9. Demystifying MOU between CPSE and GOI for the benefit of Singarenians (part-1)

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 signalling system was adopted and it remains in vogue till the present.One of the most important differences between the French system and the signalling 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 enterpriseThe 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. Signaling system and Performance Evaluation The MoU system in CPSEs prevalent since 1986 was revamped in 1989, and it moved closer to the “signaling system” of the Pakistani and the Korean models as developed by Prof. Leroy P. Jones (Director, Public Enterprises Programme, Boston University). The ‘performance contract’ under the MoU system, moreover, got de-linked from the medium-term agreement as recommended by Arjun Sengupta Committee. Under the new MoU system that was implemented from the financial year of 1989-90, performance evaluation came to be based on the annual targets agreed upon between the government and the CPSEs, rather than the five-year target. Another novel feature of the new system was finalization of MoU under the overall supervision of a third party, namely, the MoU Task Force constituted by the Department of Public Enterprises. The MoU Task Force is independent of both the administrative ministry and the CPSE. State level Public Enterprises (SLPEs) State level Public Enterprises (SLPEs) form an important part of state economies and have played a very important role in the overall development of the states. Most states have also set up Bureau of Public Enterprises/ Public Enterprises Departments for coordinating/management of SLPEs. In other states, these functions are performed by the Departments of Industries, Finance or Planning, etc. The SLPEs thus fall under the administrative control of various Ministries/Departments in different states. The main functions of the administrative Ministries/Departments concerning the SLPEs include the following: (a) Allocation of finance/Budgetary Support (b) Regular review of performance (c) Approval of various schemes/policies/personnel matters (subject to the concurrence of the Finance Department, Law Department and Public Enterprises Department). Source: Department of Public Enterprises, Government of India. Note: Singarenians may ponder on the functions of SLPEs as mentioned above and their relevance to SCCL. …to be continued