A timely course correction: The rollback of QCOs must be sustained

A long-overdue course correction begins as the government moves to roll back QCOs that hurt small firms, consumers, and exports - but momentum must continue to prevent regulatory overreach

In the past few years, quality-control orders (QCOs) have become the instrument of choice for bureaucrats in the Union government for different objectives. Hundreds of these have been announced, many without consultation, for products from toys to speciality steels. Union Commerce Minister Piyush Goyal said earlier this year that he would like to see 2,500 such orders covering multiple goods. But QCOs have also caused chaos in supply chains, attracted the negative attention of India’s trade partners, and raised compliance costs for small businesses. They run against the broader philosophy of regulation for the government, which has emphasised the ease of doing business. It is excellent news, therefore, that a high-level panel chaired by former cabinet secretary Rajiv Gauba has pushed back against this tide of new constraints. It has reportedly recommended the scrapping, cancellation, or delaying of QCOs applicable to 200 products. Some effects are already visible. 

Last week, two ministries in the Union government — those for chemicals & fertilisers and mines — shut down QCOs for several plastics, synthetics, and minerals. It has now been reported that the Ministry of Steel will follow suit in scrapping some of its more egregious QCOs. This is a good beginning and must be followed up on. More QCOs must be removed, and other ministries that have embraced these regulations must also roll theirs back. That the government has shown the initiative of undertaking a relatively swift re-evaluation of a problematic policy instrument is a testament to its agility and its willingness to hear out criticism from industry. Both consumers and producers in India have been hurt by this expansion of arbitrary bureaucratic power. At a time when exports are in any case under pressure, and domestic demand is slow to revive, it is vital that such self-inflicted wounds on India’s growth prospects be avoided. The fact that some steelmakers, for example, have clamoured for more and stronger QCOs is in fact an argument against them. 

It suggests that rent-seeking, protectionism, and regulatory capture are threatening to become part of the process when it comes to how QCOs are decided. Larger companies, which have a greater ability to deal with an excess of paperwork and more access in the corridors of power, are better able to define the scope of QCOs to hurt their competitors and reduce the margins of smaller enterprises. The characterisation of specific product lines brought under QCOs was also arbitrary and unpredictable, making things doubly difficult for those in the import-export business. There were ample reported occasions of shipment being defined as failing quality standards when no such standards had existed at the time the relevant orders had been placed. 

As columns on these pages have pointed out, QCOs on inputs hurt India’s exports at a time of particular vulnerability, given the trade tensions with the United States. But consumers’ interests must also be considered. Rather than protecting them from inferior products, most QCOs on final goods served as effective non-tariff barriers, reducing consumer choice and welfare in a highly opaque manner. The rollback of some QCOs is an excellent start, but the government must not give up on the momentum now — they are a dangerous tool and must be sparingly used.