Quality Control Orders (QCOs) are disproportionately affecting smaller firms, with input QCOs associated with a 9.6% increase in production value for larger firms, reflecting higher product prices passed on to consumers. According to the Centre for Science and Environment Policy (CSEP) study, this leads to a sharp decline in Gross Value Added (GVA) by 37%. The study found that output QCOs lead to GVA declining by 44% and profits by 58.9%, while remaining insignificant for larger firms' efficiency and profitability. QCOs on input products specifically lead to a 47.6% decline in profitability for small firms due to high-cost burden, highlighting the disproportionate impact on MSMEs. The analysis, using firm-level data from the Annual Survey of Industries (ASI) covering 2,731 firms using chemical inputs from FY 2015 to FY 2024, reveals that 56.6% of chemical-using firms are affected on the input side and 66.4% on either input or output side.
Speaking at CSEP's discussion on QCOs in India's chemical sector, Montek Singh Ahluwalia, Distinguished Fellow at CSEP and former Deputy Chairman of the Planning Commission, argued that QCOs on intermediate products hinder ease of doing business. As reported by CSEP, he stated that QCOs originated as protectionist measures disguised as quality regulations. Sharat Chander, Director of Public Affairs at Samsung, explained that refrigerators face multiple QCO requirements not only for the final product but also for components like steel, copper, compressors, glass and fasteners. He warned that QCOs used as non-tariff barriers could make markets dependent on a handful of suppliers, affecting price competitiveness. He also urged the industry to engage more actively with the government before policies are finalised.
Ishtiyaque Ahmed, Programme Director at Industry & Foreign Investment, NITI Aayog, highlighted that when QCOs are issued by ministries they become compulsory, creating most of the problems. According to CSEP, he added that QCOs have contributed to supply-chain disruptions, higher input costs and certification hurdles. Rahul Ahluwalia, Founder-Director of Foundation for Economic Development, argued that India's comparative advantage lies in downstream manufacturing, where market opportunities are much larger than in upstream component production. He stressed that restricting access to cheaper intermediate goods raises production costs, reduces competitiveness, and ultimately hurts manufacturers, consumers and the overall economy. The study found that about 46% of QCOs in force by December 2024 applied to intermediate inputs, raising concerns about downstream production disruptions.
QCOs enforced by the Bureau of Indian Standards were introduced in 2016 by mandating existing voluntary standards in Indian manufacturing. These regulations require both domestic manufacturers and importers to ensure products meet all testing and certification requirements before being sold in the market. The number of QCO-hit products increased dramatically from 88 in 2019 to 765 in 2024, with the majority applying to intermediate goods or raw materials. Towards the end of last year, 14 QCOs across three sectors were revoked, while last month the Department for Promotion of Industry and Internal Trade (DPIIT) offered an alternative scheme for ten items including toys, personal protective equipment, air conditioners and footwear to ensure quality standards without QCO rigours as a transition arrangement. Chemical-related QCOs increased from virtually none before 2018 to 52 by 2024, with the sharp expansion after 2018 driving strong industry pressure for reforms.
The CSEP working paper recommended that new QCOs should be imposed strictly on quality grounds, with clearly articulated objectives. As reported by CSEP, the study stated that intermediate goods should be regulated with particular caution, given their systemic role in production. The paper emphasized that before imposing QCOs, policymakers must assess domestic production capacity and ensure adequate testing and certification infrastructure. Reducing the regulatory burden on micro, small and medium enterprises and safeguarding supply-chain efficiency are essential for strengthening competitiveness and enabling India's integration into global value chains. The study noted that towards the end of 2025, there was a policy decision to revoke several Quality Control Orders (QCOs), receiving mixed responses from the industry, with some viewing it as policy uncertainty while others welcomed the reduction in excessive compliance burdens. Such reassessment could lead to a more calibrated and evidence-based framework for future QCO implementation.
