QCOs: Why ensuring their smooth implementation is need of the hour

The Quality Control Order (QCO), which was launched to realise the prime minister’s vision of achieving manufacturing excellence though Zero Defect, Zero Effect (ZED), is facing turbulence. While India’s quality upgradation mission is still at a nascent stage, a major controversy has erupted over whether we should have mandatory technical regulation on intermediate products and raw materials or not.

 

So far, a total of 187 QCOs covering 769 products have been notified for compulsory certification of BIS by various departments/ ministries of the government. Out of these, a majority are on intermediate products spanning key ministries/ departments like steel, chemicals & petrochemicals, mines, textiles, DPIIT and heavy industries. If the government listens to the demand of those, who favour quashing of QCOs on intermediates and raw materials, we will end up having very few mandatory technical regulations.

 

The QCOs on intermediate products must not be looked at from the narrow lens of producers versus consumers’ interest. The current bone of contention is largely about price and adequate availability of intermediate products post-QCO implementation. The government, too, is cognizant of this and notifies QCOs only after ensuring adequate domestic and overseas licensed capacity granted by Bureau of Indian Standards (BIS). However, QCO will cause some structural shift in the demand and supply of that product, which requires adjustment to be made by both producers and consumers.

 

The fight over QCOs between producers and users has been escalated to their respective line ministries. For instance, MSMEs ministry has expressed concern over steel QCOs, while the Ministry of Textiles registered its reservation over some of QCOs notified by the Department of Chemicals & Petrochemicals on fibre intermediates, used for the production of man-made fabrics. Currently, serious discussions are being held at NITI Ayog and the Department of Economic Affairs (DEA)-steered Inter-Ministerial Group (IMG) to iron out the differences over QCO implementation.

 

However, we need to have a much broader and long-term perspective on quality, which has become very dynamic in nature.

 

Firstly, at present intermediates products make the bulk of global trade as this category accounts for nearly 43 per cent of world trade in goods. As of 2024, global trade in goods and services combined is estimated to have reached approximately $33 trillion. Goods trade accounts for about $25 trillion. Out of this manufacturing has a significant share, totalling about $18 trillion in 2023, or almost 55 per cent of total global trade and 70 per cent of goods trade. Regarding the stage of processing, intermediate goods are the most important category, valued at around $10 trillion in 2023, or about 43 per cent of merchandise trade. Any compromise with quality by removing QCO on intermediate products would adversely impact India’s export of intermediate products.

 

Secondly, there is a growing pressure on companies to practice responsible sourcing of intermediate products and raw materials. The EU's Corporate Sustainability Due Diligence Directive (CSDDD) sets mandatory human rights and environmental due diligence obligation for large companies within their value chains. The CSDDD serves as a harmonised legal framework for EU members to develop their own laws by July 2026, creating a level playing field for businesses operating in the EU.  It means companies, apart from asking for minimum product standards, would also actively source and manufacture products in an ethical, environmentally friendly and socially conscious way.

 

EU, India’s major export market, realised $75.8 billion worth of merchandise exports during 2024-25. In the current scenario, when Indian exporters are facing huge tariff barriers in the US market, the importance of EU has further risen. India is also trying to secure the European market by inking important trade deals. While FTA with EFTA and UK is already signed, the negotiation with the EU seems to be at an advanced stage.

 

As the European market imposes high quality standards, Indian companies, even those indirectly involved in EU supply chains, will face increased scrutiny. Non-compliance would attract penalties including contract termination and rising operational costs. While CSDDD aims to promote sustainability, it also introduces non-tariff barriers and can lead to the loss of market share for non-compliant firms, affecting exports from sectors like textiles, leather and agriculture.  

 

The third issue is India’s integration into Global Value Chains (GVCs). GVCs operate across borders in multiple jurisdictions with varying product regulations. For lead firms sourcing high-quality intermediates that meet international standards, it is crucial to produce quality products. Hence, the inability to meet international quality standards can be a barrier for MSMEs who want to participate in GVCs.

 

It is worthwhile to note that trade within GVCs does not involve an exchange of finished products, but rather of intermediate goods and services. The MSMEs of developing countries can benefit from forward participation, which implies export of intermediate goods to overseas manufacturing locations of leading firms. Unfortunately, India doesn’t figure in the top 15 nations, who are major exporters of intermediate goods. It means India’s forward participation in GVCs is still at a nascent stage. In contrast, China, with approximately 50 per cent share of intermediates in its total merchandise export, is the world’s topmost exporter of intermediate goods.

 

Given the current scenario and importance of the European market for realising our ambitious export targets, we must not have a narrow and short-sighted approach towards QCOs on intermediate products. While QCOs may have caused some temporary disruption in seamless supply of intermediate products and raw materials to domestic producers, compromising with quality by quashing QCOs would prove counterproductive for the nation. The need of the hour is to ensure their smooth implementation and simultaneously addressing the short-term adverse impact on the user industries with appropriate policy support.

 

The author is the former chairman of NABCB, a constituent of Quality Council of India, and chairman, Hi-Tech Gears Limited  (Disclaimer: These are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper)