Have you ever found yourself struggling to find a decent cabinet hinge? Or heard about a recent spate of cabinet hinge related disasters, turning it into a pressing problem for the public? Well, even if you haven’t, the government is stepping in to help. A new 18-page quality standard, devised by a 26-member committee, will mandate various tests on cabinet hinges like slamming them shut 10 times (or a 100 more times if they have dampers). If you are satisfied with the current state of cabinet hinges, brace yourself for higher prices.
The government claims these measures will “encourage” manufacturers to improve quality. However, it is important to understand the unintended consequences of such policies. Consider four important outcomes. First, price hikes. As manufacturers are forced to comply with these new standards, their costs will go up and consumers will face higher prices. Second, fewer choices. Some manufacturers may find it too expensive to comply and simply stop producing hinges altogether, eliminating options that buyers were previously happy with. Third, reduced innovation. With such detailed specifications, it will become more costly and risky for manufacturers to innovate. Some new designs might fail these specific tests, even if they are superior products overall.
Fourth, increased lobbying. Large manufacturers have the resources to influence government standards, ensuring the rules favour their products. Smaller companies, on the other hand, are left unable to compete. The unspoken justification for such regulations, known as Quality Control Orders (QCOs), is to restrict imports and boost domestic manufacturers. But this reasoning falls short. Take the same cabinet hinge as an example. While it might appear that domestic hinge producers are being shielded from foreign competition and given room to grow, the broader impact on the manufacturing ecosystem tells a different story. Cabinet makers, who rely on hinges as an essential input, will lose access to the best quality hinges at the best prices, which may come from imports.
This will make domestic cabinet makers less competitive globally and severely limit their growth, because in sector after sector the global market is 10-20 times the size of the Indian market. In turn, slower growth in the cabinet industry will reduce demand for cabinet hinges – the very product the government is trying to support.
Moreover, long-term protection for domestic hinge manufacturers will reduce their incentive to innovate and compete with global leaders, leaving Indian consumers with poorer products as well. A recent QCO from the Ministry of Steel illustrates this issue. The QCO mandates that certain steel products (including imports) meet domestic standards unless they are being manufactured for export.
So, while Indian steel sellers can freely make products to meet the needs of foreign buyers, Indian steel buyers are not allowed the same freedom to choose products from abroad at competitive prices. If your product uses steel as a raw material, forget about competing in the global market. This becomes even more problematic in today’s world, where supply chains are global, and businesses often need to source specialised parts from various countries. Unfortunately, these interventions have been on the rise. By some estimates, QCOs have increased sixfold in the past decade, covering around 600 products. Earlier this year, the government announced a plan to increase coverage to 2,500 products. These regulations are not just confined to industrial goods either—recent QCOs have targeted consumer goods like toys, footwear and air coolers.
At this point you might think that consumers, unlike businesses, do need government help to evaluate product quality. However, a closer look reveals that consumers already use multiple ways to assess quality without government interference. The first is brands. Most of us rely on trusted brands that have built reputations for delivering quality products at reasonable prices. Even if we have not personally tried a product, we trust the brand because others have vouched for it. The second is product reviews. Online platforms like TripAdvisor, Amazon and Google Maps provide user reviews that give consumers realworld insights into product quality. If these reviews fail to be reliable, customers will take their business elsewhere. The third is independent rating agencies.
If enough consumers are willing to pay for someone to investigate and rate a company’s creditworthiness, then a solution such as ICRA or S&P Global Ratings will emerge. And this is not restricted to finance, other companies offer food-related certifications such as “Fairtrade” or “Non-GMO” that have also been created by consumer demand. Any government intervention should be judged not by the intention of the policymaker but by the outcome of the policy.
Government enforced quality standards have clear negative outcomes in terms of higher prices, fewer choices, stifled innovation and an unfair advantage for large corporations. When consumers and businesses spend their own money on products or services, they look for the best quality their money can buy. This has led them to come up with a variety of ways to assess quality that are responsive to their preferences. Government-imposed quality standards are a solution in search of a problem. (The writer is Program Manager at the Foundation for Economic Development The views expressed are personal.)