ilabl

e

(iii)

Rs. 1

.21

cror

es (2

006:

Rs.

1.21

cro

res)

in r

espe

ct o

f whi

ch le

ase

agre

emen

t ha

s no

t be

en e

xecu

ted/

reg

iste

red

(iv)

Rs. 0

.16

cror

e (2

006:

Rs.

0.16

cro

re)

iden

tifie

d as

Sur

plus

lan

d.

2G

ross

blo

ck o

f b

uild

ings

incl

ude:

(i)Rs

. 7.7

9 cr

ores

(20

06: R

s. 7.

79 c

rore

s) f

or l

ease

hold

off

ice

spac

e, o

f w

hich

Rs.

1.84

cro

res

(20

06: R

s. 1.

84cr

ores

) pe

rtai

ns t

o as

sets

acq

uire

d on

or

afte

r 31

Mar

ch 2

001.

(ii)

Rs. 0

.44

cror

e (2

006:

Rs.

0.44

cro

re)

bein

g co

st o

f fla

ts in

Co-

oper

ativ

e So

ciet

ies

unde

r fo

rmat

ion.

(iii)

Rs. 3

3.52

cro

res

(200

6: R

s. 33

.52

cror

es)

for

flats

at

Mum

bai a

nd R

s. 1.

00 c

rore

(20

06: R

s. 1.

00 c

rore

) fo

r of

fice

spac

e at

New

Del

hi in

res

pect

of

whi

ch a

gree

men

ts h

ave

not

been

exe

cute

d.

3G

ross

Blo

ck o

f fix

ed a

sset

s in

clud

es in

tere

st c

apita

lised

of

Rs. 1

1.25

cro

res

(200

6: R

s. 0.

45 c

rore

)

4Pl

ant

and

mac

hine

ry in

clud

es t

he n

et b

lock

of

Inde

feas

ible

Rig

hts

of U

se (

IRU

s) f

or d

omes

tic a

nd in

tern

atio

nal

tele

com

mun

icat

ion

circ

uits

Rs.

1,28

5.69

cro

res

(200

6: R

s. 1,

221.

88 c

rore

s)

5D

urin

g th

e ye

ar e

nded

31

Mar

ch 2

007,

the

com

pany

und

erto

ok a

n im

pairm

ent

char

ge o

f Rs.

7.69

cro

res

tow

ards

dist

ribut

ion

right

s.

6Fi

xed

Ass

ets

incl

udes

net

blo

ck o

f Rs

. 41.

26 c

rore

s cl

assi

fied

as a

sset

s w

hich

are

hel

d fo

r sa

le. (

Refe

r N

ote

15,

Sche

dule

20)

7D

epre

ciat

ion

expe

nse

for

the

year

end

ed 3

1 M

arch

, 200

7 is

low

er b

y Rs

. 8.2

5 cr

ores

con

sequ

ent

to c

hang

e in

the

met

hod

of d

epre

ciat

ion

from

Writ

ten

Dow

n Va

lue

to S

trai

ght

Line

Met

hod

in U

TL, N

epal

.

8D

educ

tion

/adj

ustm

ents

for

the

yea

r en

ded

31 M

arch

200

4, i

nclu

des

redu

ctio

n in

cos

t of

gro

ss b

lock

and

corr

espo

ndin

g re

duct

ion

in a

ccum

ulat

ed d

epre

ciat

ion

aggr

egat

ing

Rs. 1

,557

.75

cror

es (

2006

: Rs.

1,55

7.75

cro

res)

and

Rs.

601.

34 c

rore

s (2

006:

Rs.

601.

34 c

rore

s) r

espe

ctiv

ely.

The

net

redu

ctio

n in

car

ryin

g co

st a

ggre

gati

ngRs

. 956

.41

cror

es (

2006

: Rs.

956.

41 c

rore

s) w

as d

ebite

d to

Sec

uriti

es P

rem

ium

Acc

ount

in

acco

rdan

ce w

ith t

hete

rms

of t

he a

ppro

val o

f th

e sh

areh

olde

rs a

nd t

he B

omba

y H

igh

Cour

t.

9Fi

gure

s in

ital

ics

are

for

the

prev

ious

yea

r.

SCH

EDU

LES

FORM

ING

PA

RT O

F TH

E CO

NSO

LID

ATED

BA

LAN

CE S

HEE

TSC

HED

ULE

- 5

— F

IXED

ASS

ETS

(Rs.

in c

rore

s)

SL.

FIX

ED A

SSET

SG

RO

SS B

LOCK

ACC

UM

ULA

TED

DEP

RECI

ATIO

N /

AM

ORT

ISAT

ION

NET

BLO

CK

NO

.1

Ap

ril,

Ad

dit

ions

Ded

ucti

ons/

31 M

arch

,1

Ap

ril,

Dep

reci

atio

n/D

educ

tion

s/31

Mar

ch,

31 M

arch

,31

Mar

ch,

200

6A

dju

stm

ents

200

7 2

006

Am

orti

sati

on/

Ad

just

men

ts20

07 2

007

200

6Im

pai

rmen

tEx

pen

se

1TA

NG

IBLE

FIX

ED A

SSET

S

(a)

LAN

D13

7.14

135.

16–

272.

304.

462.

63–

7.09

265.

2113

2.68

78.

2363

.47

(4.5

6)13

7.14

3.63

0.83

–4.

4613

2.68

74.6

0(b

)LE

ASE

HO

LD I

MPR

OV

EMEN

TS77

.61

5.22

(7.2

1)75

.62

4.79

12.1

4(2

.48)

14.4

561

.17

72.8

2 –

77.6

1–

77.6

1–

4.77

0.02

4.79

72.8

2–

(c)

BU

ILD

ING

377.

940.

51(3

.39)

375.

0641

.52

9.21

(2.1

1)48

.62

326.

4433

6.42

257

.66

120.

31(0

.03)

377.

9433

.04

8.46

0.02

41.5

233

6.42

224.

62(d

)PL

AN

T A

ND

MA

CH

INER

Y5,

497.

4581

8.64

(127

.41)

6,18

8.68

1,00

2.76

543.

26(3

0.37

)1,

515.

654,

673.

034,

494.

69 2

,665

.09

2,99

4.28

(161

.92)

5,49

7.45

686.

3539

5.84

(79.

43)

1,00

2.76

4,49

4.69

1,97

8.74

(e)

FURN

ITU

RE A

ND

FIX

TURE

S59

.89

7.56

(0.1

1)67

.34

18.0

37.

570.

1425

.74

41.6

041

.86

43.

5916

.40

(0.1

0)59

.89

12.4

45.

540.

0518

.03

41.8

631

.15

(f)

OFF

ICE

EQU

IPM

ENT

49.0

78.

99(2

.47)

55.5

912

.67

3.34

(0.9

4)15

.07

40.5

236

.40

36.

6912

.90

(0.5

2)49

.07

10.6

92.

12(0

.14)

12.6

736

.40

26.0

0(g

)CO

MPU

TER

S21

9.56

61.5

9(1

7.35

)26

3.80

106.

9535

.68

(15.

00)

127.

6313

6.17

112.

61 1

53.9

068

.90

(3.2

4)21

9.56

79.4

030

.78

(3.2

3)10

6.95

112.

6174

.50

(h)

MO

TOR

VEH

ICLE

S1.

980.

57(0

.51)

2.04

1.20

0.25

(0.0

9)1.

360.

680.

78 1

.78

0.29

(0.0

9)1.

981.

130.

12(0

.05)

1.20

0.78

0.65

(i)

GO

OD

WIL

L66

1.83

–(1

3.04

)64

8.79

56.2

413

7.07

(1.3

0)19

2.01

456.

7860

5.59

96.

9556

4.88

–66

1.83

21.7

934

.43

0.02

56.2

460

5.59

75.1

6

2IN

TAN

GIB

LE A

SSET

S(a

)SO

FTW

ARE

67.7

640

.36

(1.6

1)10

6.51

2.62

21.5

2(0

.87)

23.2

783

.24

65.1

4 –

67.7

6–

67.7

6–

2.61

0.01

2.62

65.1

4–

(b)

DIS

TRIB

UTI

ON

RIG

HTS

10.6

5–

(10.

65)

–0.

3410

.31

(10.

65)

––

10.3

1 –

10.6

5–

10.6

5–

0.34

–0.

3410

.31

–(c

)LI

CEN

CE

FEES

32.5

70.

80(7

.51)

25.8

6–

0.65

(0.0

5)0.

6025

.26

32.5

7 –

32.5

7–

32.5

7–

––

–32

.57

–

TOTA

L7,

193.

451,

079.

40(1

91.2

6)8,

081.

591,

251.

5878

3.63

(63.

72)

1,97

1.49

6,11

0.10

5,94

1.87

3,3

33.8

94,

030.

02(1

70.4

6)7,

193.

4584

8.47

485.

84(8

2.73

)1,

251.

585,

941.

872,

485.

42

3CA

PITA

L W

ORK

-IN

-PR

OG

RESS

730.

0440

3.60

[incl

udin

g ad

vanc

es f

or c

apita

l exp

endi

ture

Rs. 1

1.98

cro

res

(200

6: R

s. 3.

78 c

rore

s)]

GRA

ND

TO

TAL

6,84

0.14

6,34

5.47

91


Rs. in crores Rs. in croresSCHEDULE - 6INVESTMENTSI. TRADE INVESTMENTS - LONG TERM (At Cost)

A. Fully Paid Equity Shares (Unquoted)(a) Tata Teleservices Ltd. 810.17 810.17

(Refer Note B5, Schedule 20)(b) New ICO Global Communications (Holdings) Limited 0.01 0.01(c) Wmode Inc. 2.47 2.53

812.65 812.71B. Current Investments (Unquoted)

Investments In Mutual Funds 950.95 973.54

1,763.60 1,786.25

SCHEDULE - 7INVENTORIESEquipments for resale 1.85 6.66Less: Provision for obsolescence (0.01) (0.01)

1.84 6.65Consumable stores and spares (at cost) 6.32 2.97

8.16 9.62

SCHEDULE - 8SUNDRY DEBTORS(a) Over six months (unsecured)

Considered good 305.65 309.29Considered doubtful 258.61 218.55

564.26 527.84Less: Provision for doubtful debts (Refer Note B14, Schedule 20) (258.61) (218.55)

305.65 309.29(b) Other debts (unsecured)

Considered good 1,359.16 1,190.15

1,664.81 1,499.44

SCHEDULE - 9CASH AND BANK BALANCES(a) Cash in hand 0.12 0.12(b) Cheques in Hand 33.74 163.92(c) Remittances in transit 9.29 63.03(d) Current accounts with banks 130.32 208.36(e) Deposit accounts with banks 71.93 51.96

245.40 487.39

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET

92




Rs. in crores Rs. in croresSCHEDULE - 10OTHER CURRENT ASSETS(a) Interest receivable 2.44 4.38(b) Service tax recoverable 42.82 30.61(c) Pension contributions recoverable from Government

of India (net of provision of Rs. 53.71 crores; 2006: Rs. 53.71 crores) 7.44 7.44(Refer Note B6, Schedule 20)

(d) Licence fees paid recoverable from Government of India 54.16 53.12(e) Others 36.53 24.10

143.39 119.65

SCHEDULE - 11LOANS AND ADVANCES(a) Unsecured - Considered good

(i) Staff Advances 7.42 12.59(ii) Deposits with public bodies and others 42.09 43.38(iii) Prepaid expenditure 202.99 196.88(iv) Advance payment of tax (net of provision for tax) 934.33 902.90(v) Other loans and advances 86.83 44.84

1,273.66 1,200.59(b) Unsecured - Considered doubtful

Other loans and advances 8.51 7.38Less: Provision for doubtful advances (8.51) (7.38)

1,273.66 1,200.59

SCHEDULE - 12CURRENT LIABILITIES(a) Sundry Creditors:

(i) Creditors for interconnect charges 1,289.07 1,416.48(ii) Others 691.06 814.83

(b) Unearned income and deferred revenues 1,269.64 1,062.71(c) Investor Education and Protection Fund - unpaid dividend 1.28 1.19(d) Government of India current account 20.57 20.57(e) Provision for tax (net of advance taxes) 8.70 8.70(f ) Interest accrued but not due on loans taken from banks 10.79 18.04(g) Other liabilities (note 1) 529.36 386.38

3,820.47 3,728.90

Note:(1) Includes Rs. 11.29 crores overdrawn book bank balance (2006: Rs. 24.91 crores)

SCHEDULE - 13PROVISIONS(a) Provisions for employee benefits 205.24 140.80(b) Provision for proposed dividend 128.25 128.25(c) Tax on dividend 21.80 17.99(d) Provision for contingencies (Refer Note B24, Schedule 20) 33.49 33.12

388.78 320.16

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET

93

SCHEDULES FORMING PART OF THE CONSOLIDATED PROFIT AND LOSS ACCOUNTYear ended Year ended


SCHEDULE-14OTHER INCOME(a) Dividend income from current investments 57.84 40.67(b) Profit on sale of current investments (net) 1.60 7.73(c) Profit on sale of fixed assets (net) (Refer Note B13, Schedule 20) 42.74 3.59(d) Rent 12.35 10.35(e) Exchange gain (net) 5.64 8.90(f ) Provisions no longer required written back 74.44 34.40(g) Interest on income tax refund 6.34 56.42(h) Other 37.30 41.14

238.25 203.20

SCHEDULE-15INTEREST INCOME(a) Interest income-

i. Bank deposits 2.17 30.83(Tax deducted at source Rs. 0.11 crores,2006: Rs. 5.86 crores)

ii. Other loans and advances 4.97 0.92(Tax deducted at source Rs.1.10 crores,2006: Rs. 0.13 crore)

7.14 31.75

SCHEDULE - 16SALARIES AND RELATED COSTS(a) Salaries and bonus 794.02 332.66(b) Contribution to provident, gratuity and other funds 28.32 16.75(c) Staff welfare expenses 43.87 30.24

866.21 379.65

SCHEDULE-17NETWORK COSTS(a) Charges for use of transmission facilities 5,025.22 2,245.56(b) Royalty and licence fee to Department of Telecommunications 115.85 204.84(c) Rent of satellite channels 58.31 88.30(d) Rent of landlines 33.57 30.20(e) Administrative lease charges 9.83 11.76

5,242.78 2,580.66

94



Year Ended Year Ended31 March, 2007 31 March, 2006

Rs. in crores Rs. in croresSCHEDULE - 18OPERATING AND OTHER EXPENSES

(a) Consumption of stores 1.61 1.95

(b) Light and power 95.46 62.34

(c) Repairs and Maintenance:

(i) Buildings 28.25 22.26

(ii) Plant and Machinery 378.21 254.37

(iii) Others 14.80 16.93

(d) Bad Debts written off 42.40 30.03

(e) Provision for doubtful debts/(written back) (Refer Note B14, Schedule 20) 46.41 (5.89)

(f ) Provision for doubtful advances 1.13 —

(g) Rent 183.06 94.26

(h) Rates and taxes 13.58 28.55

(i) Travelling expenses 64.62 38.03

(j) Telephone and telex 29.69 17.01

(k) Printing, postage and stationery 16.97 22.59

(l) Legal and professional fees 147.98 62.55

(m) Advertising and publicity 55.19 116.03

(n) Commissions 38.54 21.24

(o) Insurance 25.00 11.87

(p) Donations 0.96 6.54

(q) Services rendered by third parties 153.14 109.17

(r) Prior period adjustments (net) (Refer Note B14, Schedule 20) 6.78 (10.90)

(s) Other expenses 104.81 67.27

1,448.59 966.20

SCHEDULE - 19INTEREST EXPENSEInterest on:

- Bank Loans 139.43 39.57

- Others 4.15 0.27

143.58 39.84

SCHEDULES FORMING PART OF THE CONSOLIDATED PROFIT AND LOSS ACCOUNT

95

SCHEDULE 20

A. SIGNIFICANT ACCOUNTING POLICIES

1. Basis of preparation

The consolidated financial statements of Videsh Sanchar Nigam Limited (the Company), its subsidiaries and jointventures (“the Group”) are prepared under the historical cost convention, in accordance with the accounting standardsissued by the Institute of Chartered Accountants of India.

Comparative figures do not include the figures of newly acquired and incorporated subsidiaries namely DirectInternet Limited and its subsidiary and VSNL Global Services Ltd. Further the consolidated profit and loss account forthe year ended 31 March, 2006 includes the results of operations of Teleglobe (“TLGB”) and Tyco Global Network(“TGN”) for 46 days and nine-months respectively. Consequently, the corresponding previous year figures are notstrictly comparable with the figures for the year ended and as at 31 March, 2007.

2. Principles of consolidation

The financial statements of the subsidiary companies used in the consolidation are drawn up to the same reportingdate as of the Company.

The consolidated financial statements have been prepared on the following basis:

i) The financial statements of the Company and its subsidiary companies have been combined on a line-by-linebasis by adding together like items of assets, liabilities, income and expenses. Inter-company balances andtransactions, and unrealised profits or losses have been fully eliminated.

ii) The results of subsidiaries acquired during the year are included in the consolidated profit and loss accountfrom the date of acquisition.

iii) The consolidated financial statements include the interest in joint ventures which has been accounted as perthe ‘proportionate consolidation’ method as per Accounting Standard 27-‘Financial Reporting of Interests inJoint Ventures’. Unrealised profits and losses have been eliminated to the extent of the Company’s share in thejoint ventures.

iv) The excess of cost to the Company of its investment in a subsidiary company over its share of the equity of thesubsidiary company at the date on which the investment in the subsidiary company is made is recognized as‘Goodwill’ being an asset in the consolidated financial statements. Alternatively, where the share of equity in thesubsidiary companies as on date of investment, is in excess of cost of investment of the Company, it is recognisedas `Capital Reserve’ and shown under the head `Reserves and Surplus’, in the consolidated financial statements.

v) Minority interest in the net assets of consolidated subsidiaries consists of the amount of equity attributable tothe minority shareholders at the dates on which investments are made by the Company in the subsidiarycompanies and further movements in their share in the equity, subsequent to the dates of investments.

vi) Losses applicable to the minority in excess of the minority’s interest in the subsidiaries equity are allocatedagainst the majority interest except to the extent that the minority has a binding obligation and is able to makean additional investment to cover the losses.

3. Use of estimates

The preparation of financial statements requires the management of the Company to make estimates and assumptionsthat affect the reported balances of assets and liabilities and disclosures relating to the contingent liabilities as atthe date of the financial statements and reported amounts of income and expenses during the period. Examples ofsuch estimates include allocation of purchase price on acquisition, provisions for doubtful debts and advances,employee retirement benefit plans, provision for income taxes, provision for cable restoration, impairment of assets,asset retirement obligation and useful lives of fixed assets.

SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS



96

4. Fixed assets

a) Fixed assets are stated at cost less accumulated depreciation. Cost includes freight, duties, taxes, salaries andemployee benefits directly related to the construction or development of the asset, interest costs incurred tofinance construction and all incidental expenses incurred to bring the assets to their present location andcondition.

b) Fixed assets received as gifts from other Foreign Telecom Administrations/ vendors are capitalised and creditedto capital reserve on the basis of notional cost (cost assessed by customs authorities). Cost includes freight,insurance and customs duty.

c) Intangible assets in the nature of Indefeasible Rights of Use (IRU’s) for international and domestictelecommunication circuits are recorded as fixed assets. IRU agreements transfer substantially all the risks andrewards of ownership.

d) Jointly owned assets are capitalised in proportion to the Company’s ownership interest in such assets.

e) Consideration for purchase of business in excess of the value of net assets acquired is recognised as goodwill.

f ) Internally developed computer software, distribution rights and licence fees have been classified as intangibleassets.

g) Assets acquired pursuant to an agreement for exchange of similar assets are recorded at the net book value ofthe asset given up, with an adjustment for any balancing receipt or payment of cash or other consideration.

5. Depreciation

Depreciation other than on freehold land and capital work-in-progress is charged over the periods set out below soas to write-off the cost of the asset on a straight line basis over the estimate useful lives, at the following rates:

a) Leasehold land Lease period

b) Leasehold improvements Lease period

c) Buildings 1.64% to 4.00%

d) Plant and Machinery

(i) Indefeasible Rights of Use (IRU’s) life of IRU or period of agreement, whichever is lower

(ii) Other plant and machinery 4.75% to 33.33%

e) Furniture and fixtures 6.33% to 25.00%

f ) Office equipment 4.75% to 25.00%

g) Computers 15.83% to 33.33%

h) Motor vehicles 9.50% to 20.00%

i) Goodwill on purchase of business 60 months

j) Intangibles

(i) Internally developed computer software 20.00% to 33.33%

(ii) Distribution rights 25.00%

(iii) License fees 4.00%

6. Leases

Lease arrangements where the risk and rewards incident to ownership of an asset substantially vests with the lessorare classified as operating lease.

Rental income and rental expense on assets given or obtained under operating lease arrangements are recognisedon a straight - line basis over the term of the relevant lease.

The initial direct costs relating to operating leases are recorded as expense as they are incurred.


97

Assets given under finance lease are recognised at an amount equal to the net investment in the lease and thefinance income is based on a constant rate of return on the outstanding net investment.

Assets acquired under lease where the Company has substantially all the risks and rewards of ownership are classifiedas finance lease. Such leases are capitalised at the inception of the lease at lower of the fair value or the presentvalue of the minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid isallocated between the liability and the interest cost so as to obtain a constant periodic rate of interest on theoutstanding liability for each year.

7. Impairment

At each balance sheet date, the Company reviews the carrying amounts of its fixed assets and goodwill included ineach cash generating unit to determine whether there is any indication that those assets suffered an impairmentloss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extentof the impairment loss. Recoverable amount is the higher of an asset’s net selling price and value in use. If therecoverable amount of the cash generating unit is less than the carrying amount of the unit the impairment loss isallocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other asset of theunit pro-rata on the basis of the carrying value of each asset in the unit. An impairment loss recognised for goodwillis not reversed in the subsequent period unless there are changes in external events.

8. Asset Retirement Obligation (“ARO”)

The Company’s ARO relate to the removal of cable systems and switches when they will be retired. Provision isrecognised based on management’s best estimate of the eventual costs that relate to such obligation and is adjustedto the cost of such assets. The estimated costs are based on historical cost information, industry factors and technicalestimates received from consortium members of the cable systems.

9. Investments

Long-term investments are valued at cost less provision for diminution in value. Provision for diminution in the valueis made to recognise a decline, which is other than temporary. Current investments comprising investments inmutual funds are stated at the lower of cost or fair value, determined on an individual investment basis. The acquisitioncost of an investment acquired in exchange, or part exchange, for another asset is determined based on the fairvalue of the asset given up.

10. Inventories

Inventories are valued at the lower of cost and net realisable value. Cost is determined on a weighted average basis.

11. Employee Benefits

(i) Short-term employee benefits

Short-term employee benefits including compensated absences are determined on an undiscounted basis andrecognized over the period of service which entitles the employees to such benefits.

(ii) Post-employment benefit plans

Payments to defined contribution retirement benefit schemes are charged as an expense when employeeshave rendered service entitling them to the contributions.

For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit CreditMethod, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses arerecognised in full in the profit and loss account for the period in which they occur. Past service cost is recognisedimmediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-linebasis over the average period until the benefits become vested.

The retirement benefit obligation recognised in the balance sheet represents the present value of the definedbenefit obligation as adjusted for unrecognised past service cost, and as reduced by the fair value of schemeassets. Any asset resulting from this calculation is limited to past service cost, plus the present value of availablerefunds and reductions in future contributions to the scheme.




98

12. Revenue recognition

a) Revenues from telephony services are recognised at the end of each month based upon minutes of incomingor outgoing traffic completed in such month.

b) Revenues from data services are recognised over the period of arrangement based on contracted fee schedules.

c) Revenues from right to use of fibre capacity provided based on IRU are recognised over the period of sucharrangements.

d) Revenues from internet services are recognised based on usage.

e) Dividend from investments is recognized based on the right to receive payment is established and no significantuncertainty as to measurability or collectibility exists.

f ) Transactions relating to exchange or swapping of capacities, and which results in little or no consideration,represent the exchange of productive assets not held for sale in the ordinary course of business and, as such, donot result in the culmination of the earnings process and hence the Company does not recognize any revenuefor these types of transactions.

g) Transactions with providers of telecommunication services such as buying, selling, swapping and / or exchangeof traffic are accounted for as non-monetary transactions, depending upon the terms of the agreements enteredinto with such telecommunication service providers.

13. Taxation

Current income tax expense comprises taxes on income from operations in India and foreign tax jurisdictions.Income tax payable in India is determined in accordance with the provisions of the Income Tax Act, 1961.Taxexpense relating to overseas operations is determined in accordance with tax laws applicable in countries wheresuch operations are domiciled.

Deferred tax expense or benefit is recognised on timing differences being the difference between taxable incomesand accounting income that originate in one period and are capable of reversal in one or more subsequent periods.Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted orsubstantively enacted by the balance sheet date.

In the event of unabsorbed depreciation and carry forward of losses, deferred tax assets are recognised only to theextent that there is virtual certainty that sufficient taxable income will be available to realise these assets. In othersituations, deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficientfuture taxable income will be available to realise these assets.

Advance taxes and provisions for current income taxes are presented in the balance sheet after off-setting advancetax and income tax provision arising in the same tax jurisdiction and where the Group intends to settle the asset andliability on a net basis.

The Group offsets deferred tax assets and deferred tax liabilities relating to taxes on income levied by the samegoverning tax authorities.

14. Foreign currency transactions

a) Foreign currency transactions are converted at rates of exchange approximating those prevailing at thetransaction date. Foreign currency monetary assets and liabilities are translated at the exchange rate prevailingon the balance sheet date. Exchange differences, other than on foreign currency liabilities to purchase fixedassets from countries outside India are recognised in the profit and loss account. Exchange differences ontranslation of foreign currency liabilities incurred to purchase fixed assets from countries outside India areadjusted in the cost of such assets.

b) Premium or discount on forward contracts is amortised over the life of such contracts and is recognised in theprofit and loss account, except in respect of forward contracts taken for liabilities for fixed assets where suchamortisation is adjusted in the carrying cost of fixed assets. Forward contracts outstanding as at the balance


99

sheet date are stated at exchange rate prevailing at the reporting date and any gains or losses are recognised inthe profit and loss account. Profit or loss arising on cancellation or renewal of forward exchange contract isrecognised in the profit and loss account in the period of such cancellation or renewal, except in case of aforward contract relating to liabilities for purchase of fixed assets from countries outside India, in which casesuch profit or loss is adjusted to the carrying cost of such fixed assets.

c) For the purpose of consolidation of foreign subsidiaries and joint ventures, income and expenses are translatedat average rates and the assets and liabilities are stated at closing rate. The net impact of such change isdisclosed under exchange translation reserve.

15. Derivative financial instruments

The Group enters into foreign exchange forward and option contracts and interest rate swaps to manage it’s exposureon foreign exchange rate risk and interest rate risk globally. Exposures to currency and interest rate risk are monitoredon an ongoing basis and the Group endeavours to keep the net exposure at acceptable levels.

These derivatives are initially recognised at fair value at the date a derivative contract is entered into and aresubsequently re-measured to their fair value at each reporting date. The resulting gain or loss is recognised in profitand loss account immediately.

B. NOTES TO ACCOUNTS

1. Particulars of subsidiaries and joint ventures is as follows:

Country of Incorporation Percentage of voting powerAs at 31 As at 31

March, 2007 March, 2006

Subsidiaries (held directly)VSNL Broadband Ltd. India 100.00 100.00Direct Internet Limited India 100.00 —VSNL Global Services Ltd. India 100.00 —VSNL Lanka Ltd. Sri Lanka 100.00 100.00VSNL America Inc. United States of America 100.00 100.00VSNL International Pte Ltd. Singapore 100.00 100.00(formerly VSNL Singapore Pte. Ltd.)VSNL SNOSPV Pte. Ltd. Singapore 100.00 100.00Subsidiaries (held indirectly)DIL Internet Limited India 100.00 —VSNL Telecommunications(Bermuda) Ltd. Bermuda 100.00 100.00VSNL UK Limited United Kingdom 100.00 100.00VSNL International (Bermuda) Ltd. Bermuda 100.00 100.00(formerly VSNL Bermuda Ltd.)VSNL Netherlands BV Netherlands 100.00 100.00VSNL Hong Kong Ltd. Hong Kong 100.00 100.00ITXC Global Hong Kong Ltd. Hong Kong 100.00 100.00Teleglobe Global Japan YK Japan 100.00 100.00ITXC IP Holdings S.a.r.l Luxembourg 100.00 100.00Teleglobe America Inc. United States of America 100.00 100.00Teleglobe Asia Data Transport Pte. Ltd. Singapore 100.00 100.00Teleglobe Asia Pte. Ltd. Singapore 100.00 100.00Teleglobe Bermuda Ltd. Bermuda 100.00 100.00Teleglobe Canada ULC Canada 100.00 100.00Teleglobe France International S.A.S France 100.00 100.00Teleglobe International Belgium S.P.R.L Belgium 100.00 100.00




100

VSNL International Hong Kong Ltd. Hong Kong 100.00 100.00(formerly Teleglobe International Hongkong Ltd.)Teleglobe International Ltd. United Kingdom 100.00 100.00Teleglobe International Luxembourg S.a.r.l Luxembourg 100.00 100.00VSNL International (Italy) S.r.l Italy 100.00 100.00(formerly Teleglobe Italy S.r.l)Teleglobe Netherlands B.V Netherlands 100.00 100.00Teleglobe Spain Communications S.L Spain 100.00 100.00TLGB International Germany GmbH Germany 100.00 100.00TLGB Luxembourg Holdings S.a.r.l Luxembourg 100.00 100.00TLGB Netherlands Holdings B.V Netherlands 100.00 100.00VSNL (Portugal) Unipessoal Limitada Portugal 100.00 100.00VSNL Belgium BVBA Belgium 100.00 100.00VSNL France SAS France 100.00 100.00VSNL International (Nordics) AS Norway 100.00 100.00VSNL International (Global) Corp. United States of America 100.00 100.00VSNL International (Guam) Llc Guam 100.00 100.00VSNL International (Portugal) Portugal 100.00 100.00Instalacao e Manutencao de Redes LDAVSNL International (US) Inc. United States of America 100.00 100.00VSNL International Australia Pty. Ltd. Australia 100.00 100.00VSNL International GBRM Ltd. Bermuda 100.00 100.00VSNL International (IPCO) LLC United States of America 100.00 100.00VSNL International Puerto Rico Inc. Puerto Rico 100.00 100.00VSNL International(ITXC) Corp. United States of America 100.00 100.00VSNL International(Poland) Sp. Zo.o Poland 100.00 100.00VSNL International (Japan) K.K Japan 100.00 100.00(formerly VSNL Japan K.K)Videsh Sanchar Nigam Spain Srl Spain 100.00 100.00(formerly VSNL Spain Srl)VSNL Telecommunications(UK) Limited United Kingdom 100.00 100.00VSNL (Germany) GmbH Germany 100.00 100.00ITXC (UK) Ltd. United Kingdom 100.00 100.00ITXC Global UK Ltd. United Kingdom 100.00 100.00Enhanced Services Inc. United States of America 100.00 100.00ITXC Global Zagreb d.o.o (liquidated) Croatia — 100.00Joint VenturesUnited Telecom Ltd. Nepal 26.66 26.66SEPCO Communications Pty. Ltd.and it’s subsidiary South Africa 43.16 47.00

2. The contributions of the subsidiaries acquired / formed during the year is as under:

Rs. in croresName of Subsidiary Revenue Net Profit/(Loss) Net Assets

(post acquisition) (post acquisition)

Direct Internet Limited and its subsidiary 42.10 8.31 40.75

VSNL Global Services Ltd. 8.26 0.23 0.73


Country of Incorporation Percentage of voting power

As at 31 As at 31March, 2007 March, 2006

101

3. The Company was incorporated on 19 March, 1986. The Government of India vide its letter No. G 25015/6/86-OCdated 27.3.1986, transferred all the assets and liabilities of the OCS (part of the Department of Telecommunications,Ministry of Communications) as appearing in the Balance Sheet as at 31 March, 1986 to the Company with effectfrom 1 April,1986. As per the letter no. G-25015/6/86-OC dated 23 October, 2001 of Government of India, Departmentof Telecommunications, there was no requirement to register a formal transfer deed or deed of sale in the matter ofsuch transfer of assets.

4. The Board of Directors of the Company recommended a dividend of Rs. 4.5 (2006: Rs. 4.5) per share to its shareholdersfor the year ended 31 March, 2007 based on the financial results of the Company.

5. The Company has an investment of Rs. 810.17 crores in Tata Teleservices Ltd. (“TTSL”) representing an equity interestof 15.61 percent (2006: 16.14 percent) in the issued and paid-up capital of TTSL. TTSL has accumulated losses, whichhave significantly eroded its net worth. In the opinion of the management, having regard to the long gestationperiod inevitable to the nature of its business, there is no permanent diminution in value of the investment.

6. As at 1 April, 2004 proportionate share of pension obligation and payments to erstwhile OCS employees of Rs.54.73crores were recoverable from the Government of India (“the Government”). Pursuant to discussions with theGovernment, the Company had made a provision of Rs. 47.29 crores in the year ended 31 March, 2005, therebyhaving a net amount due from the Government towards its share of pension obligation of Rs. 7.44 crores.

During year ended 31 March, 2006, consequent to an actuarial valuation a further amount of Rs. 6.42 crores, in the opinionof the Company, was due from the Government towards pension obligation. Pending resolution of the matter the Companyhad provided for this additional amount of Rs 6.42 crores during the said year in its profit and loss account.

7. Pursuant to acquisitions of Tyco Global Network (“TGN”) and Teleglobe (“TLGB”), the Company w.e.f. 1 April, 2006adopted Residual Profits Split Method (“RPSM”) for recording transactions under its Transfer Pricing Policy. Thispolicy governs majority of the transactions between the Company and its international subsidiaries. The Company’ssubsidiary in Netherlands is designated as the Central Contracting Party (CCP) and Transfer Pricing Administrator(“TPA”).

8. On 23 June, 2006, the Company completed its acquisition of Direct Internet Limited (“DIL”) and its wholly-ownedsubsidiary, DIL Internet Limited (formerly Primus Telecommunications India Limited).The Company acquired netassets of Rs. 45.93 crores, for a total purchase consideration of Rs. 94.47 crores. Consequently an amount of Rs. 48.54crores has been recognised as goodwill on consolidation.

9. On 6 October, 2006, the Company incorporated a wholly owned subsidiary, VSNL Global Services Limited (“VGSL”) toengage in the business of provision of business process outsourcing services.

10. During the year the Company introduced a Voluntary Retirement Schemes (VRS) / Voluntary Separation Scheme(VSS) exercisable by eligible employees between 29 November, 2006 to 5 January, 2007. The expenditure of Rs. 23.86crores under these schemes has been charged to the profit and loss account.

11. The Company at the time of acquisition of TGN and Teleglobe had identified potential synergies and operatingefficiencies. Consequent to the completion and integration of these entities, the Company announced its plan tooffshore certain part of operations to India. The employees who are currently handling these functions shall beentitled to receive a severance pay in accordance with the scheme announced by the Company.

The Company also implemented a retention program under which certain Teleglobe and TGN employees are requiredto complete a predetermined service period in order to obtain agreed-upon bonuses.

A sum of Rs 59.45 crores has been charged to the profit and loss account towards such severance and retentionprogram schemes.

12. The Board of Directors of the Company at its meeting held on 14 March, 2007, have approved a Scheme ofArrangement (“Scheme”) to hive-off its Retail Business Undertaking to its wholly owned subsidiary, DIL InternetLimited, with effect from 1 March, 2007. The scheme is subject to obtaining necessary approvals, permission andsanctions including approval of the shareholders of the Company in accordance with the requirements of theCompanies Act, 1956. The Company has received “No Objection” from the Bombay Stock Exchange Limited andNational Stock Exchange of India Limited and has filed an application with the Honourable High Court of Judicatureat Bombay seeking its permission for the said hive-off. Pending such approval no effect of the proposed hive off hasbeen considered in these financial statements.




102

13. During the year, profit on sale of fixed asset includes sale of a certain leasehold improvements by an overseassubsidiary in the Group for Rs. 32.66 crores resulting in a gain of Rs. 27.87 crores. In the previous year, profit on saleof fixed asset included sale of a portion of land by an overseas subsidiary in the Group for Rs. 12.05 crores resultingin a gain of Rs. 5.36 crores.

14. The profit and loss account includes prior period expense (net) of Rs. 6.78 crores.(2006: prior period income (net) ofRs. 10.90 crores). These primarily comprise of network cost expenses of Rs 9.73 crores (2006: write back of networkcost expenses of Rs. 18.69 crores) and provisions written back of Rs. 6.35 crores (2006:nil).

15. On 20 October, 2006, the Group committed to a plan to sell a portion of it’s fiber optic network, all related assets,liabilities and contracts to a buyer. As at 31 March, 2007, management expects to sell these assets within a twelvemonth period from the commitment date following a due diligence period. The carrying value of Rs. 61.26 croresand Rs. 69.91 crores pertaining to assets and liabilities associated with the network are stated at the lower of thecarrying value and estimated net realisable value.

