India’s dairy sector is a cornerstone of the national economy, contributing approximately 5% to the national GDP. The recent GST reforms are anticipated to boost the sector’s growth and enhance its global competitiveness.
Impact of GST Reforms on the Dairy Sector
The new tax structure is expected to benefit both farmers and consumers. By lowering taxes on essential dairy products, the government aims to achieve several key objectives:
- Reduced Operational Costs: The lower GST rates on items like milk cans will decrease operational expenses for dairy farmers and businesses.
- Curbing Adulteration: Lower taxes are expected to make it easier for organized players to compete, which may help curb the prevalence of adulterated milk products.
- Enhanced Global Competitiveness: The reforms are designed to make Indian dairy products more price-competitive in international markets.
| Product | Previous GST Rate | New GST Rate |
| UHT milk | 5% | Nil |
| Packaged paneer/chhena | 5% | Nil |
| Butter, ghee, spreads | 12% | 5% |
| Cheese | 12% | 5% |
| Condensed milk | 12% | 5% |
| Milk-based beverages | 12% | 5% |
| Ice cream | 18% | 5% |
| Milk cans | 12% | 5% |
India’s Dairy Industry at a Glance
India is the world’s largest milk producer, accounting for about 24% of global milk production. This is largely due to its unique model of smallholder-based production, where millions of small and marginal farmers with only a few animals contribute to the output. This model, while resulting in lower per-cow milk yields compared to countries like the US or New Zealand, keeps production costs low due to the use of crop residues and cheap labor.
Despite being the largest producer, India’s share of global dairy exports is minimal, less than 1%. The country’s dairy products are often less competitive in the global market due to challenges such as:
- Low Productivity: The average annual milk yield per cow is significantly lower than in developed nations.
- Lack of Mechanization: The fragmented, small-scale nature of production hinders the adoption of modern, large-scale processing and farming technologies.
- Quality and Certification Issues: Meeting international standards and obtaining certifications (e.g., Halal) can be challenging for some producers.
The recent GST reforms aim to address some of these challenges by reducing costs and encouraging the growth of the organized sector, which in turn can lead to better quality control and greater efficiency.
The following video discusses the history of India’s dairy sector, including the success of the “White Revolution” and the role of cooperatives.
India’s Dairy Sector
This video provides a historical overview of the Indian dairy industry, including the factors that contributed to its growth into the world’s largest milk producer.