QCO: Quality Standards and Manufacturing Competitiveness

GS-III – Indian Economy | Manufacturing | Industrial Policy | MSME Manufacturing Sector in India

Why in News?

• WTO Trade Policy Review: In July 2026, during the eighth WTO Trade Policy Review of India, several member countries including the EU, and BRICS members Brazil, China and Indonesia, raised concerns regarding QCOs & other non-tariff barriers.
• Growth of QCOs: Products under coverage increased from 88 in 2019 to 765 by December 2024.
• Government Policy Shift: Around late 2025, expansion slowed as various QCOs were revoked or suspended, most notably those covering intermediate goods amid input availability and costs and supply-chain disruptions.
• Transition Facilitation (Quality Control) Order, 2026: On June 25, 2026 DPIIT had notified a new Government Order called the Transition Facilitation (Quality Control) Order, 2026 with an aim to iron out regulatory wrinkles.

The Transition Facilitation (Quality Control) Order, 2026

• Temporary Sourcing: Eligible firms who have had hardship in getting the BIS Scheme-I certification can temporarily source products from BIS Scheme-II-licensed suppliers, in certain sectors like toys, footwear & air conditioner.
• Eligibility and Approval: Subject to the prescribed eligibility criteria and approval by a committee formed by DPIIT, access can be availed of.

Concerns Regarding QCOs

• Intermediate Goods: Over 600 QCO-covered products are still awaiting reassessment, such as the key intermediate inputs found in chemicals, steel, textiles, machinery, electronics, and rubber and plastics.
• Compliance Burden: Smaller industrial players may face compliance burden from existing regulations that restrict access to essential inputs and incur significant costs for compliance.
• Supply-Chain Disruptions: QCOs can lose availability of inputs, their costs and competitiveness and domestic value addition.

Results of a New CSEP Study

• Chemical QCOs: The first QCO for chemical products was introduced in 2018 and the count of covered products increased to 52 by 2024.
• Regulation Exposure: 2019, the share of chemical-using firms exposed to input-side regulation rose from 11.8% in 2019 to 56.6% by year «24}}
• Effect on Larger Enterprises: Input QCOs were found to be linked with 9.6% higher production and approximately 37% reduction in GVA (Gross Value Added).
• Impact on Smaller Firms: Input QCOs had no statistically significant impact on production or GVA but induced a 47.6% drop to profitability.
• Supply-Chain Impacts: Negative impact is not limited to smaller firms. But larger companies can take even harsher hits to the value they add.

Way Forward

• Revitalise Intermediate Goods: Focus QCO rationalisation particularly on regulations affecting intermediate goods.
• Look Beyond Raw Processing: Assess product quality relative to input availability, consumer price and competitive cost and domestic value addition.
• MSME Focused Support: Specific certification and compliance facilitation.
• Well-Designed Exemptions: Provide for well-designed excesses or change momentum in spots where agreement expenses are particularly damaging.
• Supply-Chain Considerations: Embed supply-chain implications into processes to design new QCOs and reassess existing ones.

Conclusion

• Manufacturing Competitiveness: As  works towards Viksit Bharat 2047, India will need to become more competitive in manufacturing by expanding scale.
• Quality Standards: They should be evaluated not on how many products are regulated mandatorily but whether they finally improve quality without inhibiting the scale, productivity and competitiveness of Indian manufacturing.

UPSC Mains Practice Question

Q. Quality Control Orders (QCOs) are important for improving product quality but the implications on input availability, cost of compliance & manufacturing rivalries requires careful reassessment. Discuss.