The Comptroller and Auditor General of India (CAG) has pulled up the Ministry of Commerce and Industry and the Customs Department for serious irregularities in the implementation of export incentive schemes under the Foreign Trade Policy (FTP) 2015–20, resulting in a revenue impact of ₹724.96 crore.
In its latest audit report on the functioning of the Directorate General of Foreign Trade (DGFT) and Customs for the period ending March 2023, the national auditor found widespread lapses in the grant of benefits under the Merchandise Exports from India Scheme (MEIS) and the Services Exports from India Scheme (SEIS). The report notes that incentives continued to be issued even after the schemes were officially discontinued, leading to substantial and avoidable outflow of government revenue.
Incentives Granted Even After Discontinuation
MEIS and SEIS were introduced under FTP 2015–20 to promote exports of specified goods and notified services by granting duty credit scrips. However, the audit observed that a “substantial number” of licences under both schemes were issued even after their discontinuance, undermining fiscal discipline and policy intent.
The CAG has specifically recommended that DGFT instruct its Regional Authorities to initiate recovery proceedingswherever MEIS duty credits were granted post-discontinuation, particularly in the Apparels and Made-ups sector, which became eligible for benefits under the RoSCTL scheme instead.
Irregularities in MEIS Claims
In the case of MEIS, the audit detected irregular grant of benefits amounting to ₹132.21 crore. These were attributed to multiple factors, including allowing incentives on ineligible products, misclassification of exported goods, adoption of incorrect incentive rates, and failure to ensure realisation of export proceeds. In several cases, export proceeds were realised in Indian Rupees instead of freely convertible foreign currency, violating scheme conditions.
SEIS Misuse Accounts for Bulk of Loss
The SEIS scheme accounted for the largest share of revenue loss, with ₹406.90 crore worth of benefits found to have been incorrectly granted. The audit highlighted benefits allowed for inadmissible services, services not rendered in an eligible manner, misclassification of services, incorrect computation of foreign exchange earnings, non-exclusion of government taxes, and incorrect adoption of exchange rates.
The report also pointed out inconsistencies in service classification across government agencies, which created loopholes for misuse of incentives.
Systemic Failures and Weak Controls
Beyond individual cases, the CAG identified serious systemic issues in the administration of the schemes. These included irregular issuance of duty credit scrips to firms listed in the Denied Entity List and cases where exporter names did not match unique identifiers, collectively having a revenue implication of ₹185.85 crore.
The auditor noted that weak validation controls, excessive manual intervention, and lack of end-to-end automation significantly increased the risk of fraud and errors.
CAG Calls for Automation and Stronger Verification
To prevent recurrence, the CAG has recommended complete automation of the licence issuance workflow, mapped strictly to business rules, to eliminate manual discretion, minimise delays, and ensure uniform application of export incentive schemes. It also called for stronger validation checks, better inter-agency data alignment, and enhanced verification before sanctioning benefits.
“The classification of services by various agencies has to be uniformly aligned to avoid misuse of incentives,” the report said, stressing the need for tighter governance over export promotion schemes.
Policy Implications
The findings assume significance at a time when India is reworking its export incentive architecture to align with WTO norms and fiscal prudence. The CAG’s observations underline the importance of robust digital controls and accountability mechanisms, especially when large-scale fiscal incentives are involved.
The Commerce Ministry and DGFT are yet to publicly respond to the audit findings.
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