India's double-certification trap: How QCOs are hurting fair trade

Quality control orders (QCOs) were meant to protect product quality, but now they manipulate competition in India’s market. Earlier, anyone could import goods by paying import duty or obtaining a licence. Now, the Bureau of Indian Standards (BIS) decides who can import and from which factory — and the rules can change overnight. This makes compliance costly, reduces the number of suppliers, and risks creating a system even worse than the old licensing raj. Small businesses lose out to bigger companies with more influence.

 

A recent example is the steel ministry’s June 13 order. It requires not only finished and semi-finished steel products, but also the raw materials used to make them, to have a BIS quality certificate. The rule took effect with barely one working day’s notice, causing shipments to be stuck at ports, contracts to be cancelled, and court cases to be filed.

The steel order is not a one-off — it’s part of a growing trend where QCOs are used to shape markets and favour certain players. Let’s examine the steel order through a case study.

 

Case study: A small Indian firm imports stainless-steel products from Factory X in Indonesia. Such imports fall under India’s Foreign Manufacturer Certification Scheme (FMCS), which allows the BIS to inspect and certify foreign factories exporting to India. Under FMCS, BIS auditors visit the overseas facility to verify that production processes and raw materials meet Indian Standards (IS). Once satisfied, BIS issues a licence allowing the factory to affix the ISI mark, subject to regular surveillance.

Factory X sources hot-rolled coils from a Thai supplier. Previously, the supplier’s certification status did not matter; as long as Factory X’s final products met BIS norms, they could be exported to India.

 

However, the June 13 order changes the game. Now, every upstream raw material supplier — even if located in a third country — must also be BIS-certified. This means the Thai mill must also secure a BIS licence. Without it, Factory X cannot export to India, regardless of its certification.

 

Certification burden: This policy imposes a double-certification requirement. The first certification — the one that matters — is for the final product, which is already in place under FMCS. The second, newly mandated certification is for upstream raw material suppliers, often in third countries far removed from the Indian market.

 

Getting BIS certification takes 6 to 18 months, involves substantial fees, and requires performance guarantees and compliance audits. Small overseas mills producing modest volumes for an intermediary exporter have no incentive to invest the time and money needed for certification. This means limiting the number of foreign suppliers for Indian buyers.

 

India consumes about 1.5 million tonnes more stainless steel each year than it produces, and even its biggest maker imports over 30 per cent of what it sells. By restricting suppliers and putting imports under BIS control, the steel order makes business impossible for small players and shifts business in the hands of a few dominant players.

 

Legal dimensions:  The order has already been challenged in court. On July 17, the Madras High Court granted an interim stay, as the order was issued without consultation or reasonable transition time. The Ministry of Steel appealed to the Supreme Court, arguing the measure was necessary to ensure parity between domestic producers and importers and to prevent the dumping of substandard steel. On July 30, the Supreme Court vacated the stay but sent the case back to the High Court for a swift, reasoned judgment.

 

Yet the ministry’s arguments don’t hold up. FMCS already requires that raw materials used in BIS-certified factories meet Indian standards. Additional licensing for raw material suppliers adds no meaningful quality assurance. Existing safeguards — mill test certificates, port-level Positive Material Identification (PMI) tests, and customs inspections — already prevent substandard imports.

WTO risks: No major steel-producing economy — the United States, European Union, or Japan — requires separate raw material certification if the final product meets national standards. Instead, they rely on traceability through Mill Test Certificates, accredited third-party testing, and mutual recognition agreements.

 

India’s double-certification model diverges sharply from these norms and risks being classified as a non-tariff barrier (NTB) under World Trade Organization (WTO) rules. That could expose India to trade disputes or retaliatory measures. Nepal has already voiced concerns over the disruption this causes to regional supply chains.

 

The timing and selective nature of the order have raised suspicions of regulatory capture. One dominant stainless-steel producer reportedly secured BIS certification for its foreign suppliers just before June 13, then raised prices soon after the order’s release.

The exemption for the medical device sector — secured after industry lobbying — shows that the government recognises the harm this policy can cause. Yet other industries, from auto components to construction, remain trapped in a regulatory chokehold.

A poorly conceived policy: By forcing upstream suppliers with no commercial interest in India to undergo a burdensome certification process, the government has added avoidable costs, and jeopardised India’s reliability as a manufacturing partner. If the government believes this approach is necessary, where does it stop? Will iron ore and coal mines be required to obtain BIS licences next? How many layers of regulation can be added before the system collapses under its weight?

 

Way forward: India needs an urgent top-level review and fair, transparent rules. The June 13 order should be paused until the review is complete. The government must consult all affected groups before making significant policy changes, and the Competition Commission of India should investigate any signs of collusion in the steel supply chain.

 

With US markets almost shut to Indian goods and the EU becoming more protectionist, India cannot afford more uncertainty. QCO rules must be predictable, transparent, and balanced. 

The author is the founder of GTRI