16. Employee Benefits:

(A) Domestic

Consequent to the early adoption of Accounting Standard on Employee Benefits (AS-15) effective from 1 April,2006 issued by the Institute of Chartered Accountants of India, the Company has reviewed and revised itsaccounting policy in respect of employee benefits. Consequent upon the change, profit before tax for the yearended 31 March, 2007 is lower by Rs. 10.04 crores. In accordance with the transitional provisions contained inthis accounting standard the difference of Rs. 23.31crores (net of tax of Rs. 11.82 crores) between the liability inrespect of short-term benefits and post- retirement benefits existing on the date of adoption and the liabilitythat would have been recognized at the same date under the previous accounting policy have been adjustedagainst the opening balance in the general reserve and profit and loss account respectively.

Retirement Benefits

(a) Defined Contribution plan

- Provident Fund

The Company makes contribution towards provident fund to a defined contribution retirement benefitplan for qualifying employees. The provident fund is administered by the Trustees of the VSNL EmployeeProvident Fund Trust. Under this scheme, the Company is required to contribute a specified percentage ofpayroll cost to fund the benefits.

On account of provident fund a sum of Rs. 9.12 crores (2006: Rs. 7.10 crores) has been charged to the profitand loss account.

(b) Defined Benefit Plans

- Gratuity

The Company makes annual contributions for Employee’s Gratuity scheme to a fund administered bytrustees covering all eligible employees. The plan provides for lump sum payment to vested employees atretirement, death while in employment or on termination of employment in an amount equivalent to 15days salary payable for each completed year of service or part thereof in excess of six months. Vestingoccurs upon completion of five years of service.

- Medical Benefit

The Company reimburses domiciliary and hospitalisation expenses incurred by eligible and qualifyingemployees and their dependent family members not exceeding certain specified limits under the VSNLemployee’s medical reimbursement scheme. The scheme provides for cashless hospitalisation where theclaims are directly reimbursed by VSNL.

- Pension Plan

The Company’s pension obligation is in respect of certain employees transferred to the Company from theOverseas Communications Service (“OCS”). The plan provides for pension payments to these employees atretirement, death in service or on resignation.


103

During the year the Company purchased a life annuity policy with return of capital of Rs. 36.57 crores froman insurance company to settle the unfunded vested obligation of Rs. 29.11 crores.

The details in respect of funded status and the amounts recognised in the Company’s financial statementas at 31 March, 2007 for these defined benefit schemes are as under:

(i) Changes in the defined benefit obligation:Defined Benefit Plans

Gratuity Medical Benefits Pension(Funded) (Unfunded) (Unfunded)

As at 31 As at 31 As at 31March, 2007 March, 2007 March, 2007Rs. in crores Rs. in crores Rs. in crores

Projected defined benefit obligation,beginning of the year (1 April, 2006) 30.37 25.18 31.00Current Service Cost 2.74 4.02 —Interest Cost 2.13 1.76 —Actuarial (gain) / loss (1.02) 1.49 —Benefits paid (4.80) (3.97) (1.89)Extinguishment of liability on Settlement — — (29.11)Projected benefit obligationat the end of the year 29.42 28.48 —

(ii) Changes in the fair value of plan assets for gratuity:

Particulars As at 31March, 2007

(Funded)Rs. in crores

Fair value of plan assets, beginningof the year (1 April, 2006) 30.37Expected return on plan assets 2.13Employer’s contribution 2.01Actuarial (loss)/ gain 0.32Benefits paid (4.80)

Fair value of plan assets at the end of the year 30.03

(iii) The amounts recognised in the profit and loss account for the year ended 31 March, 2007:

Defined Benefit PlansGratuity Medical Benefits

(Funded) (Unfunded)Year ended 31 Year ended 31

March, 2007 March, 2007Rs. in crores Rs. in crores

Current service cost 2.74 4.02Interest cost 2.13 1.76Expected return on plan assets (2.13) —Net actuarial loss/(gain) recognised in the year (1.34) 1.49

1.40 7.27




104

(iv) The amounts recognized in the Balance sheet is as followsDefined Benefit Plans

Gratuity Medical Benefits(Funded) (Unfunded)

Year ended 31 Year ended 31March, 2007 March, 2007Rs. in crores Rs. in crores

Present value of funded obligations 29.42 —

Fair value of plan assets (30.02) —

Present value of unfunded obligations — 28.48

Net (asset)/liability in balance sheet (0.60) 28.48


Category of assets As at 31March, 2007

GOI/PSU Bonds 94%

Deposits 6%

Total 100%

The Company’s policy and objective for plan assets management is to maximize return on plan assetsto meet future benefit payment requirements while at the same time accepting a low level of risk. Theasset allocation for plan assets is determined based on investment criterion approved under theIncome tax act, 1961 and is also subject to other exposure limitations.

(vi) Principal actuarial assumptions used in accounting for gratuity and medical benefit obligations:

Gratuity Medical Benefits(Funded) (Unfunded)

As at 31 As at 31Assumptions March, 2007 March, 2007

Discount rate 8% 8%Expected return on plan assets 8% —Increase in compensation cost 6% 6%Health care cost increase rate — 2%

The estimates of future compensation cost considered in actuarial valuation take account of inflation,seniority, promotion and other relevant factors.

(vii) Effect of change in Assumed Health Care Cost Trend Rate. A one-percentage-point change in assumedhealth care cost trend rates would have the following effects:



Effect on service cost 3.69 4.07

Effect on interest cost 1.84 1.52

Effect on post-employment benefit obligation 25.99 28.84

The Company expects to contribute Rs. 1.62 crores to its funded defined benefit plans in 2007-2008.


105

(B) International

(a) Defined Contribution plans

The Group makes contribution to defined contribution retirment benefit plans under the provisions ofSection 401(k) of the Internal Revenue Code for U.S.A. employees, a Registered Retirement Savings Plan(“RRSP”) for Canadian employees and a Group Stakeholder Pension Plan (“GSPP”) for U.K. employees. Anamount of Rs. 8.14 crores (2006: Rs. 1.27 crores) is charged to the profit and loss account for the year ended31 March, 2007.

(b) Defined Benefit Pension Plans

Pension

On 13 February, 2006 the Group assumed Teleglobe’s contributory and non-contributory defined benefitpension plans covering certain of its Canadian employees, designed in accordance with conditions andpractices in Canada.

In addition, the Group assumed Teleglobe’s unfunded Supplemental Employee Retirement Plan (“SERP”)maintained for certain senior Canadian executives as part of the acquisition closed on 13 February, 2006.

Health and Life insurance

The Group also assumed a post-retirement health care and life insurance plan for its current retirees andfuture retirees in the purchase of Teleglobe.

The details in respect of funded status and amounts recognised in the Group’s financial statements as at 31March, 2007 for these defined benefit schems are as under:

(i) Changes in the defined benefit obligation:

Pension Plans Health careand Life

insurancePlans

Non-Contributory contributory SERP

As at 31 As at 31 As at 31 As at 31March, 2007 March, 2007 March, 2007 March, 2007Rs. in crores Rs. in crores Rs. in crores Rs. in crores

Projected defined benefit obligation,beginning of the year (1 April, 2006) 333.87 297.32 6.74 8.78

Current Service cost 3.38 11.44 0.35 0.11

Interest cost 18.74 17.11 0.40 0.49

Benefits paid (14.47) (14.42) — (0.56)

Actuarial loss 10.53 13.01 1.21 0.06

Effect of foreign exchange rate changes 3.71 3.10 (0.03) 0.10

Projected benefit obligation at theend of the year 355.76 327.56 8.67 8.98




106

(ii) Changes in the fair value of plan assets for pension plans:

Pension PlansNon-

Contributory contributoryAs at 31 As at 31

March, 2007 March, 2007Rs. in crores Rs. in crores

Fair value of plan assets, beginningof the year (1 April, 2006) 423.37 285.05Actual return on plan assets 27.92 19.44Contributions — 24.32Benefits paid (14.47) (14.42)Actuarial gain 5.23 4.31Effect of foreign exchange rate changes 4.79 2.94

Fair value of plan assets, endof the year 446.84 321.64

(iii) The components of expense recognised in the profit and loss account for the year ended31 March, 2007:

Year ended 31March, 2007Rs. in crores

Current service cost 15.28Interest cost 36.74Actual return on plan assets (47.36)Net actuarial loss recognised in the year 9.35Effect of foreign exchang rates changes (net) (0.08)

13.93

(iv) The amounts recognised in the Balance sheet is as follows:

Pension Plans Health careand Life

insurancePlans

Non-Contributory contributory SERP

Year ended Year ended Year ended Year ended31 March, 31 March, 31 March, 31 March,

2007 2007 2007 2007Rs. in crores Rs. in crores Rs. in crores Rs. in crores

Present value of funded obligations 355.76 327.56 — —

Fair value of plan assets (446.84) (321.64) — —

Present value of unfunded obligations — — 8.67 8.98

Net (asset)/liability in balance sheet (91.08) 5.92 8.67 8.98


107


Category of assets As at 31March, 2007

GOI/PSU Bonds 74%

Equity securities 21%

Short term investments 5%

Total 100%

The Group uses an active management style to manage short-term securities, Canadian equities andinternational equities. Canadian bonds, U.S. equities and the asset mix are managed passively. Toaccomplish this, the Group has entrusted this task to a professional investment manager. Themanagement mandate defines the targeted asset allocation and the parameters for evaluating themanager performance.

(vi) The assumptions used for the pension plans and the other benefit plans on a weighted-average basisare as follows:

Assumptions As at 31March, 2007

Discount rate used for benefit costs 5.55%Discount rate used for benefit obligations 5.25%Expected long-term return on plan assets 6.50%Inflation 2.50%Rate of compensation increase 3.50%

(vii) The health care cost trend rate has a significant effect on the amounts reported. The assumed healthcare trend rate used to determine the accumulated post-retirement benefit obligation calculated as at31 March, 2007 is 10.15%. A one-percentage-point change in assumed health care cost trend rateswould have the following effects:



Effect on service cost 0.03 0.02

Effect on interest cost 0.03 0.03

Effect on post-employment benefit obligation 0.64 0.57

The Group expects to contribute Rs. 23.22 crores to its defined benefit plans in 2007-2008.




108

17. Cash and cash equivalents represent:-As at As at


Cash and Cheques on hand and balances held with banks 164.18 372.40Remittances in transit 9.29 63.03Deposit accounts held with banks 71.93 51.96

245.40 487.39

Deposits with original maturity over three months (3.77) (33.50)Current Account / Deposits held for unpaid dividends (1.27) (1.18)Deposit accounts held as margin money (19.80) (12.55)

Cash and cash equivalents 220.56 440.16

18. Deferred tax liability:



Deferred tax liabilityDifference between accounting and tax depreciation 274.87 181.88Others 0.96 —

275.83 181.88

Deferred tax assetsUnearned income / deferred revenues 79.90 18.18Provision for doubtful debts 54.84 42.07Expenditure incurred on NLD license fees 24.80 26.57Expenditure on voluntary retirement schemes 13.36 13.86Provision for post-employment medical benefits 8.48 —Others 17.60 5.85

198.98 106.53

Net deferred tax liability 76.85 75.35

19. Earnings per ShareRs. in crores,

except Number of Sharesand Earnings per share data


Profit before taxes and exceptional items 372.44 345.37

Income tax expense on profit excluding exceptional items 290.15 230.70

Profit after tax excluding exceptional items 82.29 114.67Exceptional expense (91.36) (67.63)Income tax benefit on exceptional items 10.74 22.76Minority Interest 13.73 —

Net Profit after tax and exceptional items 15.40 69.80

Number of Shares 285,000,000 285,000,000Earnings per share excluding exceptional items Rs. 2.89 Rs. 4.02Earnings per share including exceptional items Rs. 0.54 Rs. 2.45


109

20. Segment Reporting:

a) Business Segments

The reportable segments for the year ended 31 March, 2007 and 31 March, 2006 are “Wholesale Voice”, “Enterpriseand Carrier Data” and “Others” . The composition of the reportable segments is as follows:

- Wholesale Voice: includes International and National Voice services.

- Enterprise and Carrier Data: includes corporate data transmission services like International Private LeasedCircuits (IPLC), Frame Relay (FR), Internet Leased Line Circuits (ILL) and National Private Leased Circuits (NPLC).

- Others: includes Internet, TV up-linking, Transponder lease and other services.



Revenues 5,648.99 1,969.58 992.64 8,611.21

Segment Results 880.65 1,708.09 792.21 3,380.95

Unallocable expenses (net) 3,008.51


Exceptional Items 91.36


Tax expense 279.41


Minority interest – (Share of Loss) 13.73

Net Profit 15.40



Revenues 2,615.24 1,470.75 476.43 4,562.42

Segment Results 602.98 1,162.65 244.16 2,009.79

Unallocable expenses (net) 1,664.42


Exceptional Items 67.63


Tax expenses 207.94


i) Revenues and expenses, which are directly identifiable to segments, are attributed to the relevant segment.Expenses on rent of satellite channels and landlines, and royalty and license fee are allocated on the basis ofusage. Expenses on Leased Circuits acquired for Backbone and Access is allocated on the basis of revenue.Segment result is segment revenues less segment expenses. Certain costs, including depreciation which are notallocable to segments have been classified as “unallocable expense”.




