Context

• India’s ambition to become a globally competitive manufacturing hub requires firms capable of achieving scale, integrating into global value chains and competing on quality and cost.
• Quality standards are essential for consumer protection and reliable production, but poorly designed regulations can increase costs, restrict inputs and weaken industrial competitiveness.
• The central challenge is to ensure that QCOs improve quality without undermining production, value addition and efficiency.

Rapid Expansion of Quality Control Orders

• The number of products covered by QCOs increased rapidly from 88 in 2019 to 765 by December 2024.
• The expansion slowed thereafter as concerns grew over intermediate goods, where mandatory certification could cause input shortages, higher procurement costs and supply-chain disruptions.
• During the WTO’s eighth Trade Policy Review of India in July 2026, concerns over QCOs and other non-tariff barriers were raised by the European Union, the United States and BRICS members such as Brazil, China and Indonesia.
• This demonstrates that India’s standards regime has implications for both domestic manufacturing and international trade.

The Government’s New Transition Mechanism

• The Transition Facilitation (Quality Control) Order, 2026, notified by Department for Promotion of Industry and Internal Trade (DPIIT) on June 25, 2026, seeks to reduce regulatory bottlenecks.
• BIS Scheme-I certification can temporarily source products from BIS Scheme-II-licensed suppliers in specified sectors, including toys, footwear and air conditioners.
• The mechanism introduces flexibility while maintaining quality oversight.
• However, more than 600 QCO-covered products remain to be reassessed, including critical intermediate inputs used in chemicals, steel, textiles, machinery, electronics, rubber and plastics.

Impact on Firms and Supply Chains

• QCOs affecting intermediate goods can generate consequences across entire manufacturing networks.
• Certification requirements may increase compliance costs, restrict sourcing options and raise input prices.
• These effects can ultimately influence exports, profitability, domestic value addition and competitiveness.
• The burden is particularly significant for Micro, Small and Medium Enterprises (MSMEs), which generally have fewer financial and organisational resources to absorb certification and compliance expenses.
• Therefore, QCO assessment must examine not only product quality but also downstream supply-chain effects.

Evidence from the Chemical Sector

• A CSEP study of chemical-using firms illustrates these consequences.
• The number of chemical products covered by QCOs rose to 52 by 2024, while the share of chemical-using firms exposed to input regulation increased from 11.8% in 2019 to 56.6% in 2024.
• Among larger firms, input QCOs were associated with a 9.6% increase in production but a 37% decline in gross value added (GVA).
• This suggests that firms could sustain output while experiencing lower value addition, potentially because of increased input costs and partial transmission of these costs through prices.
• For smaller firms, QCOs had no statistically significant effect on production or GVA but were associated with a 47.6% decline in profitability.
• Their limited ability to absorb additional costs makes them particularly vulnerable.
• The evidence shows that regulatory costs affect firms of different sizes differently.
• Scale provides resilience but does not eliminate efficiency and value-addition losses.

Quality Standards and Viksit Bharat 2047

• India’s Viksit Bharat 2047 ambition depends on manufacturing firms achieving greater scale, productivity and international competitiveness.
• Quality standards can support this transformation by improving reliability and encouraging firms to meet global requirements.
• However, regulation should be judged by whether it enhances quality without constraining scale, efficiency, innovation and competitiveness.
• The number of products regulated is therefore a poor measure of policy success.

The Way Forward: Towards Smarter Regulation

• India needs a risk-based and supply-chain-sensitive approach to QCOs.
• Regulations covering intermediate goods should be evaluated according to their effects on input availability, costs, competitiveness and domestic value addition.
• This does not require abandoning quality standards. Effective standards can prevent substandard products, promote technological upgrading and strengthen India’s participation in global markets.
• The objective should instead be regulatory quality rather than regulatory quantity.
• MSMEs may require technical assistance, simplified compliance procedures, transition periods and targeted exemptions where immediate certification imposes disproportionate burdens.

Conclusion

• India must balance quality assurance with industrial competitiveness.
• QCOs can strengthen manufacturing when appropriately designed, but excessive or poorly sequenced requirements for intermediate goods can disrupt supply chains and weaken firms.
• The ongoing reassessment provides an opportunity to develop a framework combining strong standards, regulatory flexibility, supply-chain assessment and MSME support.
• Such an approach can help Indian firms achieve scale, generate greater value and compete effectively in global markets.