QCOs on inputs a ‘malign intervention’, hurt MSMEs: NITI Aayog VC Suman Bery

WTO rules limit the quantum of tariffs on most tariff lines, hence several countries, including India, have increased use of non-tariff trade barriers like quality norms to curb imports.

“It takes a certain genius for the bureaucracy to come up with an intervention which is even more malign (than tariffs) because of arbitrariness. All these compliance costs are murder for MSMEs,” Bery added.

Bery is also Chairperson of the Economic Advisory Council to the Prime Minister (EAC-PM).

QCOs require foreign exporters and domestic producers to mandatorily meet specific quality norms to obtain a certification from the Bureau of Indian Standards (BIS), without which they cannot sell covered products in the Indian market.

In effect, a QCO is a type of technical regulation that can act as a barrier to trade for foreign exporters. As of March 12, India had issued 187 QCOs covering 769 products.

In the case of QCOs on inputs, such intervention can also block access to imported – and often cheaper – raw materials for domestic downstream users. QCOs on input goods range from man-made fibres and chemicals to metals such as steel and copper.

India’s cost disadvantage in power and hand tools, which require raw materials like steel and polyvinyl chloride (PVC), is between 14-17 per cent compared to China, according to NITI Aayog’s new report.

“Higher raw material costs, exacerbated by import restrictions like Quality Control Orders (QCOs), increase production expenses,” the report said.

“QCO restrictions on these raw materials such as steel and PVC add to the adversities of Indian manufacturers by increasing their dependence on higher cost domestic industry,” it added.

Earlier this year, in a pre-Budget meeting with the Chief Economic Advisor and Finance Ministry officials, the Federation of Indian Micro and Small & Medium Enterprises (FISME) said the use of tariff and non-tariff barriers like QCOs on the import of critical raw materials such as steel, copper, aluminum, and polymers is creating an uncompetitive environment for Indian industries, particularly MSMEs.

The report also identified low labour productivity due to restrictive overtime wage rules, lack of sufficient land to expand industrial clusters, and limited tech access as key barriers undermining the sector’s global competitiveness.

“It is estimated that India could export $25 billion worth of tools and create 3.5 million jobs by 2035 with a competitive and strong manufacturing ecosystem,” it said.

India’s annual tool exports hover around $1 billion, accounting for just 1 per cent of the global share – compared to China’s 50 per cent.