New Delhi: India’s growing use of Quality Control Orders (QCOs) on industrial products has raised manufacturing costs, disrupted supply chains and hurt smaller manufacturers without improving competitiveness, according to a study released by the Centre for Social and Economic Progress (CSEP), an independent policy think tank.
QCOs are government notifications that make compliance with Bureau of Indian Standards (BIS) specifications mandatory for notified products. Both domestic manufacturers and importers must ensure that the products meet prescribed standards before they can be sold in India.
Speaking at the launch of study—Quality Control Orders in India’s Chemical Sector—on Thursday, former Planning Commission chairman Montek Singh Ahluwalia backed its findings and said the government’s recent withdrawal of several QCOs showed it was willing to course-correct after industry feedback. However, he cautioned against frequent policy changes and said regulations affecting manufacturing should undergo wider consultation before implementation.
Ishtiyaque Ahmed, the Programme Director for Industry and Foreign Investment at the NITI Aayog, said the study’s recommendations were broadly in line with those of the high-level deregulation committee, constituted by the Government of India to drive next-generation economic reforms.
He added that while QCOs serve legitimate objectives such as quality, safety and consumer protection, mandatory standards on intermediate goods have created supply-chain bottlenecks and compliance burdens, particularly for micro, small and medium enterprises (MSMEs).
The CSEP study argues that while QCOs are intended to improve the product quality, their rapid expansion on intermediate goods has increased costs across manufacturing supply chains.
Using Annual Survey of Industries (ASI) data covering 2,731 chemical-using firms between FY2015 and FY2024, the study found that chemical-related QCOs reached 52 by 2024 from zero prior to 2018.
As a result, 56.6 percent of firms using chemicals as inputs or raw materials were affected, while 66.4 percent firms were impacted either through their input or output-related products. The report also notes that nearly 46 percent of all QCOs in force by the end of 2024 covered intermediate goods used by downstream industries.
The study found that firms subject to input-side QCOs recorded a 9.6 percent increase in production value, but gross value added (GVA) declined by 37 percent, suggesting that higher production reflected rising prices rather than improvements in efficiency.
GVA is an economic metric that measures the value of goods and services produced within an area, industry, or sector of an economy.
Meanwhile, output-side (finished products) QCOs showed no statistically significant gains in production, profitability or value addition.
The study says “the adverse effects are disproportionately concentrated among small firms”, with profitability and value addition declining sharply after the introduction of QCOs.
The input-side QCOs reduced the profitability of small firms by nearly 48 percent, while output-side QCOs lowered their GVA by 44 percent and profits by almost 59 percent.
In contrast, the larger firms were generally able to sustain or expand production despite higher compliance costs, although they too saw lower value addition. Industry representatives echoed the concerns raised by the CSEP study.
Sharat Chander, the Director of Public Affairs at Samsung India, said a refrigerator manufactured in India requires separate compliance for the finished product as well as its key components such as steel, copper, compressors, safety glass and even nuts and bolts.
He said manufacturers in competing ASEAN (Association of Southeast Asian Nations) countries do not face such regulatory requirements, which affects India’s manufacturing competitiveness.
Also Read: Why MSME reps are resisting govt QCOs, calling them ‘protectionist’ rather than quality control tool
What the study recommends
The study argues that India’s quality standards regime needs to move towards a more targeted and evidence-based approach. While acknowledging that QCOs are necessary in areas involving product quality, health, safety and environmental protection, it says mandatory standards should be imposed only where these objectives are clearly defined.
Ishtiyaque Ahmed of NITI Aayog said that quality regulations become problematic when they are extended to intermediate goods used by manufacturers. The compliance costs, certification requirements and delays in accessing raw materials disproportionately affected MSMEs, thereby impacting manufacturing competitiveness and exports.
He added that the deregulation committee had recommended withdrawing or suspending more than 200 QCOs covering intermediate goods, a move that has been welcomed by industry.
The study recommends that the government exercise greater caution before imposing QCOs on intermediate goods. It says domestic production capacity should be assessed before restricting imports and calls for stronger testing and certification infrastructure to reduce compliance costs.
The existing QCOs should also be reviewed periodically instead of remaining in force indefinitely, the study recommends.
Closing the discussion, Ahluwalia said the government should avoid treating imports as inherently undesirable if it aims to become a major exporting economy. He also stressed the need for wider consultation with industry before introducing such regulations. That, he said, would improve policy design and reduce the need for frequent course corrections.
(Edited by Ajeet Tiwari)