110

ii) Telecommunication services are provided utilizing the Company’s assets which do not generally make adistinction between the types of services. As a result, fixed assets are used interchangeably between segments.In the absence of a meaningful basis to allocate assets and liabilities between segments, no allocation has beenmade.

b) Geographical Segment:

Segment revenues by Geographical Market



India 2,388.57 India 2,127.24

United States of America 1,871.59 United States of America 719.71

United Kingdom 734.69 United Kingdom 345.98

Canada 430.68 United Arab Emirates 260.78

Saudi Arabia 240.67 Others 1,108.71

United Arab Emirates 239.88

Netherlands 229.81

HongKong 167.60

Singapore 162.62

Others 2,145.10

8,611.21 4,562.42

21. Related Party Disclosures

(a) List of related parties and relationship:

I. Investing party

• Panatone Finvest Limited

II. Key Managerial Personnel

• N.Srinath - Managing Director and Chief Executive Officer

• Vinod Kumar - Managing Director (VSNL International Pte. Ltd.) and Director of VSNL

III. Joint Ventures

• United Telecom Ltd.

• SEPCO Communications Pty. Ltd.

• Neotel(Pty)Ltd. – subsidiary of SEPCO

IV. Company owned by Managing Director of subsidiary

• Panther Technology Partners Pvt. Ltd.


111

(b) Related party transactionsInvesting Key Company Joint TotalCompany Managerial owned by Venture

Personnel ManagingDirector

of subsidiaryTransactions

Dividend PaidPanatone Finvest Limited 52.08 — — — 52.08

69.44 — — — 69.44

Total 52.08 — — — 52.0869.44 — — — 69.44

Revenues fromTelecommunication servicesUnited Telecom Limited — — — 2.99 2.99

— — — 1.46 1.46Neotel(Pty) Ltd — — — 4.68 4.68

— — — — —

Total — — — 7.67 7.67— — — 1.46 1.46

Network CostUnited Telecom Limited — — — 12.33 12.33

— — — 0.73 0.73Neotel(Pty) Ltd — — — 2.12 2.12

— — — — —

Total — — — 14.45 14.45— — — 0.73 0.73

Services renderedNeotel (Pty) Ltd. — — — 0.88 0.88

— — — — —

Total — — — 0.88 0.88— — — — —

Interest IncomeSEPCO Communications Pty. Ltd. — — — 0.14 0.14

— — — — —

Total — — — 0.14 0.14— — — — —

Loan givenSEPCO Communications Pty. Ltd. — — — 7.72 7.72

— — — 0.97 0.97Total — — — 7.72 7.72

— — — 0.97 0.97

Advances given by the CompanyNeotel (Pty) Ltd — — — 1.72 1.72

— — — 1.78 1.78

Total — — — 1.72 1.72— — — 1.78 1.78

Managerial Remuneration — 2.59 — — 2.59— 2.33 — — 2.33

Total — 2.59 — — 2.59— 2.33 — — 2.33




112

Commission — — 3.51 — 3.51— — 5.66 — 5.66

Total — — 3.51 — 3.51— — 5.66 — 5.66

BalancesReceivablesUnited Telecom Limited — — — 0.36 0.36

— — — 1.18 1.18Neotel (Pty) Ltd. — — — 3.60 3.60

— — — — —SEPCO Communications Pty Ltd — — — 0.14 0.14

— — — — —Total — — — 4.10 4.10

— — — 1.18 1.18Provision for doubtful receivables

United Telecom Limited — — — — —— — — 1.03 1.03

Total — — — — —— — — 1.03 1.03

Bad Debts written back

United Telecom Limited — — — 1.03 1.03— — — — —

Total — — — 1.03 1.03— — — — —

PayablesManagerial Remuneration — 0.50 — — 0.50

— 0.33 — — 0.33Commission — — 2.72 — 2.72

— — 5.69 — 5.69United Telecom Limited — — — 3.41 3.41

— — — — —Total — 0.50 2.72 3.41 6.63

— 0.33 5.69 — 6.02

Loans GivenSEPCO Communications Pty Ltd — — — 8.43 8.43

— — — 0.97 0.97

Total — — — 8.43 8.43— — — 0.97 0.97

Advance ReceivableNeotel(Pty)Ltd — — — 3.87 3.87

— — — 1.78 1.78

Total — — — 3.87 3.87— — — 1.78 1.78

Notes:

1) Figures in italic are in respect of the previous year2) The un-eliminated portion of transactions and balances with joint ventures have been disclosed for purpose

of related party disclosures.


Investing Key Company Joint TotalCompany Managerial owned by Venture

Personnel ManagingDirector

of subsidiary

113

22. Operating lease arrangements:

(a) As lessee:Year ended Year ended


Minimum lease payments under operatingleases recognized as expense in the year 292.98 193.35

At the balance sheet date, minimum lease paymentsunder non- cancellable operating leases fall due as follows:



Due not later than one year 221.93 267.31Due later than one year but not later than five years 600.20 666.89Later than five years 538.86 649.87

1,360.99 1,584.07

Operating lease payments represent rentals payable by the Company for certain buildings, satellite channels,office equipments, computer equipments and certain circuit capacities.

The minimum future lease payments have not been reduced by minimum operating sublease rentals ofRs. 35.86 crores (2006: Rs 19.20 crores) due in the future under non-cancellable subleases for certain buildings,which primarily commenced in January 2002 and extend until 31 July, 2011. Rs. 8.60 crores (2006: Rs. 3.60 crores)was recognised in the current year as minimum sublease rental against the same.

(b) As lessor:

(i) The Company has leased under operating lease arrangements certain IRU’s with gross carrying amountand accumulated depreciation of Rs. 84.05 crores (2006: Rs. 87.42 crores) and Rs. 11.26 crores (2006: Rs. 5.78crores) respectively as at 31 March, 2007. Depreciation expense of Rs. 5.49 crores (2006: Rs. 4.33 crores) inrespect of these assets has been recognised in the profit and loss account for the year ended 31 March, 2007.

In respect of the above, rental income of Rs. 7.02 crores (2006: Rs. 4.25 crores) has been recognised in theprofit and loss account for the year ended 31 March, 2007.

Future lease rental receipts will be recognised in the profit and loss account of subsequent years as follows:




90.58 98.54




114

(ii) The Company has leased certain premises under operating lease arrangements. Future lease rental incomein respect of these leases will be recognised in the profit and loss account of subsequent years as follows:




1.25 5.96

Lease rental income of Rs. 4.09 crores (2006: Rs. 6.48 crores) in respect of the above leases have beenrecognised in the profit and loss account for the year ended 31 March, 2007.

23. Finance Lease arrangements:

(a) As Lessee

As on 31 March,2007, assets under finance leases with gross carrying amount and accumulated depreciation ofRs. 33.43 crores (2006: Rs. 28.36 crores) and Rs. 9.26 crores (2006: Rs.0.91 crores) respectively, are included in thetotal fixed assets. The net carrying amount of each class of asset under finance leases is as follows:

Gross carrying Accumulated Net carryingamount Depreciation amount

As at 31 March, As at 31 March, As at 31 March,

2007 2006 2007 2006 2007 2006Rs.in crores Rs.in crores Rs.in crores

Building 1.84 1.84 0.10 0.07 1.74 1.77Plant and Machinery 22.26 16.96 6.62 0.55 15.64 16.41Furniture and Fixtures 4.12 4.22 0.47 0.05 3.65 4.17Computers 5.21 5.34 2.07 0.24 3.14 5.10

33.43 28.36 9.26 0.91 24.17 27.45

Minimum lease payments and the corresponding present value are as follows:

Minimum lease Present Value of Difference representingpayments (“MLP”) MLP Interest

Year ended 31 March, Year ended 31 March, Year ended 31 March,

2007 2006 2007 2006 2007 2006Rs.in crores Rs.in crores Rs.in crores

Not later than one year 10.09 16.50 9.25 14.89 0.84 1.61

Later than one year but notlater than five years 6.21 16.49 5.97 15.39 0.24 1.10

Later than five years — — — — — —

16.30 32.99 15.22 30.28 1.08 2.71


115

24. Provision for Contingencies:ARO Others Total

Rs. in crores Rs. in crores Rs. in crores

Balance as on 1 April, 2006 20.54 12.58 33.12

Provision made during the year 6.14 — 6.14

Obligations settled during the year (5.77) — (5.77)

Balance as on 31 March, 2007 20.91 12.58 33.49

Notes:

1) Provision for ARO has been recorded in the books of the Group in respect of undersea cables and switchesowned by the Group.

2) Others include amounts provided towards claims made by creditors of the Group.

25. Contingent Liabilities and Capital Commitments

Contingent Liabilities:As at As at


i. Claims for taxes on income (Refer Note 1 )

(a) Income tax disputes where the department isin appeal against the Company 198.47 193.55

(b) Income tax disputes where the Company has afavourable decision in other assessment year for the same issue 6.52 7.82

(c) Income tax disputes other than the above 1,655.30 925.77

ii. Claims for other taxes 6.15 21.20

iii. Other claims 540.99 397.45

Notes:

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

(a) expenditure on licence fees for the Assessment Year 1995-96 disallowed by the revenue authorities. The Company’sappeal was allowed at the Tribunal stage, and the matter is now pending before the High Court. The Companyhas obtained favourable decisions in other assessment years, which have not been contested by the revenueauthorities, and the Company is of the view that the claims will eventually be decided in its favour.

(b) deductions claimed under Section 80 IA of the Income Tax Act, 1961 from Assessment years 1996-97onwards have been disallowed by the revenue authorities. The Company has contested the disallowanceand has preferred appeals.

(c) reimbursement by the Department of Telecommunications (DoT) of income tax paid by the Company onthe DoT levy during 1994-95, that was taxed by the revenue authorities. The Commissioner of Income Tax(Appeals) has upheld the disallowance. The Company is in appeal with the Income Tax Appellate Tribunal.

(2) A claim of Rs.6,691.50 crores (US $ 1,500 million) was made against the Company by a former strategic businessalliance associate, for breach of contract relating to access and sale of bandwidth capacity on the Company’sTGN network, acquired during year ended 31 March, 2006. The claim was made in the US Federal District Courtfor the Southern District of New York. The Company has filed its reply to the complaint denying all liability andbelieves that the probability of the claim succeeding is remote.




116

(3) In May 2006, an Arbitration Tribunal of the International Chamber of Commerce (ICC), International Court ofArbitration issued a ruling on certain issues in a matter initiated by FLAG Telecom Group Limited (FLAG) inDecember 2004. The matter concerned the interpretation of certain provisions of the Construction andMaintenance Agreement (C&MA) governing the FLAG Europe Asia (FEA) cable system to which FLAG and theCompany and various other parties are signatories. The Arbitration Tribunal by a majority decision ordered theCompany to grant FLAG access to the Mumbai cable landing station of the FEA cable system for the purposes ofinstallation, inspection, testing, training and other functions so as to equip capacity of the FEA cable system toany level. The Arbitration Tribunal further declared that the Company is entitled to such terms and conditionspursuant to the C&MA to enable FLAG to lease assignable capacity in the FEA to International Telecom Entities(ITEs) as are reasonable under all the circumstances.

In September 2006, the Company filed a Writ in the Netherland’s court to seek to set aside the award of the ICC,International Court of Arbitration. Those proceedings are ongoing.

During February 2007, consequent to the order by the Arbitration Tribunal to grant access to FLAG, the Companyhas raised an invoice of Rs 22.89 crores (US $ 5 million) on FLAG for capacity access charges. Considering theuncertainty regarding the final pricing for access, which will be decided by the ICC Tribunal in a further pendingaward, the Company has prudently not recognized the revenue for the invoice sent in the current year.

During February 2007, the Company was in receipt of a communication from FLAG to the Arbitration Tribunal ofthe ICC seeking monetary relief of about Rs. 1,768.13 crores ( US $ 406 million ) plus interest in the Arbitration inrelation to the aforesaid dispute.

In view of the Company the said claim is not tenable and it has submitted a detailed response to the ArbitrationTribunal. Further submissions will be made in writing by both parties prior to an oral hearing on FLAG’s claim.

