The Memorandum of Understanding (MoU) is an agreement between the government and the ‘management’ of a Public Sector Enterprise (PSE). It had its origin in France, which too has had a considerable presence of public sector enterprises. The Nora Committee (1967) is credited for having recommended to the French Government this approach of performance contract. It emphasised on increased autonomy to the management along with a realistic price of output for balancing the accounts of PSEs. The Nora Committee Report essentially favoured a level playing field to the public sector enterprises vis-à-vis the private corporate sector.
Since the PSEs have been set up consequent to investment decisions made within the framework of ‘a national plan’, the French system of ‘performance contract’ has been in the nature of medium term agreements (3-4 years) between the government and the PSEs coinciding with the national plan. The MoU system as introduced in India (since 1988) was for a number of years similar to the ‘performance contract’ of the French model. The Arjun Sengupta Committee (1984), which recommended the MoU system in India also laid emphasis on medium term contract recommending for a 5-year agreement that may be reviewed annually. Moreover, since the planning exercise laid greater emphasis on the core sectors of steel, heavy engineering, coal, power, petroleum and fertilizers, the Committee favoured MoUs to be signed in respect to these enterprises only.
Sometimes delay in approvals lead to cost overruns and technological obsolescence in enterprises. Recognising this aspect of large scale corporations, the Arjun Sengupta Committee laid emphasis on greater autonomy to the management of public sector enterprises, while making them accountable at the same time, through performance evaluation.
From the point of view of granting autonomy, the Committee identified three areas of Government-PSE interaction, namely, (a) investment planning, (b) price fixation and (c) financial management.
The evaluation methodology was revamped in 1989, with the inclusion of (a) different weights assigned to each evaluation parameter, (b) a 5- point scale was introduced to ‘signal’ what is ‘Excellent’ and what is ‘Poor’ performance. MoU was, moreover, finalized under the supervision of a Task Force on MoU constituted by the Department of Public Enterprises. MoU system was reviewed by NCAER and improved by HPC. The final evaluation is a ‘Composite Score’ based on a comparison between the Targets and the Actual Results. It is this evaluation system that is broadly under implementation.
In 2006-07, 114 CPSEs signed MoUs with the Government and in 2007-08, 145 CPSEs will be covered under the MoU system. Almost all the CPSEs are covered under the MoU system taking into account the fact that the subsidiaries of Holding (CPSE) Companies separately enter into MoU with their Holding Companies.
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MG/SR
(Release ID :31441)