Quality Control Orders Drive Up Costs, Impact MSMEs And Supply Chains: CSEP Study

New Delhi, Jul 25 (KNN) India’s increasing use of Quality Control Orders (QCOs) on industrial products has led to higher manufacturing costs and supply chain disruptions, particularly affecting smaller firms, according to a study by the Centre for Social and Economic Progress (CSEP).

QCOs mandate that products comply with standards set by the Bureau of Indian Standards (BIS) before being sold in India. While intended to ensure quality and safety, the study found that their rapid expansion—especially on intermediate goods—has added compliance burdens for both domestic manufacturers and importers.

Impact on Supply Chains

The report highlighted that mandatory standards on inputs have created bottlenecks across manufacturing supply chains. Micro, small and medium enterprises (MSMEs) have been the most affected due to limited capacity to absorb rising costs and regulatory requirements.

Data from 2,731 chemical-using firms between FY2015 and FY2024 showed that chemical-related QCOs increased from zero before 2018 to 52 by 2024. As a result, over half of the firms using chemical inputs were directly impacted.

Limited Gains in Efficiency

The study found that firms subject to input-related QCOs saw a 9.6 per cent increase in production value, but their gross value added (GVA) declined by 37 per cent. This suggests that higher output was driven by increased prices rather than improved efficiency.

QCOs applied to finished goods, meanwhile, showed no significant improvement in production, profitability or value addition.

Disproportionate Impact on Smaller Firms

The report noted that smaller firms experienced sharper declines in profitability and value addition following the introduction of QCOs, indicating uneven effects across the sector.

Policy Suggestions

Addressing these distortions, the study emphasised that the Quality Control Order (QCO) framework must be reformed in both design and implementation. New QCOs should be imposed strictly on quality grounds, with clear objectives and careful regulation of intermediate goods.

Policymakers should assess domestic capacity and ensure adequate testing and certification infrastructure before introducing such measures.

The regime also requires continuous, evidence-based review of existing and proposed QCOs, while reducing the regulatory burden on MSMEs and preserving supply-chain efficiency to enhance competitiveness and support integration into global value chains, the report noted.

(KNN Bureau)