(4) As part of its normal ongoing review of ITXC Corp.’s (“ITXC”) operations in connection with the post-mergerintegration of Teleglobe, a predecessor in interest to VSNL Telecommunications (Bermuda) Ltd, and ITXC , Teleglobehad identified potential instances of noncompliance with the United States Foreign Corrupt Practices Act (“FCPA”)relating to ITXC’s operations in certain African countries prior to its merger with Teleglobe, consummated on 31May, 2004. Teleglobe voluntarily notified the SEC and the U.S. Department of Justice (the “DOJ”) of the matter,and the Company has been cooperating fully with the SEC and the DOJ. The SEC had previously advise Teleglobethat it was conducting an informal inquiry into the matter. Teleglobe has been informed that the SEC issued aformal order of investigation on 15 February, 2005 concerning ITXC’s possible violations of the FCPA and possiblerelated violations of the securities laws. On 27 July, 2005, the SEC issued a subpoena to Teleglobe for documentsrelating to its investigation. The Company cannot predict the extent to which the SEC, the DOJ or any othergovernmental authorities will pursue administrative, civil or criminal proceedings, the imposition of fines orpenalties or other remedies or sanctions. The Company has not identified, and does not believe it is likely that,any material adjustment to its financial statements is or will be required in connection with the results of thisinvestigation, although it is possible that a monetary penalty, if any, may be material to its results of operationsin the period in which it is imposed.

(5) On 30 June, 2005 the Company acquired from Tyco Global Networks Ltd. (“TGN”) all of the assets and liabilitiesrelating to the Tyco Global Network . As part of this acquisition, the Company assumed the performance ofnumber of agreements, including several agreements previously entered into between TGN and C2C Pte. Ltd.(“C2C”). These agreements were entered into between TGN and C2C in an attempt to settle an outstandingdispute between the parties in respect of TGN’s construction of cable of system for C2C. One set of agreementrelates to C2C’s acquisition of right from TGN to use upto 200 Gigabytes (“GB”) of capacity on TGN’s PacificNetwork (“TGN Capacity Agreement”). Although TGN has previously delivered 80GB of the 200GB of capacity toC2C, C2C is currently only using 10GB of this capacity. Recently , the Company received numbers of letters fromC2C regarding their inability to access the remaining portion of their 80GB of capacity on TGN’s Pacific Network.On 5 April, 2007, C2C issued a notice of default to the Company pursuant to the terms of the TGN CapacityAgreement. Based on the period of dispute specified in the TGN Capacity Agreement, either party is entitled toinstitute arbitration proceedings. However, the Company‘s management is currently engaged in discussionswith C2C in an attempt to amicably resolve any claims C2C may have against the Company.


117

(6) The subsidiaries of the Company in various geographies are routinely party to suits for collection, commercialdisputes, claims from customers and/or suppliers over reconciliation of payments for voice minutes, circuits,internet bandwidth and/or access to the public switched telephone network, leased equipment, and claimsfrom estates of bankrupt companies alleging that the Company and / or its subsidiaries received preferentialpayments from such companies prior to their bankruptcy filings. While management currently believes thatresolving such suits and claims, individually or in aggregate, will not have a material adverse impact on theCompany’s consolidated financial position, the FCPA investigation noted above is subject to inherent uncertaintiesand management’s view of this matter may change in the future. Were an unfavorable final outcome to occur,such an outcome could have a material adverse impact on the Company’s consolidated financial position andresults of operations for the period in which the effect becomes reasonably estimable.

Capital commitments :

Estimated amount of contracts remaining to be executed on capital account and not provided for Rs. 917.13crores (2006: Rs. 127.49 crores).

26. UTL is a Joint Venture between the Company, Mahanagar Telephone Nigam Limited, Telecommunications ConsultantIndia Limited and Nepal Ventures Private Limited. The Company has 26.66 percent equity ownership in UTL. UTLoperates basic telephony services in Nepal based on Wireless-in-local loop technology.

The Company’s share in income, expenses, assets and liabilities based on the uniform accounting policy adopted bythe Company and after inter-company eliminations for the year ended 31 March, 2007 and 31 March, 2006 are asfollows:


LIABILITIES: Rs. in crores Rs. in crores1 Reserves and Surplus (20.11) (16.48)2 Secured Loan 14.57 17.603 Unsecured Loan 4.00 5.38

ASSETS4 Fixed Assets

(a) Gross Block 29.32 29.46(b) Less: Accumulated Depreciation 9.87 15.31

(c) Net Block 19.45 14.15(d) Capital work-in-progress 0.59 —

20.04 14.155 A. Current Assets

(a) Inventories 1.80 5.04(b) Sundry Debtors 5.39 4.91(c) Cash and Bank Balances 6.35 3.55(d) Other Current Assets 5.48 1.90

19.02 15.40B. Loans And Advances 1.70 1.89

20.72 17.296 Less: Current Liabilities 11.30 1.45

7 Net Current assets 9.42 15.84




118


INCOME Rs. in crores Rs. in crores1 Traffic Revenue 4.21 6.762 Other Income 0.04 —3 Interest Income 0.07 0.16

Total Income 4.32 6.92

EXPENDITURE3 Salaries and Related Costs 0.36 0.244 Network Costs 2.94 2.355 Operating and Other Expenses 7.62 5.106 Interest Expense 2.46 1.787 Depreciation (5.31) 5.21

Total Expenditure 8.07 14.68


27. As at 31 March, 2007, the Company through it’s wholly owned subsidiary, VSNL SNOSPV Pte. Ltd., has 43.16 percent(2006: 47.00 percent) ownership in the issued and paid-up share capital of SEPCO Communications (Pty) Ltd.

SEPCO is an investment company which has acquired 51 percent controlling stake in the issued and paid-up sharecapital of Neotel (Pty.)Ltd, the licensed second network operator in South Africa.

The Company’s share in income, expenses, assets and liabilities based on the uniform accounting policy adopted by theCompany and after inter-company eliminations for the year ended 31 March, 2007 and 31 March,2006 are as follows:


LIABILITIES: Rs. in crores Rs. in crores1 Reserves and Surplus (9.71) (2.94)2 Secured Loan 61.63 —3 Unsecured Loan 23.02 2.52

ASSETS4 Fixed Assets

(a) Gross Block 95.13 32.57(b) Less: Accumulated Depreciation 1.75 —

(c) Net Block 93.38 32.57(d) Capital work-in-progress 6.98 —

100.36 32.575 A. Current Assets

(a) Sundry Debtors 2.38 —(b) Cash and Bank Balances 16.34 2.46(c) Other Current Assets 8.44 —

27.16 2.46B. Loans And Advances 0.20 0.19

27.36 2.656 Less: Current Liabilities and provisions

(a) Current Liabilities 36.66 33.23(b) Provisions 2.30 —

38.96 33.23

7 Net Current Liabilities (11.60) (30.58)


119



Rs. in crores Rs. in croresINCOME

1 Traffic Revenue 4.65 —2 Interest Income 0.92 0.08

Total Income 5.57 0.08

EXPENDITURE3 Salaries and Related Costs 9.62 0.174 Network Cost 2.97 —5 Operating and Other Expenses 9.71 2.766 Interest Expenses 3.43 —7 Depreciation 1.89 —

Total Expenditure 27.62 2.93


28. Previous year’s figures have been regrouped and reclassified wherever necessary.



120

FINANCIAL RATIOS

2002-2003 2003-2004 2004-05 2005-06 2006-07

Profitability ratios

EBIDTA Margin 25.13 16.29 23.28 23.16 23.02

Cash Profit Margin 19.26 16.30 29.33 20.92 20.21

Net Profit Margin 16.21 11.20 22.18 11.96 11.01

Return on Average Capital Employed 15.29 9.00 19.73 11.71 12.42

Return on Net Worth 14.73 7.05 13.88 8.14 7.54

Total Expenditure/Total Income 73.93 83.62 81.45 81.19 82.50

Figures are in %

BUSINESS CHARCTERISTICS

Debt to Equity Ratio 0.06 0.01 - 0.02 0.03

Tax rate (%) 37.81 30.48 28.24 30.17 34.25

Revenue to Capital Ratio 0.77 0.64 0.59 0.64 0.64

Income/Debtors ratio 5.76 7.19 5.42 5.13 4.23

Income/Avg Assets Ratio 1.56 1.12 1.19 1.04 0.93

Net Working Capital as part of TCE % 61 37 39 15.81 11.86

Current Ratio 3.37 1.77 1.99 1.32 1.25

Quick Ratio 3.37 1.77 1.99 1.32 1.25

Cash and Equivalents/Total Assets Ratio 37.89 19.99 24.18 4.12 1.57

Depreciation/Gross Block % 4.46 7.31 7.67 8.77 8.54

GROWTH(% OVER PRECEDING YEARS)

Growth in Turnover (32.33) (29.95) 1.17 17.57 6.09

Growth in FE Earnings (31.79) (51.45) 41.06 (11.08) 2.75

Growth in PBIDT (excl other income) (29.81) (54.81) 49.22 13.88 6.25

Growth in PAT (44.57) (51.59) 100.28 (36.60) (2.29)

Growth in Cash Profit (39.74) (40.72) 82.09 (16.14) 2.50

PER SHARE DATA

Earnings (Rs.) 27.37 13.25 26.54 16.83 16.44

Dividend % 85 45 60 45 45

Book Value (Rs.) 194.75 181.30 200.98 212.67 223.14

P/E (as of Year End) 2.67 15.46 7.05 27.38 24.47

121

Mr. Subodh Bhargava

Born in Agra in 1942, Mr. Subodh Bhargava holds a degreein Mechanical Engineering from the University of Roorkee.He started his career with Balmer Lawrie & Co., Kolkatabefore joining the Eicher group of companies in Delhi in1975. On March 31, 2000, he retired as the group chairmanand chief executive and is now the chairman emeritus,Eicher group.

He is the past President of the Confederation of IndianIndustry (CII) and the Association of Indian AutomobileManufacturers; and the Vice President of the TractorManufacturers Association. Over several years, he wastherefore a key spokesperson for Indian industry,contributing to and influencing government policy whilesimultaneously working with industry to evolve newresponses to the changing environment.

He was a member of the Insurance Tariff AdvisoryCommittee, the Economic Development Board ofthe government of Rajasthan. He was also the chairmanof the National Accreditation Board for Certifying Bodies(NABCB) under the aegis of the Quality Council ofIndia (QCI).

Mr. Bhargava has been closely associated with technicaland management education in India. He was the chairmanof the Board of Apprenticeship Training and member ofthe Board of Governors of the University of Roorkee, theIndian Institute of Foreign Trade, New Delhi; and the

Entrepreneurship Development Institute of India,Ahmedabad.

He was also a member of the senior panel of the All IndiaCouncil for Technical Education (AICTE) set up for acomprehensive evaluation of research in engineering andtechnology; and on the committee set up by theMinistry of Human Resource Department, Government ofIndia for policy perspectives for management educationin India.

He is currently on the board of the Centre for PolicyResearch and IIM, Indore; Member, TechnologyDevelopment Board, Ministry of Science & Technology,Govt. of India; Director, Tata Steel Limited; Director, PowerFinance Corporation, trustee, Bhartiya Yuva Shakti Trust;Executive Trustee, National Centre for PromotingEmployment for Disabled Persons; chairman trustee CharityAid Foundation. He is also on the boards of governors ofother institutions for graduate engineering and bachelorsand master’s degree programmes in businessmanagement.

He has been conferred with the first IIT RoorkeeDistinguished Alumnus Award in 2005 by Indian Instituteof Technology, Roorkee.

Mr Bhargava is the Chairman of Videsh Sanchar NigamLimited (VSNL) and also Wartsila India Limited and directoron the respective boards of several Indian corporates.

Mr. N. Srinath

Mr. N. Srinath was born on July 8, 1962. He received adegree in Mechanical Engineering from IIT (Chennai) andcompleted his Management Degree from IIM (Kolkata),specialising in marketing and systems.

Joining the Tata Administrative Services in 1986 as aprobationer, Mr. Srinath has held positions in ProjectManagement, Sales & Marketing, and Corporate functionsin different Tata companies over the last 21 years. He hasbeen responsible for setting up new projects in high –technology areas like process automation and control,information technology and telecommunications. After hisprobation, he was a project executive in Tata Honeywellfrom 1987 to 1988, working on getting various approvalsand the necessary project funding.

He then moved to Tata Industries as executive assistant tothe chairman, an assignment he handled till mid – 1992.

He was part of the team that set up Tata InformationSystems (later Tata IBM). In June 1992 he moved into thatcompany full-time for the next six years, during whichperiod he handled a number of assignments in sales &marketing.

In March 1998, he returned to Tata Industries as generalmanager (projects) and worked with Tata Teleservices inthis capacity for a year. In April 1999, he moved toHyderabad as chief operating officer responsible for theoperations of Tata Teleservices. In late 2000 he took overas chief executive officer of Tata Internet Services, a positionhe held till February 2002, when he moved to VSNL asDirector (Operations). In February 2007 he has beenappointed as Managing Director of VSNL & CEO of VSNLGroup of companies.

