‘The success of quality standards should be judged by whether they improve quality without constraining the scale, efficiency and competitiveness of Indian manufacturing’
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India needs firms that can grow, integrate into global value chains and compete internationally. To make this happen, the Quality Control Order (QCO) reassessment exercise needs to move forward.
Concerns over India’s QCOs and other non-tariff barriers also surfaced during the WTO’s eighth Trade Policy Review of India, held in July 2026, and were raised not only by major trading partners such as the European Union and the United States, but also by fellow BRICS members, including Brazil, China and Indonesia.
The number of products covered under QCOs expanded rapidly after 2019, from 88 products in 2019 to 765 by the end of December 2024. However, the pace of expansion slowed considerably towards the end of 2025. This was driven by an important shift in the government’s approach, with several QCOs being revoked or suspended, particularly those covering intermediate goods, as mandatory certification had raised concerns about input availability, costs and potential supply-chain disruptions.
The government’s new order
Recently, the government introduced the Transition Facilitation (Quality Control) Order, 2026, notified by the Department for Promotion of Industry and Internal Trade (DPIIT) on June 25, 2026. The order seeks to ease regulatory bottlenecks by allowing eligible firms facing difficulties in obtaining BIS Scheme-I certification to source products temporarily from BIS Scheme-II-licensed suppliers in specified sectors, including toys, footwear and air conditioners. Access to this transition mechanism is subject to prescribed eligibility criteria and approval by a committee constituted by the DPIIT.
These developments are welcome steps towards reducing the risk that quality regulations inadvertently disrupt supply chains or constrain domestic manufacturing. More than 600 QCO-covered products remain to be reassessed, including several critical intermediate inputs used across key manufacturing sectors such as chemicals, steel, textiles, machinery and electronics, and rubber and plastics.
Existing regulations can place a disproportionate burden on smaller industrial players, both by constraining their access to critical inputs and by imposing relatively high compliance costs. Given the extensive downstream linkages of these inputs, the next phase of QCO rationalisation should focus particularly on regulations affecting intermediate goods and assess their implications not only for product quality but also for input availability, costs, competitiveness and domestic value addition.
Findings of a recent study
In this regard, a recent CSEP study examined this question in detail for firms that use chemicals. Chemicals are critical intermediate inputs for downstream sectors such as rubber and plastics, pharmaceuticals and electronics, among others. The first QCO for a chemical product was introduced in 2018, and the number of chemical products covered rose to 52 by 2024. Consequently, the share of chemical-using firms exposed to regulation on the input side rose from 11.8% in 2019 to 56.6% in 2024.
When examining the impact of QCOs on chemicals on downstream user industries, the study finds that the effects vary considerably by firm size. Among larger firms, input QCOs are associated with a 9.6% increase in production alongside a sharp 37% decline in gross value added (GVA). This suggests that while larger firms can sustain and even expand output, this comes at the cost of lower value addition, potentially reflecting higher input costs and their ability to pass on at least part of these costs through higher output prices.
For smaller firms, input QCOs have no statistically significant effect on production or GVA but are associated with a steep 47.6% decline in profitability. This points to their more limited ability to absorb rising input costs and bear the additional compliance costs associated with QCOs.
The empirical evidence makes it clear that the adverse effects of QCOs on key inputs are not confined to smaller downstream firms. Even larger firms, which are better placed to absorb regulatory and input-cost shocks and are often able to sustain production, can experience significant declines in value addition. Supply-chain implications should therefore become an integral part of both the design of new QCOs and the reassessment of existing ones. Finally, the disproportionate burden on Micro, Small and Medium Enterprises (MSME) requires specific policy attention. Smaller firms need dedicated assistance to meet certification and compliance requirements, alongside appropriately designed exemptions or transition periods where compliance costs are particularly burdensome.
Quality standards, greater scale
As India works towards the ambition of Viksit Bharat 2047, achieving greater scale in manufacturing will be critical. Quality standards have an important role to play in that journey, but their success should ultimately be judged not by the number of products brought under mandatory regulation, but by whether they improve quality without constraining the scale, efficiency and competitiveness of Indian manufacturing.
Prerna Prabhakar is a Fellow at Centre for Social and Economic Progress (CSEP); Nancy Gupta is a Visiting Fellow at the Crawford School of Public Policy. The views expressed are personal
Published – September 24, 2026 12:08 am IST
