India Pulls Back QCOs, But It Must Continue To Learn Lessons From Tariff War
QCOs are mandatory BIS certifications requiring each product or import category to meet Indian quality standards at the source, making compliance costly and cumbersome.
The Gist
The Indian government has withdrawn Quality Control Orders (QCOs) on key industrial outputs, easing import restrictions for textiles, plastics, and mining.
- QCOs were mandatory certifications that increased costs for downstream manufacturers.
- The decision follows pushback from user industries and aims to enhance cost competitiveness.
- Notable beneficiaries include Reliance Industries and Indian Oil, while the move is seen as a pro-growth measure by industry bodies.
The government of India last week withdrew Quality Control Orders (QCOs) on key industrial outputs spanning textiles, plastics and mining applicable on their imports into the country.
QCOs are mandatory Bureau of Indian Standards (BIS) certifications for these products.
Which means each category or sub-category of product or importable commodity has to be certified as meeting Indian quality standards at source, a highly expensive and cumbersome process.
The Non-Tariff Barriers?
In effect, they are non-tariff barriers on imports and are a millstone around India’s downstream manufacturers — essentially millions of small firms making the goods that most of us eventually buy and use at home.
Such QCOs exist in many countries but there was a certain recklessness with which they were issued, if nothing else. Their numbers ballooned from 70 to 790 QCOs in the last decade.
The QCOs are also a good indicator of how policy capture by business, whether intended or unintended, has evidently led to some companies benefiting at the cost of others.
Gainers: Reliance, Indian Oil & GAIL
Leading the pack is Reliance Industries.
A report put out over the weekend by Delhi-based trade policy tracker Global Trade Research Initiative (GTRI) says the Mumbai-based oil-to-chemicals giant dominates Terephthalic Acid (PTA), Mono Ethylene Glycol (MEG), polypropylene (PP), polyethylene (PE) and the wider polyester value chain.
In the case of Reliance Industries, many of these QCOs are believed to have been in effect since 2023.
There are other companies which benefited too, like state-owned Indian Oil and GAIL who are polymer manufacturers.
Likewise, Finolex Industries and Chemplast Samnar lead in PVC while Indo Rama, Filatex, JBF Industries and Vardhman are prominent makers of polyester yarns, the GTRI report says.
There are other examples in metals as well.
There are import duties or tariffs on all these products too which keep raw material prices high for downstream industries here. But that is a different battle, as QCOs were ensuring that raw materials could not be imported easily.
Pushback From User Industries
The withdrawal of the QCOs comes on the back of considerable pushback by user industries and more recently, recommendations of a high level committee headed by the Government’s NITI Aayog member Rajiv Gauba.
The Confederation of Indian Textile Industry (CITI) described the government’s decision as a ‘pro-growth measure’ and a longstanding demand of user industries.
The Business Standard quoted CITI’s chairman Ashwin Chandran saying polyester fibre and polyester yarn form most of the man-made fibre products. And hence, this measure by the authorities would contribute to the growth of the man-made fibre segment in India.
The body also said that removing QCOs would improve the cost competitiveness of Indian textile and apparel products. It makes it easier to obtain raw materials at internationally competitive prices, Chandran added.
Interestingly, even GTRI does not argue for a full ban on QCOs, acknowledging that they are needed but says that they must be exhaustively researched, as other countries do, before imposing them.
It also points out that major economies do not impose mandatory national certification on industrial inputs like polymers or metals.
All The Barriers
Looking back, it is a little unfortunate that India managed to erect and raise so many non-tariff barriers at a time when it should have been dropping both tariff and non-tariff barriers.
While India, like other countries, faces dumping of excess capacity by Chinese industry and possibly poor quality exports, that is unlikely to have been the case all the time.
Importantly, a competitive domestic manufacturing industry, whether in raw material or final goods manufacturing, would be better placed to take on international competition, particularly in a post-Trump world.
The Trump-tariff wars may ease off soon, going by the most recent moves to bring down tariffs on food items and fresh deals with countries like Switzerland.
There is no doubt that tariffs are now beginning to hurt American consumer wallets; and the ruling Republican Party’s electoral prospects.
But India must continue to draw the right lessons from the new trade wars, in reducing barriers and making the domestic industry truly competitive and world class.
Indian industry can surely supply the bulk of the raw materials the downstream industry needs, whether in stainless steel or plastics, as it has been.
It must do so at prices that are globally competitive and make the nation more competitive and agile as well.
