India’s QCO Overhaul: Industry Seeks Risk-Based Exemptions

The Indian government’s consideration of further relaxations in Quality Control Orders (QCOs) has prompted industry leaders and experts to call for a complete overhaul of the existing system. This move goes beyond piecemeal changes, aiming for meaningful deregulation, especially after Commerce and Industry Minister Piyush Goyal hinted at potential industry-specific exemptions.

A core criticism of India’s current regulatory framework is its application of mandatory quality standards to intermediate goods, capital equipment, and raw materials. This approach imposes a substantial compliance burden on industries, rather than strictly focusing on consumer-facing products with significant safety or environmental risks.

The Burden of Broad Quality Controls

Industry executives are particularly pushing for exemptions for specialized semiconductor equipment, which already holds globally recognized certifications. A High-Level Committee report previously acknowledged that many QCOs apply to inputs for downstream production, a practice inconsistent with international standards.

The proliferation of QCOs is a significant concern, with their number surging from 88 in 2019 to a peak of 790 last year. Despite recent relaxations bringing the count down to approximately 600, this increase occurred without a corresponding expansion in testing infrastructure.

• A survey by the Japan External Trade Organisation (JETRO) indicated that nearly 72% of Japanese manufacturers in India are adversely affected by Bureau of Indian Standards (BIS) certifications.
• This figure rises to over 90% for general machinery firms, highlighting the widespread impact.
• Most of the current 600 QCO products are intermediate goods, inputs, and capital goods.
• Analysis reveals that 40% of QCOs are in the metal sector, 21% in machinery and electronics, and 45.7% apply to intermediate goods.

This widespread application raises fears of potential disruptions to domestic supply chains. While some QCOs have seen relaxation in sectors like steel and toys, the broader systemic issues persist, disproportionately affecting high-tech sectors and Micro, Small, and Medium Enterprises (MSMEs).

Proposed Reforms and Industry Demands

Proposed reforms include either rescinding unnecessary QCOs or narrowing their scope to focus on finished consumer products. Experts also recommend that new QCOs undergo risk-based assessments by an Inter-Ministerial Group.

• Rescind unnecessary QCOs or narrow their scope to finished consumer products.
• New QCOs must undergo risk-based assessments by an Inter-Ministerial Group.
• Implement risk-based waivers for specialized equipment.

This inter-ministerial evaluation would prevent sectoral ministries from imposing certification requirements without adequately evaluating their impact on manufacturing costs, imports, and supply chains. However, some caution that a broad dilution of QCOs could harm the domestic ecosystem by exposing local companies to unfair competition from cheaper imports, thereby discouraging domestic investment.

High-tech sectors, including electronics, medical devices, and automotive components, along with MSMEs, are disproportionately affected by current QCO protocols. These industries often rely on specialized, low-volume global inputs, making compliance challenging.