Around a decade ago, Indian businessmen who found themselves in a position to influence policy had a clever idea – they convinced the powers that be in New Delhi to start blocking Chinese imports by using Quality Control Orders (QCOs). Whilst the perpetrators of these QCOs then got rich behind artificially erected non-tariff trade barriers, Indian SMEs who were operating downstream and who needed cheap Chinese components to survive paid the price. Thankfully, the Government of India has woken up to the damage that these QCOs do and has started rolling them back. In this article Udit Bubna informs us that:
“Between 2016 and 2025, around 700 QCOs were issued by the government. Now, it has withdrawn 69 of them….on raw materials (chemicals, polymers, steel) to boost exports and ease business. These QCOs, aggressively implemented since 2016 for self-reliance, had increased costs, disrupted supply chains, hurt MSMEs, and hampered export competitiveness, leading to a NITI Aayog recommendation for their rollback….The government’s decision comes amid trade tensions with the US and an internal NITI Aayog report in October recommending rolling back 208 QCOs, primarily related to raw materials and intermediaries.”
Mr Bubna goes on to describe how QCOs which are intended to hurt Chinese exporters end up hurting Indian SMEs even more and damaged the nation’s competitiveness in the global market:
“According to Arun Goyal, the Director of Delhi-based think-tank Academy of Business Studies, the withdrawal of QCOs on 14 product categories under pressure from the US tariffs is a positive move. However, he underlined that QCOs have been used by the government as a geopolitical and commercial tool.
“QCOs are being implemented very selectively and passively with a primary objective of targeting China and benefiting certain large domestic players,” Goyal told ThePrint.
Industry groups, particularly MSMEs, argue that the QCOs regime has created compliance burdens that are distorting markets instead of strengthening them.
“QCOs are a non-trade barrier and a protectionist measure that is impacting the MSME players with high compliance and certification costs,” said Shaunak Rungta of Rajasthan-based Vardhan Group, an MSME that manufactures and imports steel hardware products.
According to Rungta, QCOs have eroded fair play competition in the Indian market by restricting the supply chain which primarily benefits large industry players that are able to absorb high costs and dictate market price.
While QCOs are acting as a barrier for trade flow, they are also bringing back the old “license raj system”, Rungta said. The certification process is bogged down by bureaucracy and long delays.
BIS inspectors are required to travel abroad to inspect factories, which further delays the process to over a year. Sometimes this usually takes 7-8 months. “The delay is something that a smaller player like us just cannot afford,” Rungta added…
The QCOs have disrupted the supply chain of manufacturing industries in India dependent on imported raw materials. Inputs like polymers, metals, rubber, chemicals, and fibres which are critical building blocks for Indian manufacturing have limited availability in India due to lower economies of scale, according to the Niti Aayog’s internal report.
Prerna Prabhakar, a fellow at the Centre for Social and Economic Progress (CSEP), told ThePrint that QCOs have suppressed imports of intermediate goods critical for domestic production without making any significant improvement in exports.
She authored the ‘Decoding India’s Quality Control Orders’ report, which was released by the CSEP in September 2025.
Using econometric analysis, the CSEP report concludes that in the year of a QCO notification, the imports of intermediate goods decline by 16 percent, followed by a 17.5 percent decline in the subsequent year and 30 percent over the long term.
On the other hand, exports grew by just 10.6 percent in the year of notification, but declined by 12.8 percent in the second year and made no significant gains in the long-term, cites the CSEP report.
According to Parbhakar, the CSEP’s ongoing research using firm-level data for chemical firms suggests that QCO regulations hurt micro and small firms, whereas largr firms appear to benefit from its implementation owing to their production levels and employment.”
Lest we celebrate prematurely the end of such myopic protectionism, Mr Bubna reminds us that “As of October 2025, there are a total of 790 products mandating QCOs and around 79 are in the pipeline to be implemented over the next year.”
If you want to read our other published material, please visit https://marcellus.in/blog/
Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
