Modi must end India’s ‘Inspector Raj’ mindset

By Andy Mukherjee

It isn’t just the Americans. From factories making Louis Vuitton fashion to those churning out kitchen appliances, everyone is waiting for the Indian quality inspector. Indonesia is getting impatient; the Europeans are fuming. The Chinese think it will be easier to get tickets to a Taylor Swift concert than to have them show up in Shenzhen.

For Prime Minister Narendra Modi to make a quick deal with the US president, he should offer to dismantle the “Inspector Raj” that has been weaponized by his administration, ostensibly to create jobs but really to protect powerful local interests.

Before Trump paused reciprocal tariffs for 90 days, the selloff in the benchmark Sensex was muted compared with the carnage in other Asian indexes. That made sense because the levy on the most-populous nation was less onerous than some of its neighbors. However, exploiting a regional advantage will require politicians and bureaucrats in New Delhi to change their whole mindset as negotiations kick off.

Hopefully, the tariff shocker will shake them out of complacency. No matter how enthusiastically New Delhi projects itself as a rising superpower, it can’t emulate Beijing’s risky, tit-for-tat strategy. The US accounts for 15 per cent of Chinese goods exports; it buys 19 per cent of the merchandise India sells overseas. Then there are its software services. Modi’s only option is negotiations. To jumpstart them, he should offer to axe overseas factory inspections.

Starting with about 100 five years ago, nearly 800 products across more than 100 sectors now need to be certified by the Bureau of Indian Standards. While the original aim may have been to stop local shop shelves from being flooded with poor-quality Chinese-made appliances, the so-called quality-control orders are starting to clog up global supply chains.

Junking the whole apparatus, while lowering taxes on US exports, may not please Trump as much as a full capitulation like Vietnam’s, which has offered to cut duties on American goods to zero. For reasons of domestic political economy, though, Modi can’t go that far — particularly when it comes to food and dairy.

By scrapping quality-control orders, which came up for censure recently in the Trump administration’s annual trade estimate report, the prime minister can pave a path to lowering the $40 billion trade surplus with the US. Throw in purchases of oil and weapons, and New Delhi will have given Trump enough to ask for lighter punishment.

The polyester in Nike gym shorts — coming from a factory in China or Thailand — and the imported Vietnamese steel used by local automakers have to be BIS-certified. Further, these quality marks, as the trade estimate report notes, “can only be issued following a site visit by an Indian inspector to the manufacturing facility.” They also need to be frequently renewed. The US quarreled with India for three years, both bilaterally and at the World Trade Organization, over its polyethylene quality control order: Why not accept self-certification or results from internationally accredited labs?

This is just a rebirth, on a global scale, of the “Inspector Raj” that benighted the socialist economy I grew up in. At my father’s tiny shoe-upper factory, inspectors would drop in with questions like: “Where’s the spittoon for workers?”; “Why’s the height of urinals off by two inches?”

From the excise official tasked with checking illegal movement of goods, to the labor monitor keeping a vigil on working conditions, everyone expected a bribe. Small firms had to accommodate the costs in their meager profits. They stayed small.

Those same impulses, which ebbed somewhat when the economy liberalized in the 1990s, have returned with a vengeance. My colleague Mihir Sharma has described the quality-control orders as self-harming. In garments and footwear, where India’s biggest opportunity has opened up, they destroy jobs. In an op-ed for the Business Standard, a group of economists, including a former chief adviser to the Modi government, demanded an immediate elimination of this relapse of trade policy into economic nationalism, arbitrary interventionism, and crony capitalism.

Of late, the government standards agency has been busy raiding warehouses used by sellers on Amazon.in and Flipkart, Walmart Inc.’s local e-commerce unit. The haul? Uncertified toys, hand blenders, aluminum foil, metallic water bottles, PVC cables, food mixers, smartwatches and speakers. Yes, it would be nice if some of those were made by the domestic workforce, but why target only the largest American e-commerce platforms, when local retailers are selling the same brands?

And why not focus on the bigger prize, which is to be a contender for multinationals’ China+1 production strategy? Ending the weaponization of quality control may help revive the share of factory output in the economy from a 60 year low. Openness to trade can be India’s ticket to join Asia-wide, labor-intensive production networks that will reassemble once the global trade war subsides.

From Nike and Uniqlo to Zara and Shein, brands will source clothing from where they’re the cheapest to make for US consumers. But politicians and bureaucrats must stop playing their disruptive games, like effectively banning imports of polyester and viscose fiber. That only helps a couple of local tycoons, and is rightly seen by the world as protectionist.

Food, however, is a different story, and here Modi can’t make big concessions to his friend in the White House, either on price or quality.

The Americans will have to accept high tariffs as well as the requirement that milk, butter and cheese sold locally only come from animals that have not consumed feeds containing “internal organs, blood meal, or tissues of ruminant or porcine origin.” Washington views these conditions as a nontariff barrier devoid of any animal or human health justification. However, no Indian government — let alone one led by the self-appointed guardian of the Hindu right — will dare sacrifice a core cultural value of the nation’s vegetarian population. Or incur the wrath of dairy farmers in Gujarat, Modi’s home state. Let quality control on food stand; most of the rest should go. Especially the inspector raj.