Niti Aayog Warns: Quality Control Order Could Tilt Market Against MSMEs

An internal report by NITI Aayog has highlighted the significant impact of the rapid increase in Quality Control Orders (QCOs) on Indian industry over the past five years. The majority of these QCOs have targeted raw materials and intermediate products rather than finished goods. While these orders aim to maintain quality standards, the report notes that their expansion has inadvertently reduced the competitiveness of Indian industries and disproportionately affected smaller enterprises. This has resulted in market concentration, as larger companies are better equipped to absorb the financial and logistical burdens associated with compliance. The report, prepared by the High-Level Committee on Non-Financial Reforms, has not yet been made public, but it provides a comprehensive assessment of how regulatory measures have influenced industrial dynamics in India.

According to the report, the number of quality standards has risen sharply from 70 to 790 over nine years. This rapid escalation has disrupted supply chains, increased input costs, and caused production delays for downstream industries. The report emphasizes that the pressure on manufacturers, especially small and medium enterprises (MSMEs), is significant because these businesses often lack the resources to efficiently meet certification, testing, and inspection requirements. Testing backlogs at Bureau of Indian Standards (BIS)-approved laboratories can last for several months, further delaying production. In addition, the costs associated with obtaining and renewing licenses can be prohibitively high for small businesses operating with narrow profit margins.

To address these challenges, the report recommends revoking QCOs on several key categories, including synthetic fibers, plastics and polymers, base metals, and certain inputs for the footwear and electronics sectors. Specifically, it suggests that the Ministry of Steel suspend QCOs on steel product lines covering raw materials and intermediates, while retaining standards for construction materials and pressure-vessel categories. The report also proposes revoking the Steel Import Monitoring System (SIMS) and the No Objection Certificate (NOC) process for steel grades not covered under BIS, noting that the Directorate General of Foreign Trade (DGFT), which monitors imports and exports, already provides effective mechanisms. The report cites a real-world example from November 27 of the previous year, when the Embassy of Japan in India raised concerns with the Ministry of Steel and the Ministry of Commerce and Industry, reporting that Japanese steel consignments were being held up at Indian ports due to the lack of a required NOC.

MSMEs have emerged as the most adversely affected by the imposition of QCOs. They frequently face financial and logistical hurdles that make compliance with certification, testing, and factory inspection requirements challenging. The report highlights that these enterprises often struggle with delays at testing facilities and bear high costs for licensing, which can restrict their ability to compete in domestic and international markets. The resulting strain contributes to market concentration, as only larger players with more robust resources can efficiently navigate the regulatory landscape.

Overall, the report underscores that while QCOs are intended to ensure quality, their rapid proliferation and application to intermediate products have created unintended consequences. These include supply chain disruptions, increased costs, production delays, and disproportionate pressures on MSMEs. The recommendations aim to balance quality assurance with industrial competitiveness, suggesting the revocation of certain QCOs, streamlining processes, and leveraging existing trade monitoring mechanisms to reduce the regulatory burden on smaller enterprises. By doing so, the report seeks to protect the interests of MSMEs, encourage fair competition, and maintain efficiency in India’s industrial ecosystem.