Department of Public Enterprises

(MoU Division)

The Genesis

The genesis of the policy of Memorandum of Understanding can be traced to the report of the Arjun Sengupta Commitee. One of the recommendations of this committee was for the introduction of the system of MOU for measurement of performance of public enterprises. The MOU system was introduced on an experimental basis in 1987-88. It was based on the French system.From 1989-90 the signaling system was adopted and it remains in vogue till the present.

Oneof the most important differences between the French system and the signaling system relates to the possibility of making an overall judgement on the enterprises performance in the latter system. In performance contracts belonging to the French system, one could only point out whether a particular target was met or not. This created great difficulty for making an overall judgement regarding enterprises performance. The signalling system overcomes this problem by adopting the system of "five point scale" and "criteria weight" which ultimately result in calculation of "composite score" or an index of the performance of the enterprise

The MOU system has been adopted in response to the following:

  • Widely held perception that the PSEs are less efficient than their private sector counterparts.
  • PSEs are unable to perform at efficient levels because there are a variety of agencies within the Government who feel that they have a mandate to run public enterprises. These agencies having their own agenda to keep, setting different objectives for the enterprises which are always conflicting.
  • Because of lack of clarity of objectives and confused signals imparted to the management, the accountability of the management is vastly diluted. The management of PSEs thus ceases to be accountable for the performance of the enterprise
  • At the same time, the Management of PSEs are handicapped in their operation due to absense of functional autonomy.