GS Paper III

News Excerpt:

India's viscose staple fibre (VSF) imports plunged 65% after quality control order (QCO) enforcement in April.

Background

• Grasim Industries, the largest VSF producer, had about 18 months before the QCO, lobbied the Ministry of Textiles complaining of substandard imports from Indonesia and China.
• Since the QCO was imposed, midstream VSF buyers like small- and medium-sized spinning mills have repeatedly raised concerns with the textiles ministry that such orders have held them back from cheaper VSF, which otherwise, helped them competitively export spun yarn and fabric. 
  • For MSME mills, these challenges come at a time when the textiles industry is reeling from a prolonged period of economic distress due to weak global demand.
  • They also allege that Grasim is delaying the production of certain specialty VSF variants unavailable in the domestic market and engaging in unfair trade practices by giving arbitrary discounts and dealing with select buyers. 
• In August, 2021, the Competition Commission of India (CCI) issued an order stating that Grasim had abused its dominant position in the VSF market “by charging discriminatory prices to its customers, denying market access and imposing supplementary obligations upon its customers”. 
• Grasim had appealed the order before the National Company Law Appellate Tribunal (NCLAT) and the case is currently ongoing.

About quality control order (QCO)

• Quality Control Orders (QCO) have been issued for fibres — cotton, polyester and viscose — that constitute the basic raw materials for the majority of the Indian textile and clothing industry.
• The main aim of the QCO is to control import of sub-quality and cheaper items and to ensure that customers get quality products.
• A QCO is a non-tariff trade barrier that bars manufacturers, importers, and distributors from storing or selling a product without a licence from BIS that certifies specific quality standards being met. 
• The QCO process has been driven by the Government of India and cuts across products in a bid to boost India’s manufacturing competitiveness.
• There are more than 650 QCOs.
• The implementation of QCO holds significant importance in regulating the influx of sub-quality and cheaper imports to ensure customers get quality products.
• A QCO is already in place for polyester, jute and cotton, to name a few and the rest are work in progress.

Why are fibres covered under QCOs?

• The Indian textile and clothing industry consumes both indigenous and imported fibres and filaments. 
• The imports are for different reasons — cost competitiveness, non-availability in the domestic market, or to meet a specified demand of the overseas buyer. 
• The main aim of the QCO is to control import of sub-quality and cheaper items and to ensure that customers get quality products. 
• The entire supply chain, from the textile manufacturers to exporters, has so far focused on quality standards prescribed by the buyers.

Viscose Staple Fibre (VSF)

• Viscose Staple Fibre is a semi-synthetic fibre made with cellulose and is used widely in the textiles industry. 
• Notably, both CCI in its 2021 order and DGTR in its anti-dumping investigation found Grasim to be the “sole producer” of VSF in the country. In other words, Grasim’s share in India’s VSF market was 89-90 per cent in FY22.
• Anti-dumping duty (ADD) on VSF, which had been enforced for eleven years, was removed by the Department of Revenue in August, 2021. 
• The ADD was first recommended in 2010 by the Directorate General of Trade Remedies (DGTR) under the commerce ministry, when Grasim initiated an anti-dumping case against VSF producers in Indonesia and China.
• The removal of ADD in the middle of FY22 led to a surge in VSF imports, which grew by 92 per cent in FY23 to Rs 2,033 crore compared to Rs 1,058 crore in the previous financial year, official trade data shows.

After implementation of Quality Control Order (QCO)

• In April 2023, the Central Board of Indirect Taxes and Customs (CBIC) started implementing the QCO, allowing VSF imports into India from only those producers approved by BIS.
• Between April and December, 2023, India’s VSF imports fell 65 per cent to Rs 582 crore compared with previous year. During the same period in FY23, India imported VSF worth Rs 524 crore from Indonesia, the largest source of VSF imports until the implementation of the QCO, compared to less than Rs 4 crore in FY24, a 99 percent drop.
• Up until now, BIS has granted licences to only seven production units under its VSF standard, four in India and three abroad, according to details on its website. 
  • Without a licence, both domestic and foreign producers are prohibited from selling VSF in the Indian market. 

• • All four domestic units with BIS licences are owned by Grasim and all three foreign units are owned by Austria-based Lenzing AG.
• In FY23, Grasim raked in revenue worth Rs 15,142 crore through the sale of viscose fibre and yarn, 56 per cent of its total operating revenue and up by 24 per cent from FY22.

Steps taken by the Government to improve Quality Standards of products

• Quality Control Orders (QCOs): For ensuring availability of quality products to consumers, Quality Control Orders (QCOs) are issued by various Ministries/Departments of Government of India in exercise of the powers conferred by section 16 of the Bureau of Indian Standards Act, 2016 stipulating conformity of the products to Indian Standards.
• Standard mark (ISI mark): BIS grants licence to manufacturers to use the Standard mark (ISI mark) on the product conforming to the relevant Indian Standards.
• Production-Linked Incentive (PLI) Scheme: To provide a major boost to manufacturing, the government has launched Production-Linked Incentive (PLI) Scheme for 13 sectors with an outlay of Rs 1.97 lakh crore over the next five years.
• Public Procurement Order: In order to provide purchase preference to domestic manufacturers, Public procurement (Preference to Make in India) Order on Industrial Steam generators/ Boilers dated 29 September 2020 has been issued.
• Identification of focus sub- sectors: 24 focus sub- sectors have been identified under Make in India 2.0 to enhance competitiveness and exports of the manufacturing sector.
• Empowered Group of Secretaries (EGoS) and Project Development Cells (PDCs): Government has set up Empowered Group of Secretaries (EGoS) and Project Development Cells (PDCs) in Ministries/Departments to fast-track investments by coordination between the Central Government and State Governments.
• UdyogManthan: First of its kind brainstorming exercise to enhance productivity & quality in Indian industry to realize vision of an AatmaNirbhar Bharat for all major sectors of manufacturing and services.
• Strengthening of IPR Regime: Infrastructure upgradation, digitisation of workflow in IP offices, manpower augmentation; Bolstering IP protection for MSMEs and Start-ups through dedicated schemes.