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Picture Courtesy: Indian Express

Background of the Story:

India is opening its markets to foreign goods through new Free Trade Agreements (FTAs). At the same time, the government has introduced Quality Control Orders (QCOs) to improve product standards. However, these QCOs have created challenges for domestic manufacturers, especially Micro, Small, and Medium Enterprises (MSMEs), and exporters.

Current Status of Quality Control orders (QCO):

• The number of QCOs has grown significantly: from just 14 QCOs (covering 106 products) in 2014 to 156 QCOs covering 672 products over ten years. (Source: Indian Express)
• Several credible voices, including the NITI Aayog Vice‑Chairperson Suman Bery, have critiqued QCOs when applied to inputs/raw‑materials, calling them a “malign intervention” that raises costs for MSMEs.
• Trade partners and FTAs have flagged QCOs as potential non‑tariff trade barriers—which means these orders are having implications in international negotiations. 

What are impacts on trade?

• Reduced Imports of Critical Inputs: QCOs often cover raw materials and intermediate goods. Foreign suppliers must obtain certifications or meet standards, which delays shipments and raises costs. An econometric study by Centre for Social and Economic Progress (CSEP) found that for goods subject to QCOs: imports fell by about 13% in the year after notification, and by 24% over the long term. 

• Higher Production Costs and Weakened Export Competitiveness: Restricted access to inputs or higher input prices raise production costs for manufacturers. Indian exports lose competitiveness in global markets; short-term export gains may reverse. The CSEP study found that exports initially rose (10.6% in the first year after QCO) but then declined 12.8% in the second year, with no sustained long‑term export gains.  

• Market Concentration and Domestic Supplier Advantage: Fewer suppliers meet QCO requirements; domestic producers gain pricing power. Downstream manufacturers face higher costs and less choice, reducing trade efficiency. Polyester fibre, yarn, and steel saw 15–30% higher prices than global benchmarks, hurting apparel exports. 

• Supply Chain Disruption: QCOs create bottlenecks in global value chains (GVCs) by limiting input availability. Trade flows are disrupted; foreign suppliers may reduce engagement with Indian markets. Intermediate goods constitute 43% of global trade; disruptions directly affect trade integration. 

• Disproportionate Burden on MSMEs: Smaller firms face high certification costs and testing delays, unlike larger firms or exporters in SEZs. MSMEs may reduce exports or struggle to compete domestically and internationally. For e.g. Certification costs range Rs 10,000–15,000 per consignment, with delays of several months. 

What are the way forwards to address the trade and MSME challenges caused by Quality Control Orders (QCOs)?

• Align QCOs with Global Standards: Ensure that quality standards for imports and domestic production are in line with international benchmarks. 

• Strengthen Testing and Certification Infrastructure: Expand BIS-approved laboratories and reduce testing backlogs. Make certification faster and more accessible, particularly for MSMEs and foreign suppliers.  

• Support MSMEs: Provide financial assistance, subsidies, or reduced certification fees for small enterprises. Facilitate faster approvals and exemptions for essential inputs to keep MSMEs competitive in global markets. 

• Leverage Existing Trade Monitoring Systems: Streamline overlapping regulations like SIMS (Steel Import Monitoring System) or NOC requirements. Use the Directorate General of Foreign Trade (DGFT) as the single nodal agency for monitoring exports and imports. 

• Enhance Transparency and Stakeholder Consultation: Engage industry stakeholders in QCO design to prevent unintended trade disruptions. Publish QCO notifications well in advance to give companies time to comply. 

Conclusion:
While Quality Control Orders aim to enhance product quality, their current design—focusing on intermediate goods and misaligned with global standards—has raised costs, disrupted supply chains, and weakened India’s trade competitiveness, especially for MSMEs. A targeted, globally harmonized, and MSME-friendly approach is essential to ensure quality without compromising exports or domestic production.

Source: Indian Express