QCO norms hurting MSMEs, Aiding Large Firms: FISME Leader

What is the core objective behind introducing Quality Control Orders? Can you also briefly explain what exactly a QCO is? And why did the number of products brought under QCOs rise in 2024?

QCOs are effectively non-tariff barriers introduced by the government across sectors ranging from textiles, footwear, plastics and steel, with more than 150 orders only in steel. After the Galwan incident in 2019, the government started introducing many QCOs as a measure to stop imports from China and as a way to boost domestic manufacturing.

In short, QCOs are tools that restrict imports from entering the country while encouraging domestic manufacturing. But the reality has turned out to be very different.

Has it actually improved product quality and consumer safety in the sectors where they were implemented?

QCOs were implemented across all sectors, not just in consumer safety-related sectors like electricals or appliances. They were introduced in sectors like footwear and steel as well.

Why are industries, especially MSMEs, expressing concerns over QCO implementation? Is the concern about QCOs themselves or the procedures involved?

The concerns are about both. MSMEs oppose QCOs because they believe these measures are helping large players consolidate their markets.

If you take textiles as an example, one major player with a large market share in viscose staple fibre and another dominant player in polyester staple fibre approached the government seeking implementation of QCOs. Small manufacturers who were earlier sourcing these raw materials at lower prices from abroad and exporting finished products were then forced to buy domestically at much higher prices.

According to a report by a textile association, prices of these fibres rose by around 20% domestically after QCOs were imposed, while exports declined by nearly 15%. As a result, export opportunities shifted to countries like Vietnam and Bangladesh, which could continue importing cheaper raw materials from China and export finished products globally.

Was there actually concern about the quality of raw materials and intermediates coming into the country?

There are concerns, and I will not deny that substandard products can enter the country. A country like China manufactures both high-quality and low-quality products depending on the buyer’s requirements.

But the decision should ultimately rest with the consumer regarding the standards they want. For example, if a company like Tata Motors requires a specific type of fastener for an EV, it will specify those standards and manufacturers will produce accordingly.

We should not force consumers to buy premium-quality products when they may only need basic products. If a person can afford a Paragon slipper, they should be free to buy that rather than being forced into Louis Vuitton-level standards. That is where the gap lies.

When a QCO is implemented in a sector, all industries — large, medium, small and micro — are affected. Why does it disproportionately affect MSMEs in terms of compliance and cost?

Large industries are able to consolidate their markets, but MSMEs operate on very low margins and limited working capital.

The official timeline mentioned by the Bureau of Indian Standards for obtaining a foreign manufacturer licence is six to eight months. Even one month of non-availability of raw materials can wipe out an MSME completely.

The timelines, procedures and rampant corruption at various stages are major concerns. It has effectively taken industries back to the days of the Licence Raj.

QCOs are supposed to be about quality and compliance, but the system has become entirely certification-driven. Every factory in the world that wants to export to India has to become BIS-certified. That is practically impossible.

If other countries begin imposing similar requirements on Indian exporters, our MSMEs will struggle to survive internationally as well.

How much does compliance cost for certification of one imported raw material under a QCO?

Let me explain with an example. Suppose I am a fastener trader dealing in 10 varieties of fasteners. BIS requires a performance bank guarantee of around ₹10 lakh for one product.

On top of that, there are certification fees, testing fees and other expenses. Recently, a Vietnamese factory that sent 29 samples of steel fasteners to India was quoted ₹16.5 lakh for testing, even though actual testing costs would have been only a fraction of that amount.

The foreign manufacturer also has to bear airfare and stay expenses for BIS officials visiting the factory, apart from licensing fees, renewal fees and marking fees. All this discourages manufacturers from exporting to India.

On average, how much would importing one product with QCO certification cost?

Roughly ₹15 lakh to ₹20 lakh per product certification. That amount goes only into certification.

Which industries were raising concerns about QCOs? The government has withdrawn QCOs in some sectors and products. Have things improved there?

Yes, things have improved in sectors where QCOs were withdrawn. A high-level committee on non-financial regulatory reforms under former Cabinet Secretary Rajiv Gauba was formed under NITI Aayog, and FISMI was part of it.

The committee recommended removal of QCOs in sectors such as VSF, PSF, plastics, chemicals and fertilizers. Some QCOs were removed, but in steel very little has changed.

The committee also suggested easing compliance processes on the SIMS portal, but not much movement has happened in the steel ministry.

Another issue is dual certification. Suppose a Vietnamese factory exports BIS-certified cold rolled steel coils to India. The ministry later mandated that even the raw material supplier to the Vietnamese factory must obtain BIS certification.

This means even a supplier in Africa, which has no direct link to India, must get BIS certification so that the Vietnamese factory can continue supplying to India. This dual certification system is extremely difficult.

With these restrictions, monopolies and cartels are gaining strength. In the steel sector, revenues may have risen by only around 5% quarter-on-quarter, but profits have jumped by 40–50%, indicating abnormal gains.

How are foreign manufacturers reacting to these compliance requirements?

Large manufacturers supplying huge volumes to India are able to manage the compliance burden because they earn substantial profits. But a small MSME in Punjab importing 50 tonnes of steel every month cannot convince its foreign supplier to go through such a complicated certification process.

That is why we have suggested a compliance mechanism where quality checks can be done at Indian ports instead.

If dumping is the issue, there is already a mechanism through the Directorate General of Trade Remedies, which can investigate and impose anti-dumping or safeguard duties where required.

How are these non-tariff barriers affecting India’s export competitiveness?

QCOs are being projected as a way to make India a global manufacturing hub, but I think that is a misplaced projection.

QCOs do not apply to exports. Companies exporting products to other countries are not required to comply with QCOs. These rules apply only to domestic manufacturing and imports.

Were QCOs able to improve the manufacturing sector in the last few years?

I do not think QCOs have significantly helped domestic manufacturing, except perhaps in a few sectors like toys, and even that needs verification.

Back in 2014-15, manufacturing contributed around 15% to GDP. The Prime Minister had envisioned raising this to 25% by 2025, similar to countries like Vietnam. But even in 2025-26, manufacturing remains around 15–16% of GDP.

This clearly shows that initiatives like Make in India, PLI incentives and QCOs have largely benefited only a few large players and consolidated markets further.

Can India strike a balance between quality enforcement and ease of doing business? Should there be a risk-based approach instead of blanket certification?

QCOs should be limited to products where safety concerns are critical to human life, such as electricals and electronic appliances.

The current blanket regime, where almost everything is covered under QCOs, is excessive. There should instead be a risk-based approach.

Take fasteners as an example. There is already a minimum import price mechanism to prevent under-invoicing. The DGTR also conducted a suo motu investigation last year and found no dumping in fasteners. So why impose QCOs there?

Fasteners include lakhs of varieties, and this gives authorities at ports excessive discretionary power, leading to rent-seeking and harassment of importers. Even products not covered under QCOs face delays and scrutiny.

Have you seen MSMEs shutting down because they cannot maintain business operations under these compliance requirements?

Yes. In sectors like steel and textiles, many factories have shut down. My own business is on the verge of closure.

We spent 15 years developing a market for high-quality imported fasteners, but after the QCOs were imposed we have not been able to import properly. Our turnover has fallen by more than 50%.