The government’s decision to scrap quality control orders (QCOs) for 14 petrochemical products, seven products such as tin, aluminium, lead, zinc, nickel, and copper, and suspend those on 55 steel products should be welcomed. More will follow.
This move comes amidst efforts to boost the competitiveness of India’s manufacturing and exports in a challenging geopolitical environment. QCOs were introduced to ensure the quality of both domestically manufactured and imported products.
They have sharply risen to 790 today from 88 in 2019, a period that has seen a sharp rise in tariffs, Press Note 3 restrictions on Chinese investments, and efforts to curb cheaper imports from the mainland and policies promoting import substitution.
QCOs are concentrated in intermediates and capital goods and their rapid and widespread implementation have had unintended consequences like supply chain disruptions, higher input costs, and compliance burdens for micro, small and medium enterprises (MSMEs). A report of a committee headed by NITI Aayog member Rajiv Gauba suggested the scrapping of more than 200 QCOs.
The withdrawal of QCOs on petrochemicals like polyester fibre and yarn that form most of manmade fibre products and steel products will benefit India’s textile and apparel and downstream steel-consuming industries. Research on QCOs by Prerna Prabhakar at the Centre for Economic and Social Progress has indicated that the sectors most affected like textiles, chemicals, plastics, rubber, footwear, metals, machinery, and electronics are also those characterised by high firm concentration.
QCOs on intermediates and capital goods suppress imports—a 30% reduction over the long run—without delivering any improvements in export performance. By scrapping QCOs on polyester fibre and yarn and steel products, the textile and steel-consuming industries can now access a much wider range of sources for these products at globally competitive prices and boost their export drive rather than depend on only a fewer large players having greater market power to charge higher input prices.
Whether the government rescinding 76 QCOs so far is a precursor to a more broad-based scrapping of such norms is an open question. It is most unlikely as the government has in fact defended the scheme stating it has enabled producers to sell superior quality products to domestic consumers and managed to curb substandard imports.
It is also argued that such orders have helped to promote exports. The European Union, for instance, was not allowing our fishery exports but the government leveraged these QCOs to persuade the grouping to open the market for 102 new establishments whose clearances were pending. Russia is also reportedly considering allowing 25-odd entities to export seafood, which assumes significance as the industry needs to diversify after it has been hit by the 50% tariffs in the US market.
The benefit of QCOs may arguably be more for finished goods, but there is clearly a warrant for a more calibrated approach for intermediates and capital goods that account for less than half of the total number of orders. They should be imposed strictly on quality related grounds and not for protectionist purposes as they have disrupted supply chains. To improve India’s manufacturing competitiveness and exports, it is essential that industries, especially MSMEs, have access to intermediates at globally competitive prices. When there are adverse global trade headwinds, more supportive policies are needed that lower tariffs and non-tariff barriers in line with those prevailing in nations that compete with India.
