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How India’s QCO spree became a master-class in shooting ourselves in the foot

Several years ago, a group of important policy makers and officials sat down to discuss how to boost domestic production and curtail imports. Some bright spark provided a (seemingly) magic solution – the use of “Quality Control Orders” (QCOs).

Under a QCO, specified products must be certified as per the Bureau of Indian Standards (BIS).On paper, the plan looked smart: it would encourage legitimate Indian manufacturers, weed out dubious importers, and (quietly) allow the government to delay/deny approvals when needed. Best of all, it could be portrayed as a measure to protect consumers from “substandard” goods, and not as a trade barrier. And of course, even advanced economies use similar rules—environmental, safety, or otherwise—to restrict our exports.

The idea took hold and various Ministries decided to jump on the bandwagon. The number of QCOs jumped from 88 in 2019 to 765 in December 2024, according to Centre for Social and Economic Progress, a think tank.

So far, so good.

Alas, the detailing and implementation were… let’s just say, non-BIS certified!

First, the rationale for choosing products appears to have been akin to throwing darts. Several QCOs targeted products we don’t make enough of in India, either due to capability or capacity constraints.

For instance, several grades of polyester chip and yarn were impacted. These are used in technical textiles, garments (especially for export), furnishings, and more. Indian production of those grades is inadequate.

The result: Production at textile clusters like Surat fell by around 20%, while the affected inputs became 15-30% more expensive. Many MSMEs could not service customers and suffered losses. We ended up benefiting foreign competitors!

Another classic example is Cold Rolled Grain Oriented (CRGO) steel. Though we make CRGO steel in India, our production meets only around 12% of demand. This particular grade of steel is essential for transformers, which in turn, form the heart of any electrical system – to step up or down, or regulate voltages.  They are used in electricity transmission, distribution, industry, and even the charger you’re using with this device.

So when the QCO was notified, there was a huge shortage of CRGO. Prices shot up 15%, and transformer makers could not deliver orders. It took inordinately long to certify foreign suppliers from Japan, Korea, etc. As a result, energy evacuation, rail electrification, industrial substations, smart-grid and many other projects across the power sector have been delayed.

The consequences may have been unintended, but the cascading impact of one silly QCO can affect entire industries.

Another flaw was that raw materials and intermediates made up 47% (end 2024) of the QCOs. This led to another crazy situation. For instance, Tinplate required mandatory certification, but end products (cans and containers) did not. Given that several special and thinner grades of tinplate are not made in India; FMCG, retail and pharma firms ended up importing finished cans – even as domestic producers had to cut production!

Another real-world example of non-application of mind.

Then comes the actual testing… who will do it? How? Government and affiliated labs simply didn’t have the capacity to handle the sudden jump in volumes. In many cases, they lacked the technical know-how or diagnostic equipment needed for testing.

As a result, the approval process was chaotic, to say the least! Confusion over standards and an increased layer of bureaucracy made the process extremely slow (and costly!). Even reputed Indian companies struggled to get timely approvals. In ports, goods were stuck due to the inability of customs officials to recognise bad quality components and materials (they don’t have testing capabilities).

Now, several years after the QCO craze began, countless complaints from industry and stark microeconomic data, and much back and forth, some semblance of sanity is returning. The Niti Aayog reportedly recommended the removal of 208 such QCOs in October. And in the past ten days, various ministries have relaxed or eliminated many QCOs, including on polyester inputs and as many as 55 grades of steel. More are expected.

All I can say is better late, than never!

Adding complicated layers of bureaucracy cannot make our industry more competitive, nor improve the ease of doing business. There is no shortcut to competitiveness – we have to “enable” our companies to compete; and reduce, not erect unnatural barriers. We tried this for 50 years, and it got us into this mess in the first place.