Do quality rules help or hurt India's manufacturing growth

The brief in 6 cards

1. Context1 / 6
   • Quality Control Orders (QCOs) make specified Indian Standards compulsory, enforced through the Bureau of Indian Standards (BIS).
   • They aim to ensure product safety and quality, and to stop unfair competition from substandard goods.
   • Their number has grown sharply: from 88 products covered in 2019 to 765 by December 2024, according to the Centre for Social and Economic Progress (CSEP).
   • A CSEP study finds that when QCOs cover a firm's inputs rather than its finished products, the effects on firms are often negative, and worse for small firms.
   • The government has since eased some rules and reviewed several QCOs on intermediate goods.
2. Key highlights2 / 6

   Concentrated on inputs: About 45.7% of QCOs in force by December 2024 covered intermediate products, including chemicals, metals, machinery, textiles, plastics and rubber.

   Chemicals as a case study: QCOs on chemicals rose to 52 products by 2024. The share of chemical-using firms exposed to input-side QCOs rose from 11.8% in 2019 to 56.6% in 2024.

   Imports fell, exports did not gain lastingly: CSEP found imports of affected products fell 13% in the first year and 24% over the longer term. Early export gains did not hold.

   Large firms: Input-side QCO exposure was linked to a 9.6% rise in production, but a 37% fall in Gross Value Added (GVA). More output did not mean more value added at home.

   Small firms: The same exposure was linked to a 47.6% fall in profitability, even though production and GVA showed no significant change.

   A policy correction: Several QCOs on intermediate goods were withdrawn or suspended during 2025. In June 2026, the government created a temporary alternative route for firms struggling to get certified.

3. Key concepts3 / 6
   1. Quality Control Order (QCO)

   • A QCO is a government order that makes an Indian Standard compulsory for a product. Without meeting it, that product cannot be made, imported, sold or distributed in India.
   • It is issued under the BIS Act, 2016, and enforced through BIS certification, often shown as the ISI mark.
   • QCOs apply equally to domestic and imported goods, so both must meet the same standard.
   • Analogy: it works like a locked gate at the market entrance. Only goods carrying the right certificate can pass through.

   News connection: The sharp rise in QCOs, from 88 to 765 products, is the central fact behind this debate.

   2. Intermediate goods and the downstream multiplier

   • Intermediate goods are inputs used to make other products, such as chemicals used in medicines, or steel used in cars.
   • Finished (or output) goods are products sold directly to the final user.
   • When a QCO restricts an intermediate good, its effect does not stop there. It moves down the chain to every industry that depends on that input.
   • Analogy: a delay at a single toll booth on a highway slows every vehicle behind it, no matter where each one is headed.

   News connection: A QCO on a chemical input can raise costs in pharmaceuticals, electronics, rubber and plastics all at once.

   3. Gross Value Added (GVA)

   • GVA measures the value a firm or sector adds during production, calculated as output minus the cost of inputs used.
   • A firm can produce more (higher output) while adding less real value, if its input costs rise faster than its output's price.
   • This is exactly what CSEP found for large firms: production rose, but GVA fell.

   News connection: The CSEP findings show that a QCO can raise a firm's activity level while shrinking its actual economic contribution.

   4. Non-tariff barriers and WTO scrutiny

   • A non-tariff barrier (NTB) is any trade restriction other than a tariff, such as a technical standard, a licensing rule or a certification requirement.
   • The WTO's Trade Policy Review is a periodic exercise where member countries' trade policies are examined by other members.
   • Even a standard meant purely for safety can act as an NTB if it is applied in a way that blocks trade unfairly or without enough transparency.
   • Distinction: A tariff is a tax at the border. An NTB works through rules, paperwork and technical requirements instead.

   News connection: India's Eighth Trade Policy Review, in July 2026, saw trading partners raise concerns about QCOs and technical regulations.

4. Way forward4 / 6

   Regulate by risk: Apply strict QCOs mainly where health, safety or environmental risk genuinely justifies them, such as toys or electrical goods.

   Check the supply chain first: Study domestic capacity, import dependence and downstream effects before notifying a new QCO, especially on inputs.

   Support small firms: Provide subsidised testing, shared laboratories, technical help and longer transition periods for MSMEs.

   Align with global standards: Match Indian Standards to internationally accepted norms where possible, to ease integration into global value chains.

   Review regularly: Reassess existing QCOs using evidence on quality gains, input availability and compliance costs, not just the number of products covered.

   Judge by outcomes: Evaluate QCOs by their effect on quality, productivity, GVA, exports and supply-chain resilience, not by how many products they cover.

5. Note5 / 6

   The new transition mechanism

   What it is: The Transition Facilitation (Quality Control) Order, 2026, notified by DPIIT on 25 June 2026.

   The problem it addresses: Getting BIS certification under the standard route, called Scheme-I, can be slow. It needs a factory inspection, product testing and detailed compliance checks.

   The fix: Eligible firms can temporarily source their input from suppliers already certified under Scheme-II, a simpler, self-declaration-based BIS route, while their own Scheme-I certification is being processed.

   Who can use it: Only companies approved by a DPIIT committee, based on technical capability and compliance record. It does not lower the quality bar; goods must still meet the Indian Standard and carry the mark.

   How long it lasts: Applications are accepted for 24 months from when the Order took effect. The Order itself runs for five years, unless extended.

   Sectors covered: Toys, footwear, air conditioners, furniture, hinges, water heaters, washing machines and other household electrical appliances, among others.

6. Note6 / 6

   Two sides of the debate

   The case for QCOs:

   • They protect consumers from unsafe or substandard products.
   • They can push firms to invest in testing, traceability and better processes.
   • Consistent quality helps Indian goods compete for a place in global supply chains.
   • They can stop domestic manufacturers from being undercut by cheap, substandard imports.

   The case for caution:

   • A large share of QCOs fall on intermediate goods, not finished products, so their cost spreads across many industries.
   • Some sectors under QCOs already have high market concentration among a few large firms, raising fair-competition concerns of a different kind.
   • MSMEs often lack the finance and technical capacity to absorb testing and certification costs easily.
   • Frequent or poorly sequenced QCOs can disrupt supply chains built around specific, often imported, inputs.

   The balance the government is now attempting: Keep genuine safety and quality goals, while easing the burden through mechanisms like the Transition Facilitation Order and periodic reviews.

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