Department of Public Enterprises
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 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
- At the same time, the
Management of PSEs are handicapped in their
operation due to absense of functional