Quality Control Orders and India’s Manufacturing Growth

25 Sep 2026

Tags: Economy   Planning & Growth   Economic growth

Source: The Hindu

Context: Quality Control Orders (QCOs) are mandatory quality regulations that require specified products to conform to prescribed standards, generally certified by the Bureau of Indian Standards (BIS).

• India has significantly expanded QCO coverage to improve product quality, consumer safety and manufacturing standards.
• However, excessive or poorly designed QCOs can increase input costs, restrict availability of intermediate goods and affect the competitiveness of downstream industries.

Rapid Expansion and Subsequent Rationalisation of QCOs

• Products covered by QCOs increased sharply from 88 in 2019 to 765 by December 2024.
• The pace of expansion slowed considerably towards the end of 2025, with several QCOs being revoked or suspended, particularly for intermediate goods.
• Mandatory certification of intermediate inputs had raised concerns about input availability, compliance costs and supply-chain disruptions.
• Concerns regarding QCOs and other non-tariff barriers (NTBs) were also raised during the WTO’s eighth Trade Policy Review of India in July 2026 by the European Union, United States and BRICS members such as Brazil, China and Indonesia.

Transition Facilitation (Quality Control) Order, 2026

• The Department for Promotion of Industry and Internal Trade (DPIIT) notified the Transition Facilitation (Quality Control) Order, 2026 on June 25, 2026.
• It provides a temporary mechanism for eligible firms unable to obtain BIS Scheme-I certification to source specified products from suppliers licensed under BIS Scheme-II, subject to prescribed conditions and approval by a DPIIT-constituted committee.
• The mechanism initially covers sectors including toys, footwear and air conditioners, aiming to prevent certification requirements from disrupting production and supply chains.

Need for Reassessment of Intermediate Goods

• More than 600 QCO-covered products remain to be reassessed, including intermediate inputs used in chemicals, steel, textiles, machinery, electronics, rubber and plastics.
• Regulations affecting intermediate goods can have extensive downstream effects because higher input costs or shortages can spread across multiple manufacturing sectors.
• The reassessment should therefore examine not only product quality but also input availability, costs, competitiveness, supply-chain resilience and domestic value addition.

Evidence from the Chemical Sector

• Chemicals are important intermediate inputs for sectors such as rubber and plastics, pharmaceuticals and electronics.
• The first QCO for a chemical product was introduced in 2018, and the number of chemical products covered increased to 52 by 2024.
• Consequently, the share of chemical-using firms exposed to input-side QCO regulation increased from 11.8% in 2019 to 56.6% in 2024.
• A Centre for Social and Economic Progress (CSEP) study found that the impact differed significantly according to firm size.

Impact on Larger Firms

• Among larger firms, chemical input QCOs were associated with a 9.6% increase in production but a 37% decline in gross value added (GVA).
• This suggests that firms could maintain or expand output despite higher regulatory and input costs, but their value addition declined, potentially because of higher input costs and partial pass-through into output prices.

Impact on Smaller Firms

• Among smaller firms, QCOs had no statistically significant effect on production or GVA, but were associated with a 47.6% decline in profitability.
• Smaller firms may have less capacity to absorb higher input and compliance costs, making regulatory burdens particularly significant for Micro, Small and Medium Enterprises (MSMEs).

Implications for Manufacturing

• The adverse effects of QCOs are not limited to smaller firms; even larger firms can experience lower value addition despite maintaining production levels.
• Restrictions on critical intermediate inputs can therefore affect manufacturing scale, profitability, competitiveness and domestic value addition.
• QCO design should incorporate supply-chain impact assessment before imposing mandatory standards on critical inputs.

Policy Priorities

• Rationalise QCOs: Reassess existing regulations, especially those covering intermediate goods with extensive downstream linkages.
• Support MSMEs: Provide assistance for certification, testing and compliance, along with targeted exemptions or transition periods where compliance costs are disproportionately high.
• Balance quality and competitiveness: Standards should improve product quality without creating avoidable barriers to input access or manufacturing expansion.
• Integrate global value chains: Predictable standards and reliable access to quality inputs are essential for Indian firms seeking to scale up and participate in global value chains (GVCs).

Way Forward

• India's manufacturing strategy requires quality enhancement alongside scale and cost competitiveness.
• The effectiveness of QCOs should therefore be assessed not by the number of products regulated, but by whether they raise quality while preserving input availability, efficiency, profitability and international competitiveness.

Quality Control Orders QCOs make compliance with specified Indian Standards mandatory for identified products. They can improve quality, consumer protection and industrial standards, but may also function as non-tariff regulatory barriers when compliance requirements restrict imports or increase production costs. BIS Certification Schemes BIS Scheme-I generally involves product certification through the ISI Mark Scheme for products covered by compulsory certification. BIS Scheme-II covers products under the Registration Scheme, including specified electronic and IT products where conformity assessment and registration requirements apply.