Unconditional reforms

Union Commerce and Industry Minister Piyush Goyal’s recent announcement of a proposed framework to exempt companies in the hi-tech sector from mandatory certification by the Bureau of Indian Standards (BIS) for equipment and components needed to set up factories in India is a positive response to frequent doubts raised by foreign corporations about India’s onerous regulatory regime. Mr Goyal, who was leading a trade and business delegation to Japan, was responding to concerns by Japanese semiconductor and artificial-intelligence corporations over BIS certification. This announcement can be seen as part of a move to improve ease of doing business, but it comes freighted with questions about the depth and stability of regulatory reform. 

Uncertainties about certification norms of the BIS arise principally on account of quality-control orders (QCOs), the instrument that the government has increasingly deployed to control imports and promote self-reliance. Between 2016 and 2025, the number of QCOs grew rapidly, from 70 to 790, according to a reported assessment of the NITI Aayog, which added that nearly 70 per cent of them concerned raw materials, intermediates or capital goods rather than finished products. A QCO is uniquely disruptive. Once it comes into effect, no one can manufacture, import, sell or handle the product concerned without BIS standard certification under a valid licence. The fact that the BIS statute is mandated by different ministries and that the process can take up to six months adds to investment complexities. In effect, the QCO regime has come to be regarded as a non-tariff barrier and has negatively impacted not only medium and small industries but also played a role in stifling foreign direct investment. But even as the government has reluctantly relaxed this regime in stages, it has done so in a limited manner.   

In November last year, the government rolled back 69 QCOs — 14 for chemicals, polymers and fibre intermediaries used in the textile sector, and 55 for steel-related intermediaries used across industries, including automobiles. The motive for this widely appreciated move was partly to relieve trade tensions with the United States and partly the acceptance of a NITI Aayog recommendation in October to roll back 208 QCOs, mainly those related to raw materials and intermediaries. In June this year, the government announced “an alternative risk-based compliance mechanism” labelled the Transition Facilitation (Quality Control) Order for toys, personal protective footwear, rubber footwear, electrical water heaters, washing machines, hinges, furniture and electrical safety equipment. This order allowed companies to buy from manufacturers holding licences that require only self-declaration of BIS compliance (Scheme II of Schedule II) instead of those that have undergone the onerous factory inspections and checks before being granted a BIS mark (scheme I). But even this concession, which will be in force for five years, requires prior risk assessment by an implementation committee of bureaucrats from the trade, commerce, industry and consumer affairs ministry as well as BIS officials. A similar regime for the hi-tech sector is unlikely to convince potential investors. Scrapping the cumbersome QCO regime — and indeed broader regulatory and compliance — without such conditions, would be the better route to follow.