Quality Control Order tilting market against MSMEs, warns Niti Aayog

Recommending the revocation of QCOs on synthetic fibres, plastics and polymers, base metals, and some inputs for the footwear and electronics sectors, the report suggested that the Ministry of Steel suspend QCOs on steel product lines covering raw materials and intermediates, while retaining norms for construction and pressure-vessel categories.

Export competitiveness hurt due to QCOs

The report said that the Steel Import Monitoring System (SIMS) and No Objection Certificate (NOC) process for grades of steel not covered under BIS should be revoked, as existing mechanisms are already available with the Directorate General of Foreign Trade (DGFT), the designated nodal agency for monitoring exports and imports.

The Indian Express on January 27 this year reported that QCOs — spanning metals and textiles to chemicals and energy — are resulting in market concentration among large companies at the cost of MSMEs, as the latter face higher costs as downstream users across sectors.

On November 27 last year, this paper reported that the Embassy of Japan in India had raised concerns with two central ministries — the Ministry of Steel and the Ministry of Commerce and Industry — stating that Japanese steel consignments were being held up at Indian ports by Customs officials due to the absence of a No Objection Certificate (NOC).

“MSMEs have been among the most affected due to the imposition of QCOs, as they often face financial and logistical challenges in meeting the associated certification, testing, and factory inspection requirements. Testing backlogs at BIS-approved laboratories can extend over several months, while the cost of obtaining and renewing licences may be prohibitive for small enterprises operating with limited margins,” the report said.

Indicating that the domestic industry has paid a heavier price for QCOs compared to units in SEZs, the report said, “Unlike exporters located in SEZs, MSMEs operating in the domestic tariff area (DTA) with mixed domestic and export portfolios often lack access to exempted import channels, thereby reducing their competitiveness in both domestic and international markets.”

Market concentration due to QCOs

Niti Aayog pointed out that due to challenges faced by global suppliers in obtaining BIS certification, the implementation of QCOs has, in effect, led to “greater concentration among domestic suppliers in some sectors, giving them the ability to raise prices above global levels”.

“For instance, polyester fibre, yarn, and some steel products command 15–30 per cent price premiums over global benchmarks, affecting the cost competitiveness of downstream industries in the international market. This is one of the main reasons for India’s declining share in global apparel exports despite the withdrawal of anti-dumping duties on select products,” the report said.

The report further noted that in several product categories, finished goods are already regulated through established safety or performance standards, but QCOs have also been extended to cover the inputs used in their production.

“This dual application of QCOs — at both the input and finished goods stages — is particularly evident in sectors such as steel, copper, aluminium, and polyester value chains. This duplication not only increases administrative burden but also creates potential ambiguities regarding prevailing standards, thereby adding to the uncertainty faced by both domestic producers and importers,” the report said.