India’s QCOs help lobbies but hamper manufacturing competitiveness. What’s the way out?

The US did not raise any concerns at the global trade body on this count, but separately, in its trade deal negotiations with India, the Americans too have made the point strongly about QCOs being one of India’s non-trade barriers.

QCOs require products sold in India, whether made by Indian producers or imported, to obtain certification from the Bureau of Indian Standards for meeting quality norms mandated by government.

These quality mandates are usually sought, granted and defended as a necessity for improving domestic manufacturing standards and limiting low-quality imports. But it is an open secret that their real purpose often is to circumvent the WTO’s rules that disfavour use of tariffs as a means to restrict imports. All the while, helping select interests in India Inc.

Are QCOs serving India’s interest and is there an opportunity that the sprawling QCOs regime be finetuned? The answers require confronting fundamental issues that have prompted more and more of such protectionism of late.

A few contextual facts, first: no country has grown and become competitive on the global stage without accessing global markets. QCOs restrict firms’ access to global markets.

As on March 12, 2025, a total of 187 QCOs, covering 769 products spanning sectors from household appliances to industrial materials had been notified by various regulators and line ministries.

How QCOs hurt

When applied to raw materials and intermediary goods, QCOs embed avoidable costs into India’s as-it-is high-cost manufacturing ecosystem, imposing cost disadvantages on firms and industries that use such inputs in their manufacturing. Protection for the former ineluctably comes at the cost of eroded competitiveness of the later. A manufacturing ecosystem fit for competing with the best in the world cannot be built in this way.

For instance, unintended consequences of lopsided policies can be seen across the textile sector. QCOs, import tariffs and GST have been applied in an inverted way, which has resulted in higher levels of protection for manufacturers of manmade fibres than to makers of apparels and garments, the users of manmade fibres.

The outcome? The apparel and garments industry, which employs hundreds of thousands of people in India, have not been able to scale up to global levels and are dotted by small businesses. Decades of protection, on the other hand, has reduced the manmade fibres sector to what is a pretty much a duopoly. What’s more, it is a capital-intensive industry that doesn’t generate many jobs.

Selective orders

There’s a need also to guard against the tendency to tear down protection selectively. That doesn’t help deepen competition in the market; rather it distorts the playing field more.

For instance, a licence has been granted to an Indonesian producer of viscose staple fiber effectively removing the QCO on these regenerated fibres that are increasingly becoming sustainable substitutes for cotton. But no similar licence has yet been issued to Chinese competitors in other manmade fibres where a large Indian manufacturer holds sizable market share.

QCOs are also one of the handicaps that are limiting India’s attractiveness to GVCs, which is short for global value chains, of large international majors whose supply chains straddle multiple countries. At a time they are looking to reduce their dependence on China, a QCO at variance with quality standards that have evolved over long years in a GVC limits the attractiveness of an Indian location getting on to the value chain.

As an example: a random QCO contributed to a decision by one of the world’s largest toy makers choosing Vietnam to set up its first plant in Southeast Asia. The firm wanted to set up a $1 billion plant in India to cater to the broader Asia Pacific market. It tried for months but failed to persuade New Delhi to review its QCOs policy for toys, gave up and went off to Vietnam instead.

To fully harmonise standards, such as for auto components GVCs, some QCOs will have to be axed. QCOs on tyres, nuts and bolts needed for luxury cars, for instance. A car’s safety cannot be guaranteed unless the quality standard of these made in India is identical to the car company’s global benchmark. Changing the QCOs, as the auto components industry has told the government in closed-door consultations, would need some powerful lobbies to be ditched.

Ironically, the government itself seems to be aware of the insidiousness of QCOs. NITI Aayog’s VC Suman Berry plainly conceded earlier this year that, “It takes a certain genius to come up with an intervention which is even more malign [than tariffs] because of arbitrariness. All these compliance costs are murder for MSMEs.” Few other economists in government have also flagged these issues.

Ideally, the QCOs regime should be comprehensively reviewed and rationalised. This is not just a matter of simplification. It is a matter of direction that India wants to head in in a world with increasingly fractured trade.