Economic Survey 2025-26 Endorses Quality Control Orders as Key to India's Manufacturing Strategy
New Delhi: The Economic Survey 2025-26, presented on Thursday, has strongly endorsed the government's expanding use of Quality Control Orders (QCOs) as a fundamental pillar of India's manufacturing and export strategy. However, the document issued a significant caution against poorly designed or hastily implemented quality mandates, warning they could trigger cost shocks, disrupt supply chains, and weaken competitiveness, particularly for small businesses.
Drawing on Milton Friedman's Wisdom
The survey invoked economist Milton Friedman's famous 1980 lecture to illustrate the deep interconnectedness of global production systems. Friedman observed that no single individual can make even something as simple as a pencil, since its production depends on coordinated efforts of thousands across countries. Applying this insight, the survey argued that regulations introduced without comprehensive value-chain assessment risk creating cascading effects that raise costs and erode competitiveness across downstream industries.
The survey emphasized that quality is now as critical as cost-competitiveness if India is to position itself as an indispensable part of global value chains. This warning gains particular significance as the government has recently withdrawn 50 QCOs following recommendations from a NITI Aayog committee chaired by former cabinet secretary Rajiv Gauba in October last year.
Expanding Regulatory Framework
The survey noted that India has significantly expanded its mandatory quality assurance framework in recent years. As of 31 December 2025, a total of 143 QCOs covering 723 products have been notified by various ministries, more than tripling coverage from just 214 products in 2019. However, as reported in January, India now has just 712 products under the QCO regime, compared with a peak of 761 in March 2025.
These orders mandate conformity with specified quality standards, aiming to protect consumers, avoid market distortions, and align domestic production with global norms. In an international environment marked by tightening technical regulations and rising scrutiny of product standards, the survey stated that "QCOs play an important role in mitigating reputational risks arising from inconsistent or substandard quality."
Success Stories and Sectoral Impact
The survey cited improved outcomes in several sectors where QCOs have been implemented effectively:
- Toys: Following the introduction of a QCO for toys in 2020, along with higher customs duties and mandatory testing of import consignments, India witnessed a sharp decline in toy imports and a surge in exports. Between FY15 and FY23, toy imports fell by 52%, while exports rose 239%, with India turning into a net exporter of toys from FY21 onwards.
- Transformers, Footwear, and Cement: These sectors have also seen reduced circulation of substandard products and long-term improvements in manufacturing standards.
Vivek Singhal, co-founder and chief executive of BIDSO, a B2B toys manufacturer, commented: "The experience of sectors such as toys bears ample testimony to the fact that quality control orders are beginning to work as intended. QCOs have significantly reduced the entry of hazardous and poor-quality products, including low-grade imports that tended to distort the market."
Balancing Safety with Economic Practicality
Beyond trade competitiveness, the survey underscored that consumer and workplace safety provide strong justification for mandatory standards. QCOs covering products such as electrical appliances and helmets were described as essential for protecting public welfare and sustaining market confidence.
However, the survey stressed that mandatory certification is not cost-free and must be grounded in economic practicality. Micro, small, and medium enterprises (MSMEs), which form a significant part of India's industrial base, often lack the capital to establish in-house testing facilities or rapidly adapt to new certification requirements.
The survey cautioned that narrow transition timelines can lead to production delays, supply disruptions, and higher inventory costs, undermining the very firms QCOs are intended to support. The risks become more pronounced when QCOs extend to raw materials and intermediate inputs, potentially disrupting critical downstream sectors including automotive, power, and electronics.
Recent Adjustments and Future Framework
This concern was among the reasons why, following the NITI Aayog committee's recommendations, the Centre withdrew 14 QCOs in a single day in November last year. The rollback reduced the number of products covered under mandatory QCOs to 744 from 761, even as the Centre had earlier indicated plans to bring more than 700 additional products under compulsory quality standards in FY26.
The survey called for a forward-looking QCO framework that incorporates:
- Rigorous pre-notification assessments
- Calibrated transition periods, especially for MSMEs
- Adequate national testing capacity
- Close alignment with industry-readiness
Where sufficient domestic production capacity does not exist, the survey recommended that "the framework should allow exemptions or alternative pathways for specialised inputs, raw materials, spare parts, and R&D-related imports."
The survey acknowledged that recent regulatory decisions reflect a growing willingness on the part of the government to recalibrate QCOs where necessary. This balanced and adaptive approach, it concluded, would allow quality regulation to function as a strategic enabler rather than a constraint, strengthening India's manufacturing capabilities while preserving cost competitiveness and supply-chain efficiency in an increasingly complex global trading environment.
