India's quality checks may be scaring investors

A recent report by the Global Trade Research Initiative (GTRI) highlights how mandatory Bureau of Indian Standards (BIS) certification requirements in India are causing concerns among foreign investors, particularly Japanese companies. The think tank, led by Ajay Srivastava, argues that the current Quality Control Order (QCO) framework needs significant overhauling.

While Goyal, the Commerce and Industry Minister of India, recently proposed easing or waiving mandatory quality certification requirements for high-technology industries, GTRI believes this is not enough to address broader issues within the certification system.

Japanese companies have expressed significant concerns over the compliance burden associated with India's QCO regime. According to a JETRO survey, 71.9% of Japanese manufacturers operating in India reported that BIS certification had affected their operations, while 92.3% of general-machinery manufacturers and 76.8% of transportation-equipment manufacturers said the same.

The GTRI report cites lengthy approval processes, cumbersome procedures, and high costs as major concerns raised by Japanese companies. Delays in certification, complex requirements, and high compliance costs were reported by nearly three-quarters of the respondents. Additionally, some companies struggled to determine whether their products required certification or faced difficulties in identifying Indian suppliers capable of meeting their technical specifications.

These certification requirements have also affected supply chains, with some Japanese companies changing suppliers due to unwillingness of overseas manufacturers to undertake India-specific certification for small orders. Others were unable to identify Indian suppliers meeting their technical specifications. This has led to suspended sales, delayed deliveries, and difficulties in obtaining No Objection Certificates for imports.

The report emphasizes that the compliance burden could be particularly damaging for smaller Indian businesses. Srivastava argues that while high-tech machinery should be exempt from stringent certification requirements, extending QCOs to products like footwear and furniture may not be justified. The think tank recommends moving towards a risk-based regulatory framework, similar to the European model, reserving mandatory prior testing, registration, and factory inspections for products posing genuine risks to health, safety, national security, or the environment.