BOARD OF DIRECTORS



122

Mr. Kishor A. Chaukar

Mr. Kishor A. Chaukar (59), currently the Managing Directorof Tata Industries Limited (TIL), is a post-graduate inmanagement from the Indian Institute of Management atAhmedabad.

TIL is one of the two principal holding companies of theTata Group, acts as its diversification and new projects-promotion arm, and spearheads its entry into the emerginghigh-technology and sunrise sectors of the economy.

In his capacity as Managing Director of TIL, Mr. Chaukar isresponsible for enhancing the value and interest of TIL inTIL divisions and in companies where TIL has madeinvestments. One of the tasks performed in the quest forthis value enhancement is to provide strategic directionto these companies.

Mr. Chaukar is a member of the group Corporate Centre,which is engaged in strategy formulation at the House ofTata. He is on the Board of various companies like Tata

Teleservices Limited, Videsh Sanchar Nigam Limited, TataAutocomp Systems Limited, Tata Investment CorporationLimited, among others. He also oversees the functions ofthe Department of Economics and Statistics (DES) and theTata Credit Card.

Mr. Chaukar is the chairman of Tata Council for CommunityInitiatives (TCCI) – the nodal agency of the Group on allmatters related to social development, environmentalmanagement, bio-diversity restoration and conservationof wild life.

Mr. Chaukar was previously the managing director of ICICISecurities & Finance Company Ltd. (July 1993 to October1998), and a board member of ICICI Ltd. from February 9,1995 to October 15, 1998. His other experiences includestints in Bhartiya Agro Industries Foundation, a publictrust engaged in rural development on a no-profit no-loss basis and based in Pune, Maharashtra, and GodrejSoaps Limited.

Mr. Pankaj Agrawala

Mr. Agrawala was born on October 16, 1955. Since May 2002,he has been the joint secretary to the GoI, Department of IT,Ministry of Communications and IT. Mr. Agrawala is in-chargeof e-infrastructure in the Department of IT and in thatcapacity represents India in the Government AdvisoryCommittee of Internet Corporation for Assigned Names &Numbers (ICANN). He is a vice chairman of GAC. Mr. Agrawalaalso serves on the Board of Telecom InfrastructureManufacturing Company, ITI and National internet Exchangeof India.

Mr Agrawala belongs to the 1978 batch of the IAS (UttarPradesh cadre). He holds a masters degrees in PublicAdministration, Development Economics and History andwas a Mason Fellow at the Kennedy School of Government,Harvard University, USA.

Mr. Agrawala has held various important U.P governmentpositions. He has worked on various field organizationsin districts and divisions of Uttar Pradesh. He has

been associated with rural development for nearly12 years of his service.

He took over as director of the then Ministry of UrbanDevelopment, GoI in August 1991, and as director, HousingDivision, Ministry of Urban Affairs and Employment, GoI inJuly 1994. He was a member of the Indian delegation to theHabitat II City Summit, Istanbul. He then worked in theAdministrative Training Institute, Nainital in theDecentralised Training for Urban Development Project, anIndo-Dutch collaboration with the Institute for Housing andUrban Development, Rotterdam.

From July 1998 to May 2002, he was secretary to the U.Pgovernment, in various departments, including theDepartment of Planning; the Department of Banking andPrivate Capital Investments; the Department of ExternallyAided Projects, where he was responsible for five World Bankprojects; the department of IT and Electronics, when India’sfirst private-sector IT university was set up; and thedepartment of Small Scale Industries and Export Promotion.

Dr. Mukund Govind Rajan

Dr. Mukund Rajan was born in Chennai on April 5, 1968.He completed his B. Tech at the Indian Instituteof Technology, Delhi in 1989, and served in his finalyear as general secretary of the Student Affairs Council.He received a Rhodes Scholarship to study atOxford University, where he completed a Masters

and Doctorate in International Relations. His doctoraldissertation was published by Oxford UniversityPress, and is titled “Global Environmental Politics – Indiaand the North-South Politics of Global EnvironmentalIssues”.

Dr. Mukund Rajan joined the Tata Group through the Tata

123

Administrative Service (TAS) in January 1995. He wasassigned to the office of Mr. Ratan Tata, chairman,Tata Sons Limited, in 1996. While he continues to supportMr. Tata as a member of his office, Mukund also serves onthe Boards of several Tata companies, including the Group’stelecom enterprises, Tata Teleservices Limited ( TTSL),

Videsh Sanchar Nigam Limited ( VSNL) and VSNLInternational Pte. Limited (VIPL). Dr. Mukund Rajan recentlycompleted serving a term as the president of theAssociation of Unified Telecom Service Providers of India(AUSPI).

Mr. N. Parameswaran

Mr. Parameswaran was born on November 15, 1955. SinceJuly 1998, he has been the deputy director general in theDepartment of Telecom, Government of India. He holdsB.Sc. Engineering degree in Electronics andTelecommunications Engineering from College ofEngineering Trivandrum, Master of Technology in ElectricalEngineering from IIT (Bombay) and Post Graduate Diplomain Business Management from All India ManagementAssociation, New Delhi.

Mr. Parameswaran belongs to the IndianTelecommunications Service (1978) and has been with theDepartment of Telecommunications since January 1980.For the last ten years he has been involved in TelecomLicensing and Regulations. He has played a key role in theliberalization of the Telecom Sector in India. Recently, he

was on a two-year deputation as the executive director ofthe Information & Communication Technologies Authority,Mauritius, wherein he set up the Authority and facilitatedthe liberalization of the ICT sector. He has held variouspositions in DOT and MTNL where he was actively involvedin the implementation of IT solutions and New Services.

He has worked as an International TelecommunicationsUnion (ITU) expert in Africa, presented papers and chairedsessions in the ITU / Asia Pacific Telecommunity (APT)seminars/Forums. He was part of a number of Ministerialdelegations for bilateral meetings. He has madepresentations in Road shows held in a number of countriesto attract foreign investment.

He is also director in the board of HTL Limited.

Mr. P.V. Kalyanasundaram

Mr. P.V. Kalyanasundaram was born on February 25, 1958.He received a Bachelor of Arts degree in history, from theNew College, Chennai in 1977, followed by a Bachelor ofLaw degree from Madras Law College in 1982.

An advocate by profession, Mr. Kalyanasundaram is a legaladvisor for Pallavan Transport Corporation, Chennai, agovernment of Tamil Nadu undertaking, as well as a legaladvisor to the Chennai Metropolitan Water Supply andSewerage Board. He is also a trustee of the JawaharlalNehru Port Trust, Mumbai, and a member of the CensorBoard, Chennai as well as the Presidency Club, Chennai.

Mr. Kalyanasundaram has played a leading role in various

public activities. As the managing trustee of the GreenPeace World Charitable Trust, Chennai, he took an activepart in the various welfare measures organized by the trust.These include organizing free eye camps to treat poorpeople.

Between 2000 and 2004, Mr. Kalyanasundaram was thechairman and trustee, Pachayappa’s Trust, Chennai. In thatposition, he managed several educational institutions,including seven colleges and six schools, and looked afterimmovable properties worth Rs. 10,000 million belongingto the trust. He was also instrumental in conducting severaleducational seminars and courses in various institutions.

Dr. V.R.S Sampath

Dr. V.R.S Sampath received a Bachelor of Arts degree in Historyfrom the Presidency College in 1976, followed by a Bachelorof Law degree from Madras Law College in 1980, a Master ofLaw degree in 1987 and a PH.D in 1997, all from the Universityof Madras. He also holds a Master of Arts degree in Historyfrom the Madurai Kamaraj University (1985).

Dr. Sampath also holds a Diploma in Tourism and hascompleted a large number of specialised training

programmes and courses, notably in human rights and socialwork. He was awarded an honorary D.Litt for his contributionto global peace efforts by the World Peace Academy,Chicago, USA in 1994. He has published numerous researchpapers and traveled widely internationally, including onstudy tours. He has also published eight books on subjectssuch as travel, law and society.

Dr. Sampath is currently an empanelled advocate to bothCanara Bank and Indian Overseas Bank, and a legal advisor



124

to the Construction Industry Development Board of theGovernment of Malaysia. He started his career as a junioradvocate for the Aiyer and Dalia law firm in 1981 and hassince served as a legal advisor to the Tamil Nadu IndustrialDevelopment Corporation.

Dr. Sampath has served on various governmentcommittees including the advisory committees of the

Central Board of Film Certification and the All India Radio,both of the government of India, Chennai. He is thechairman of various non-governmental organisations inChennai including the Inter-University Cultural Service, theMadras Development Society, the India InternationalTourism Centre, the Indian Institute for Aids Prevention,the International Centre for Human Rights and the NationalDevelopment Trust.

Mr. Amal Ganguli

Mr. Amal Ganguli, 66, is a fellow member of the Institute ofChartered Accountants of India and the Institute ofChartered Accountants of England and Wales and amember of the New Delhi chapter of the Institute ofInternal Auditors, Florida, U.S.A. He was the Chairman andSenior Partner of Pricewaterhouse Coopers (PWC), Indiatill his retirement on 31st March, 2003. Besides hisqualifications in the area of accounting and auditing, Mr.Ganguli is a fellow of the British Institute of Managementand alumnus of IMI, Geneva.

Mr. Ganguli, trained in the UK to become a CharteredAccountant. He was econded as a Partner to PWC, UK/USAfor a year in 1972-73. During his career spanning over 40years, Mr. Ganguli’s range of work included InternationalTax advice and planing, cross border investments,Corporate mergers and re-organisation, financial evaluationof projects, management, operational and statutory auditand consulting projects funded by International fundingagencies. In the course of his professional career, he has

dealt with a variety of clients including US AID, World Bank,ADB, NTPC, Alcatel, GE, Hindustan Lever, STC, HewlettPackard and IBM.

Mr. Ganguli is a member of the Board of Directors of severalCompanies such as Hughes Escorts CommunicationsLimited, Flextronics Software Systems Limited, TubeInvestments of India Limited, Gillette India Limited, HCLTechnologies Limited, Samtel Colour Limited, Samcor GlassLtd., New Delhi Television Limited and Century Textiles andIndustries Ltd. Mr. Ganguli is a member of AuditCommittees of Hughes Escorts Communications Ltd., HCLTechnologies Ltd., Gillette India Limited, Samtel ColourLimited, Samcor Glass Limited and Century Textiles andIndustries Ltd. He is chairman of the Audit Committee ofFlextronics Software Systems Limited and a member ofRemuneration Committees of Tube Investments of IndiaLimited and Gillette India Limited. He is also a member ofShare Transfer and Shareholders’/Investors’ GrievanceCommittee of Century Textiles and Industries Ltd.

Mr. Vinod Kumar

As president and managing direc tor of VSNLInternational Pte. Ltd. (VSNL International), a subsidiaryof Videsh Sanchar Nigam Limited (VSNL), Mr. Kumar isresponsible for expanding VSNL International’s roadmapand charter into the global communications market.Enhancing the service capabilities and customer facingactivities in strategic markets beyond the shores of Indiain a nut shell sums his mandate. Besides heading thesestrategic initiatives, Mr. Kumar is also responsible for theWholesale Data, Global Mobile and InternationalEnterprise lines of business and meeting the company’sambitious targets.

Mr. Kumar has a wide range of cross-functional experiencein the telecommunications industry. He also has animpressive track record in developing business strategiesand creating fast growth organizations.

He was previously Senior Vice-President of Asia Netcomand responsible for all aspects of generating top-linegrowth, including strategy formulation, product marketingand sales. He was actively involved in all aspects of thefinancial restructuring, and eventual asset sale of AsiaGlobal Crossing to China Netcom, resulting in the formationof Asia Netcom.

In 1999, Mr. Kumar joined WorldCom Japan as ChiefExecutive Officer and prior to that, he held various seniorpositions in Global One in the United States and Asia wherehe has had major responsibilities in market management,sales, marketing, product management, multinationalaccount management and operations.

Mr. Kumar holds a Masters in Business Administration fromThe American University. He also graduated with honorsin Electrical and Electronic Engineering at the Birla Instituteof Technology and Science in India.

125

Mr. S. Ramadorai

Mr. S. Ramadorai, 63, Chief Executive Officer and ManagingDirector of Tata Consultancy Services, has been associatedwith TCS for the past thirty five years. He took over aschief executive officer of TCS in 1996 and has beeninstrumental in building TCS to a $4.3 Billion global ITservices, business solutions and outsourcing company, witha talent base of over 85,000 people, geographical reach of39 countries and an enviable client list which includes sixof the top ten Fortune companies. Mr. Ramadorai has nowset his sights on ensuring that TCS is among the GlobalTop Ten Software companies. In October 2006, TCS wasrecognized by the Economic Times as the company of theYear, a fitting tribute to its increasing global presence.

