Quality Control & India’s Manufacturing Growth

QUALITY CONTROL AND INDIA’S MANUFACTURING GROWTH

Syllabus:

GS-3:

• Effects of Liberalization on the Economy
• Industrial Policy and their Effects on Industrial Growth

Why in the News?

India is reassessing its expanding Quality Control Orders (QCOs) amid concerns that mandatory certification can raise input costs, restrict supply and weaken manufacturing competitiveness. The issue was also raised during the WTO’s eighth Trade Policy Review of India in July 2026. A new transition mechanism and reassessment of over 600 products could reshape India’s manufacturing regulatory framework.

RISE OF QUALITY CONTROL ORDERS

• Rapid Expansion: Products covered by QCOs increased from 88 in 2019 to 765 by December 2024, reflecting a major expansion of mandatory quality regulation.
• Quality Objective: QCOs seek to ensure that specified products conform to Bureau of Indian Standards (BIS) requirements, protecting consumers and improving product quality.
• Industrial Policy: Mandatory standards can encourage domestic producers to upgrade technology, improve processes and compete more effectively in quality-sensitive markets.
• Regulatory Concerns: Excessive or poorly sequenced QCOs can create non-tariff barriers, particularly when domestic certification capacity and compliant suppliers remain limited.
• Policy Reassessment: The government’s decision to revoke or suspend several QCOs, particularly for intermediate goods, indicates recognition of their wider supply-chain consequences.

QCOs AND GLOBAL TRADE COMPETITIVENESS

• WTO Scrutiny: India’s QCO framework attracted concerns during the WTO Trade Policy Review in July 2026, including from major trading partners and fellow BRICS economies.
• Non-Tariff Barriers: Although QCOs are formally quality regulations, their design and implementation can function as non-tariff barriers when certification requirements unnecessarily restrict imports.
• Input Dependence: Indian manufacturers often rely on imported or externally sourced intermediate goods, making regulatory restrictions on inputs potentially disruptive for downstream production.
• Export Competitiveness: Higher input costs can reduce the competitiveness of Indian products in international markets, particularly where producers compete on price and delivery reliability.
• Trade Balance: India therefore needs to reconcile legitimate quality and consumer-safety objectives with its broader ambition to integrate domestic firms into global value chains.

INTERMEDIATE GOODS AND SUPPLY-CHAIN EFFECTS

• Production Linkages: Intermediate inputs such as chemicals, steel, textiles, machinery, electronics, rubber and plastics feed into numerous downstream manufacturing activities.
• Input Availability: Mandatory certification requirements can reduce the number of eligible suppliers, potentially creating shortages, delays and production bottlenecks.
• Cost Transmission: Higher certification and procurement costs can travel through supply chains, increasing production costs for downstream firms.
• Value Addition: Even when firms maintain production volumes, higher input costs can reduce gross value added, weakening the efficiency of manufacturing activity.
• Policy Sequencing: QCOs for intermediate goods therefore require assessment of their upstream and downstream effects, rather than evaluating individual products in isolation.

EVIDENCE FROM CHEMICAL- USING INDUSTRIES

• Sectoral Exposure: The number of chemical products covered by QCOs increased to 52 by 2024, substantially expanding the regulatory exposure of downstream manufacturers.
• Wider Reach: The proportion of chemical-using firms exposed to input-side QCO regulation increased from 8% in 2019 to 56.6% in 2024.
• Large Firms: Among larger firms, input QCOs were associated with a 6% increase in production but a substantial 37% decline in GVA, according to the cited CSEP study.
• Small Firms: Among smaller firms, QCOs showed no statistically significant impact on production or GVA but were associated with a 6% decline in profitability.
• Interpretation: The evidence suggests that regulatory costs can affect firms differently, but input-side quality regulation can impose economy-wide costs through manufacturing supply chains.

MSMEs AND THE COMPLIANCE BURDEN

• Disproportionate Impact: Micro, Small and Medium Enterprises (MSMEs) generally possess fewer financial and administrative resources to absorb certification and regulatory compliance costs.
• Profitability Pressure: Smaller manufacturers may lack sufficient pricing power to transfer higher input and compliance costs to customers, thereby experiencing significant profit-margin compression.
• Certification Access: Limited access to approved suppliers or certification facilities can create additional barriers for smaller firms attempting to comply with mandatory standards.
• Transition Support: Appropriate transition periods, exemptions and technical assistance can help smaller businesses adapt without compromising essential quality requirements.
• Industrial Inclusion: MSME-sensitive regulation is crucial because excessive compliance burdens could inadvertently accelerate market concentration by favouring larger firms with greater financial capacity.

TRANSITION FACILITATION ORDER, 2026

• Regulatory Relief: The Transition Facilitation (Quality Control) Order, 2026, notified by DPIIT on June 25, seeks to address certification-related supply constraints.
• Alternative Sourcing: Eligible firms facing difficulties obtaining BIS Scheme-I certification can temporarily source specified products from BIS Scheme-II-licensed suppliers.
• Targeted Sectors: The transition mechanism initially covers sectors including toys, footwear and air conditioners, subject to prescribed eligibility conditions.
• Institutional Approval: Access requires approval from a committee constituted by DPIIT, providing an administrative mechanism for addressing exceptional compliance difficulties.
• Broader Reform: The measure represents a move towards regulatory flexibility, but its effectiveness will depend upon transparent implementation and comprehensive reassessment of remaining QCOs.

CONCLUSION

Quality regulation is essential for building consumer confidence and internationally competitive manufacturing, but its success cannot be measured by the number of products subjected to mandatory certification. India’s QCO reset should prioritise supply-chain resilience, input availability, MSME viability, value addition and export competitiveness, while retaining rigorous standards where genuine quality and safety concerns justify regulation.

SOURCE: The Hindu

MAINS PRACTICE QUESTION

“Quality standards can strengthen manufacturing competitiveness, but poorly designed non-tariff regulations can simultaneously constrain production and global value-chain integration.” Examine the implications of India’s Quality Control Orders for manufacturing, MSMEs and intermediate goods, and suggest measures to balance quality assurance with industrial competitiveness.