Generally it is held that nowhere in the world, the Public Sector Enterprises have been able to fulfil their obligations towards the society and could play the roles expected of them in the economic growth of the countries. The MoU system attempts to bring changes in the quality of management of the public sector. The concept of MoU is based on the principle of management by results & objectives, rather than by controls and procedures and has been used worldwide in the management of public sector enterprises. The concept was evolved as a remedy to the perceived inefficiencies in the public sector. The MoU is supposed to be a freely negotiated document between the Government, the owner and the public enterprise and highlights obligations of both the parties and enterprise specific. In India, the system was introduced in 1987-88 and so far, more than 195 numbers of Central Public Sector Undertakings, out of nearly 248, have executed MoUs. The results are encouraging.
The system of rewards & punishments in the public sector is usually independent of the profit earning efforts of the managers and therefore, they prefer risk free decisions. For example, they would prefer to earn interests from fixed deposits rather than in investing the surplus fund in the enterprises, in order to gain more. They are more concerned with the accounting rules & audit procedures, as they may be taken to task for non-adherence to set rules & procedures. The public enterprises having the roles of meeting some social obligations too, have to implement Government policies, for which the Governments set rules, regulations & procedures and assess the performance on the degree of adherence to the set rules & regulations. The corrective step would have been to delegate more powers, but without making accountable, the delegations might get misused. Therefore, autonomy & accountability must go together and this is the crux of the MoU policy. It is generally believed that the private sector is more efficient. However, the volume of profits determines investment decisions in private sector; social benefits; if any are incidental. On the other hand, investment decisions in creating public sector were based primarily on social cost benefit considerations. But, for evaluating performance of the public sector, the instrument for measuring performance of the private sector i.e. financial profit, was borrowed. Monitoring of performance of public sector through periodical reports in elaborate formats was thought to be an appropriate instrument, but with the passage of time, the number of such reports increased manifold and the Government ended-up controlling more & more of day-to-day functioning of the enterprises, as if some sub-ordinate departmental establishments. The managers found that decisions of managing the enterprises were taken by other people and felt that they should not be made accountable for results, and thus the ‘Not me’ syndrome crept-in.
The lack of an appropriate instrument to evaluate performance of the public sector with complex social & financial objectives therefore led to the concept of MoU, followed by evaluation of MoU performance.
Internalization is one domain in which PSUs can take substantial steps toward realizing their respective vision, so that they can achieve higher level in terms of MoU evaluation score, which shall in turn result in many added advantages for the organizations in the business, internal processes as well as employee satisfaction index arena.