Mr. Ramadorai’s contributions to the industry have beenwell recognized through the numerous awards he hasreceived. In 2002, he was awarded with CNBC Asia Pacific’sprestigious ‘Asia Business Leader of the Year’ Award. Hehas been honoured with the position of “IT Advisor toQingdao City’, People’s Republic of China. In November2006, Ernst & Young awarded Mr. Ramadorai theEntrepreneur Manager of the Year award. He has been

recognized by Computer Business Review in July 2006 asthe sixth most influential IT leader in the world. Inrecognition of Mr. Ramadorai’s commitment and dedicationto the IT industry, he was awarded the “Padma Bhushan”by the Government of India in January 2006.

Mr. Ramadorai holds chairmanships and directorships ofseveral Tata Group companies and is on the board ofdirectors of Hindustan Unilever Limited and NicholasPiramal India Limited. He is a member of the CorporateAdvisory Board, Marshall School of Business (USC) as wellas the Said Business School at Oxford. Among his otherdistinctions, Mr. Ramadorai is a Fellow of the Institute ofElectrical and Electronics Engineers (IEEE), The ComputerSociety of India (CSI) and the Indian National Academy ofEngineering.

Mr. Ramadorai holds a Bachelors degree in Physics fromDelhi University, India, a Bachelor of Engineering degreein Electronics and Telecommunications from the IndianInstitute of Science, Bangalore, India, and a Masters degreein Computer Science from the University of California -UCLA, USA.

* * * * * * * * * *



126

NOTES

Registered office : Videsh Sanchar Bhavan, M.G. Road, Mumbai - 400 001.

TWENTY FIRST ANNUAL GENERAL MEETING - 2 AUGUST, 2007 AT 1100 HRS.

ATTENDANCE SLIP

I, Mr/Mrs./Miss................................................................................................. LF/Client ID. No ........................................................... hereby

record my presence at the 21st Annual General Meeting of Videsh Sanchar Nigam Limited at the M. C. Ghia Hall,Kalaghoda, Mumbai - 400 023.

...............................

Signature of the Shareholder or Proxy

Notes: 1. Please fill this Attendance Slip and hand it over at the entrance of the hall.

2. SHAREHOLDERS ARE REQUESTED TO BRING THEIR COPIES OF THE NOTICE DOCUMENT WITH THEM.

Registered office : Videsh Sanchar Bhavan, M.G. Road, Mumbai - 400 001.

PROXY

I/We ...........................................................................................................................(LF/Client ID. No...................................)

(Address).............................................................................................................being a Member/Members of Videsh Sanchar

Nigam Limited, do hereby appoint ........................................................................................ of ......................................or/failing

him ...................................................................................................................of ........................................as my/our proxy in my/our

absence to attend and vote for me/us on my/our behalf at the 21st Annual General Meeting of the Company to

be held at 1100 Hrs on Thursday, the 2 August, 2007, and at any adjournment thereof.

IN WITNESS whereof I/We have set my/our hand/hands this...................day of..........................2007.

(Signature of the Shareholder across the stamp)

Note : 1. A member entitled to attend and vote is entitled to appoint a proxy to attend and vote instead of himself,and a proxy need not be a Member.

2. A One Rupee Revenue Stamp should be fixed to this and it should then be signed by the Member.

3. The instrument appointing the proxy and the power of attorney or other authority, if any, under which itis signed, or a copy of that power of authority duly certified by a notary or other proper authority, shall bedeposited at the Registered Office of the Company not later than forty-eight hours before the time forthe holding of the Meeting, in default, the instrument of proxy shall not be treated as valid.

Please affix1.00 Re.

RevenueStamp

!

CAN

AD

A

UN

ITED

ST

ATES

MEX

ICO

GU

ATEM

ALA

CUBA

HA

ITI

DO

MIN

ICA

NRE

PUBL

IC

PUER

TORI

CO

ST. T

HO

MA

S

ST. C

RO

IX

MA

RTIN

IQU

E

TRIN

IDA

D &

TO

BAG

O

JAM

AIC

A

CAYM

AN

ISLA

ND

HO

ND

UR

AS

NIC

ARA

GU

A

COST

A R

ICA

PAN

AM

A

COLO

MBI

A

ECU

AD

OR

PERU

BOLI

VIA

PARA

GU

AY

AR

GEN

TIN

A

URU

GU

AY

CHIL E

VEN

EZU

ELA

AR

UB

A

GU

YAN

A

BRA

ZIL

SURINAME

FREN

CH

GU

YAN

A

EL S

ALV

AD

OR

BERM

UD

A

IREL

AN

D

NO

RWAY

SWED

EN

FIN

LAN

D

DEN

MA

RK

NET

HER

LAN

DS

GER

MA

NY

ESTO

NIA

LATV

IA

LITH

UA

NIA

BELA

RUS

SLO

VAK

REP

UK

RAIN

E

AUST

RIA

SWIT

ZERL

AN

D

SPA

IN

PORT

UG

AL M

ORO

CCO

AL

GER

IA

TUN

ISIA

LIBY

A

NIG

ER

CHA

D

SUD

AN

ETH

IOPI

A

KEN

YA

SOMALIA

ER ITR EA

EGYP

T

ISRA

EL

LEBA

NO

N

GR

AN

CAN

ARI

A

WE

STER

NSA

HA

RA

TEN

ERIF

E

MA

URI

TA

NIA

CABO

VERD

ESE

NE

GA

L

GA

MBI

A

GU

INE

ABI

SSAU

GU

INE

A

SIER

RALE

ON

E LIBE

RIA

IVO

RY

COAS

T

NIG

ERIA

CAM

ERO

ON

EQU

ATO

RIA

LG

UIN

EA

GA

BON

CEN

TRA

L A

FRI

CAN

RE

P.

ZAIR

E

TAN

ZAN

IA

SEYC

HEL

LES

MA

URI

TIU

S

REU

NIO

N

AN

GO

LA

ZAM

BIA

NA

MIB

IA

SWIZ

ILA

ND

BOTS

WA

NA

SOU

TH A

FRI

CALE

SOTH

O

MADAGASCAR

ZIM

BABW

E

MOZAMBIQUE

UGANDA

CON

GO

GH

AN

A

TOGO

BENIN

MA

LI

BURK

INA

FASO

FRA

NCE

ITA

LY

SLO

VEN

IA

CRO

ATI

A

BOSN

IAH

ERZ

.

HU

NG

AR

Y

ROM

AN

IA

SERB

IA

&M

OTE

NE

GR

O

BULG

ARI

A

AL

BAN

IAMA

CED

ON

IA

GRE

ECE

CRET

ECY

PRU

S

MO

LDO

VA

GE

OR

GIA

ARM

ENIA

TURK

EY

JORD

AN

AZE

RBA

IJA

N

SYRI

A

IRAQ

IRA

N

RUSS

IA

AF

GH

AN

ISTA

N

KUW

AIT

QA

TAR

BA

HR

AIN

UA

E

OM

AN

SAU

DI

AR

ABI

A

YEM

EN

PAKI

STA

N

IND

IA

SRI L

AN

KA

NE

PAL

CHIN

A

MO

NG

OLI

A

KAZA

KHS

TAN

UZB

EKI

STA

N

TURK

MEN

ISTA

N

TAJI

KIST

AN

KYRG

YZST

AN

NO

RTH

KORE

A SOU

TH

KORE

A

TAIW

AN

JAPA

N

BAN

GLA

DE

SH

BHU

TA

N

MYA

NM

AR

LAO

S

THA

ILA

ND

CAM

BOD

IA

PHIL

IPPI

NE

S

BRU

NEI

IND

ON

ESI

APA

PUA

NEW

GU

INEA

FIJ

GU

AM

AUST

RALI

A

MA

LAYS

IA

V IE TNAM

POLA

ND

CZEC

H R

EP.

UN

ITED

KIN

GD

OM

HA

WA

II

UN

ITED

STA

TES

MEX

ICO

CAN

AD

A

NE

W Z

EALA

ND

NO

C

NO

C

NO

C

359E

342E

328.5E

335.5E

307E

325.5E

322.5E

183

60E

180E

62E

64E

75E

39E

49E

304.5E

3E

Oxf

ord

Fall

s

Broo

kval

e Padd

ingt

on

Suva

Whe

nuap

ai

Taka

pun

a

Kita

ibar

aki

Kita

ibar

aki

Kita

ibar

aki

Vest

man

naey

jar

Tjor

nuvi

k

Blaa

bjer

g

Scar

boro

ugh

Redc

ar

Conil

Mira

ma

rSt

. Cro

ix

Mag

ens B

ay

Le La

men

tinBa

by B

eac

hW

illem

sta

dPu

nto

Fijo

Bara

nqui

lla

Batte

ry P

ratt

Punt

a Cam

ero

Luri

n

Aric

a

Cam

uri

Port

of Sp

ain

Mac

quer

ipe

Caye

nne

Forta

leza

Beve

rwij

k

Katw

ijk

Petc

habu

ri

Tans

hui

Pa Li

Chiku

raCh

ikura

Chiku

ra

Wad

aNi

nom

iyaN

inom

iya

Nino

miya

Ajig

aura

Ajig

aura

Ajig

aura

Tang

uiss

on P

oin

t

Tum

on B

ay

Miya

zaki

Chon

gmin

g

Shin

du-ri

Shim

a

Kuw

ait C

ity

Man

ama D

oha

Dub

ai

Anco

l

Bude

Land

’s En

dLa

nd’s

End

Land

’s En

d

Skew

jack

Skew

jack

Skew

jack

Whi

tesa

nds B

ay

Whi

tesa

ndsB

ay

Whi

tesa

nds B

ay Pler

inLa

nnio

nSt V

aler

y

Gree

nHil

l

Vero

Bea

ch

Ban

don

Man

ches

ter

Mak

aha

Keaw

aula

Kahe

Poi

nt

Spen

cer B

eac

h

Gro

ver B

eac

h

GL

OB

AL

FO

OT

PR

INT

Copyright ©2007 VSNL International Pte Ltd. All Rights ReservedOVW_MAP_VER1_APR_2007

RA

N UA

E

OM

AN

PAKI

STA

N

IND

IA

SRI L

AN

KA

NE

PAL

CHIN

A

BAN

GLA

DE

SH

BHU

TA

N

MYA

NM

AR

LAO

S

THA

ILA

ND

CA

NO

C

Petc

habu

ri

haD

ubai

IREL

AN

D

NO

RWAY

DEN

MA

RK

NET

HER

LAN

DS

GER

MA

NY

ESTO

NIA

LATV

IA

LITH

UA

NIA

BELA

RUS

SLO

VAK

REP

UK

RAIN

E

AUST

RIA

SWIT

ZERL

AN

D

SPA

IN

PORT

UG

AL

FRA

NCE

ITA

LY

SLO

VEN

IA

CRO

ATI

A

BOSN

IAH

ERZ

.

HU

NG

AR

Y

ROM

AN

IA

SERB

IA

&M

OTE

NE

GR

O

BULG

ARI

A

AL

BAN

IAMA

CED

ON

IA

GRE

ECE

MO

LDO

VA

POLA

ND

CZEC

H R

EP.

UN

ITED

KIN

GD

OM

Blaa

bjer

g

Scar

boro

ugh

Redc

ar

Conil

Beve

rwij

k

Katw

ijk

Bude

Land

’s En

dLa

nd’s

End

Land

’s En

d

Skew

jack

Skew

jack

Skew

jack

Whi

tesa

nds B

ay

Whi

tesa

ndsB

ay

Whi

tesa

nds B

ay Pler

inLa

nnio

nSt V

aler

y

NO

RTH

KORE

A SOU

TH

KORE

A

TAIW

AN

JAPA

N

AOS

V IE TNAM

Kita

ibar

aki

Kita

ibar

aki

Kita

ibar

aki

Tans

hui

Pa Li

Chiku

raCh

ikura

Chiku

ra

Wad

aNi

nom

iya

Nin

omiy

aNi

nom

iya

Ajig

aura

Ajig

aura

Ajig

aura

Miya

zaki

Chon

gmin

g

Shin

du-ri

Shim

a

Registered Offi ceVidesh Sanchar Nigam LimitedMahatma Gandhi Road, Mumbai 400 001

www.vsnl.in

Videsh Sanchar Nigam Limited 21st Annual Report 2006 · PDF fileVidesh Sanchar Nigam Limited...

Documents

Transcript of Videsh Sanchar Nigam Limited 21st Annual Report 2006 · PDF fileVidesh Sanchar Nigam Limited...