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.
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