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Journalism of Courage
At a time when India is rapidly opening its market to foreign goods under new Free Trade Agreements (FTAs), a parallel effort to improve quality standards in Indian products has proved to be ill-planned and costly, not only for India’s much-needed export competitiveness but also for domestic Micro, Small and Medium Enterprises (MSMEs).
A Niti Aayog report, which is yet to be made public, by the ‘High-Level Committee on Non-Financial Regulatory Reforms’ said that a majority of the Quality Control Orders (QCOs) cover raw materials and intermediate products instead of finished goods, and in several cases, the new quality standards are not even in line with global benchmarks.
QCOs — or legal directives issued by government ministries or departments under the Bureau of Indian Standards Act require products made or imported into India to meet specific standards — have increased input costs and caused production delays for downstream industries due to the limited availability of accredited testing facilities in the country, Niti Aayog said. The imposition of quality norms, particularly on intermediate products, has translated directly into “reduced cost competitiveness for downstream manufacturers”, the report said.
A working paper released by the Centre for Social and Economic Progress (CSEP) in September this year said that imports fell by 13 per cent in the year after a QCO notification and by 24 per cent over the long term. The research showed that exports initially rose by 10.6 per cent in the first year but declined by 12.8 per cent in the second year, with no long-term export gains observed.
“Intermediate goods face the steepest decline. QCOs lead to a 16 per cent reduction in imports in the year of notification, a 17.5 per cent decline in the subsequent year, and a 30 per cent fall over the long term. Overall, QCOs suppress imports — especially of intermediate inputs critical to domestic production — without improving export performance, challenging their efficacy in boosting competitiveness,” the CSEP report said.
Market concentration and impact on exports
Niti Aayog said that quality control norms have affected the competitiveness of export-intensive and employment-oriented sectors such as footwear and electronics, which employ around 4.5 million people across various clusters. Both sectors depend on imported intermediate materials that determine end-product performance and design flexibility. “The QCOs on intermediate products critical for these sectors have disrupted access to those that are either not produced in India or are manufactured by very few suppliers,” the think tank said.
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.
CSEP’s research also showed that stakeholders reported that MSMEs face disproportionate compliance burdens, including certification costs of Rs 10,000–Rs 15,000 per consignment and long delays in approvals — especially for foreign suppliers. Limited domestic alternatives for critical inputs have also caused production bottlenecks.
“Lack of harmonisation with international standards and inadequate testing infrastructure worsens trade friction. Larger firms are better able to absorb compliance costs, sometimes benefiting from the exclusion of smaller competitors,” CSEP said.
MSMEs most affected
“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 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.”
The report also recommended that the Steel Import Monitoring System (SIMS) and No Objection Certificate (NOC) process for grades of steel not covered under BIS 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.
