The Quality Control Orders (QCOs), under Modi Government, has seen a rapid rise in past 11 years – changing gears from a mere quality control instrument to a policy tool to navigate India’s imports and domestic manufacturing. With over 150 QCOs now in force up from 14 in 2014, Government’s intent is clear: promote Make in India while ensuring product quality and safety.

Strategic advantage

QCOs are rising as a strategic lever for India. While it has strained businesses from a compliance standpoint, a positive side reflects in foreign investments into India as well as in increased manufacturing footprint. Several sectors witnessed investment influx and domestic manufacturing growth, while grappling with QCO requirements. Illustratively:

Air conditioners: India has been a large importer from Korea, Japan, China and ASEAN countries, with little domestic manufacturing capabilities. While QCO on air conditioner and its components restricted imports, India also experienced substantial investment towards domestic manufacturing post Production Linked Incentive (PLI) scheme. As per PIB release by Ministry of Commerce & Industry (Jan’2025), 84 companies have committed an investment of over INR 10,000 Crore, with a production target of over INR 1,70,000 Crores in this sector. 

Footwear: India is home to several global brands, with manufacturing units largely in China and ASEAN. Past 5-year period has seen a surge in investments in footwear manufacturing sector in India, significant part of which can be attributed to Government’s QCO policy. Some of the largest global footwear brands are now being manufactured in India, including Crocs, Nike, Adidas, Puma, New Balance amongst others. Tamil Nadu, India has emerged as a hub of footwear manufacturing, with thousands of crores invested by various footwear manufacturing giants, viz., FengTay, Pou Chen, Dean shoes, Kothari, etc. 

Steel: This sector also saw rising domestic industry as direct impact of PLI scheme coupled with QCO policy of Government. As per a recent PLI release by Ministry of Steel, investment commitments of over INR 43,000 Crores have been received and by September’25, over INR 22,000 Crores have already been invested by different companies in this sector in India. With steady growth of India in steek sector, policy levers are intended towards strengthening India’s role in global value chain.

Toys: QCOs (in terms of non-tariff barrier) and steep import duty hike (as a tariff barrier) were introduced to curb imports of sub-standard import of toys, largely from China. In recent years, the policy followed has significantly boosted domestic production, making India a net exporter of toys. Additionally, an incentive policy by Central Government is also in the works to provide an impetus to domestic industry.   

Challenges

Rapid expansion of QCOs across different sectors has raised India’s quality benchmarks but also led to compliance challenges.

·       Coverage of products under QCO/ Indian standard (IS) or otherwise often require detailed evaluation of product technicals. Businesses (specifically dealing in technical goods) have felt the need for clear guidelines, viz. linking coverage to HS code, to provide a better identification mechanism.

·       Despite multiple challenges, businesses have moved forward with compliance requirements. However, only to see constant changes in licensing requirements, uncalled for delay in processing of license applications and often abruptly putting a pause on license issuance, more specifically for foreign manufacturers.

·       Mandatory product testing poses a major challenge. In some cases, cost of testing goes as high as INR 40 lacs, while corresponding product value itself is much lesser. Destructive testing processes leads to loss of product, leading to additional burden on businesses. Also, recurring testing requirements as per Bureau of Indian Standards (BIS) norms for certain products makes it an obligation to tie up with accredited labs for regular testing of products, unless full-fledged in-house lab is set up.

To ease challenges and make compliance business friendly, Government may consider putting a time frame for disposal of applications and make it mandatory for BIS to follow it, specifically for foreign factories. Also, testing processes may be rationalised to mandate only identified key tests to be performed on samples. This will fast track testing procedures and bring down overall costs.

Recent actions

Recent developments reflect a shift to balance quality standards with industry reality.

A recent report by Niti Aayog is an acknowledgement of industry issues and step towards different reforms which will take shape in due course. Amongst others, recommendations include rescinding of several QCOs on input raw materials. Rationale followed is that if input’s quality norms are tested while testing of whole of finished good, separate QCO on inputs should not be required.  With this, it appears Government is working on harmonizing requirements and reducing duplication across regulatory framework.

India – China relations are also seemingly getting better, which from a QCO standpoint may mean opening of licensing for China based factories. This move comes at a time when multiple sectors are suffering for their long-endured dependency on China for essentials raw materials. However, a cautious and balanced approach would be required to effectively regulate Chinese imports while keeping in mind best interests of domestic manufacturing industry.

India’s international trade & QCOs

India’s international trade has suffered more from QCO regime than domestic industry, though policy has shown some tangible benefits.

·       On site audits of overseas factories assure of genuine manufacturing happening in the country of export, and not mere circumvention of goods through other countries to evade anti-dumping or safeguard duties.

·       Detailed design of audit process gives insights into latest technology and machinery at manufacturing facilities.

·       Testing norms and procedures followed globally becomes accessible – providing benchmarks for advancing India’s quality norms and procedures with global standards.

Aligning with QCO policy intent, India’s international trade in terms of imports is expected to reduce in future, riding on increased domestic manufacturing footprint in several sectors. Government’s policies, including PLI schemes, are also directed towards reducing import dependence and expanding India’s export capabilities.

Following the success in smartphone industry where India exports more than a billion USD worth of Apple phones every month, combination of QCOs and fiscal support policy is expected to replicate this success to several other sectors.

Conclusion

QCOs have changed India’s trade and manufacturing landscape. While they have led to compliance and cost burden, their value in boosting domestic production and attracting foreign investment cannot be overlooked.

(Arora is Partner & Leader, Indirect Tax, India Investment Advisory, Grant Thornton Bharat. With inputs from Karan Kakkar, Partner, India Investment Advisory, Grant Thornton Bharat; and Ravi Jain, Director, India Investment Advisory, Grant Thornton Bharat. Views are personal.)