CAG pulls up govt for irregular grant of MEIS, SEIS benefits with revenue impact of Rs 725 cr

The Comptroller and Auditor General (CAG) of India, the supreme audit institution of the country, recently flagged significant irregularities in the implementation of two crucial export promotion schemes: the Merchandise Exports from India Scheme (MEIS) and the Service Exports from India Scheme (SEIS). This audit report highlighted a substantial revenue loss of Rs 725 crore due to erroneous grant of benefits by the Commerce Ministry and the customs department. This issue is not merely about a financial figure; it delves deep into governance, public finance, and India's trade policy effectiveness.

To truly grasp the gravity of the CAG's findings, let's first understand the background. MEIS and SEIS were flagship schemes under India's Foreign Trade Policy (FTP) 2015-2020. The primary objective of these schemes was to offset infrastructural inefficiencies and associated costs involved in exporting goods and services from India. MEIS aimed to promote the export of notified goods by providing duty credit scrips as a percentage of the realised Free-on-Board (FOB) value of exports. Similarly, SEIS sought to boost service exports by offering duty credit scrips as a percentage of the net foreign exchange earned. These scrips were freely transferable and could be used to pay various duties, including basic customs duty, excise duty, and service tax, thereby making Indian exports more competitive in the global market.

The CAG's audit uncovered several critical lapses leading to the revenue loss. These included the grant of benefits for ineligible products, application of incorrect rates for calculating incentives, and benefits extended even when export proceeds were not realized. For instance, certain products not listed under MEIS were still granted benefits, or higher rates were applied than prescribed for specific categories. The non-realization of export proceeds is particularly concerning as it suggests that incentives were disbursed without the actual foreign exchange benefit accruing to the country, defeating the very purpose of the schemes. The report explicitly 'pulled up' the Commerce Ministry, responsible for framing and implementing the FTP, and the customs department, which processes and disburses these benefits, for these operational deficiencies.

Key stakeholders in this scenario include the **Comptroller and Auditor General (CAG)**, whose constitutional mandate (Article 148) is to audit government receipts and expenditure, ensuring financial accountability. The **Commerce Ministry** is the policy architect and implementer of export schemes. The **Customs Department** (under the Ministry of Finance) is the frontline agency responsible for verifying export declarations and processing incentive claims. Finally, **exporters** are the beneficiaries of these schemes, and their adherence to regulations is crucial. The irregularities highlight a breakdown in coordination and verification processes between the policy-making and implementing bodies.

This matters significantly for India on multiple fronts. Economically, the direct revenue loss of Rs 725 crore impacts the government's fiscal health, potentially exacerbating the fiscal deficit. More broadly, such irregularities undermine the effectiveness of export promotion efforts, leading to misallocation of public funds and potentially distorting market competition by unfairly benefiting some over others. Politically and institutionally, it raises serious questions about governance, administrative efficiency, and the integrity of public financial management. It underscores the critical role of independent audit bodies like the CAG in maintaining transparency and accountability in government operations. Historically, India has relied heavily on various incentive schemes to boost exports, particularly post-liberalization in 1991. The evolution of these schemes, from earlier iterations like the Duty Entitlement Passbook (DEPB) to MEIS/SEIS, has often been accompanied by challenges in implementation and oversight.

Constitutionally, the CAG derives its authority from **Articles 148 to 151** of the Indian Constitution, which define its appointment, duties, and powers. The **Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971**, further elaborates on these. The findings of the CAG are presented to Parliament, prompting parliamentary scrutiny of executive actions. This report also touches upon the **Customs Act, 1962**, which governs the procedures for import and export and the collection of customs duties, including the administration of duty credit scrips. The overarching framework of the **Foreign Trade Policy** provides the legal basis for such incentive schemes.

The future implications are significant. The CAG's recommendations for automation and stronger verification mechanisms are crucial to prevent future misuse and ensure that incentives genuinely support legitimate exporters. The MEIS and SEIS schemes were eventually discontinued, largely due to challenges at the World Trade Organization (WTO) where they were deemed inconsistent with WTO's Subsidies and Countervailing Measures (SCM) Agreement. They have been replaced by the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme and the Remission of State and Central Taxes and Levies (RoSCTL) scheme for apparel and made-ups, which are designed to be WTO-compliant by only remitting embedded taxes and duties. The CAG's report serves as a stark reminder for the government to ensure robust monitoring and evaluation mechanisms for these new schemes as well. It reinforces the need for continuous administrative reforms, improved inter-departmental coordination, and leveraging technology to enhance transparency and reduce discretionary human intervention in benefit disbursement processes, thereby safeguarding public money and fostering a fair trade environment.