Just like the viral fest over flavoured popcorns last year, the upcoming GST Council meeting could spawn a new trending topic around a food staple—ghee and butter.
The reason? The formal dairy sector cribs that ghee and butter, despite being a symbol of Indian heritage in general, and Ayurveda in particular, have got the short end of the stick. Ghee and butter are taxed at the 12 per cent GST slab, while even imported olive oil gets away with just 5 per cent tax.
“It’s hurting both industry and public health,” says Dr R.S. Sodhi, president of the Indian Dairy Association. “It compresses margins for organised players while informal, often adulterated products thrive untaxed. Reducing GST to 5 per cent would shift demand to safer, branded options, boost farmer incomes, and curb counterfeits.”
The issue for the dairy industry is two-fold: on one level, the higher tax on local cooking mediums like ghee and butter is disadvantageous for the industry compared to the lower 5 per cent GST on cooking oils like sunflower oil, palm oil and even olive oil, which is fully imported.
On the other hand, there are worries that the upcoming India-US trade deal will offer a route for America’s dairy products, supported by marketing orders and government subsidies, and pave the way to glut the market.
In fact, before GST came in, the value-added tax by most Indian states on ghee was either zero or between 4 and 5.5 per cent.
The stakes are high. India is the world’s biggest milk producer, a quarter of which goes into the production of ghee, according to industry sources.
While the overall ghee production is estimated to amount to a massive 3.2 lakh crore rupees as of 2023 (and the butter market at over 50,000 crore), the acute impact of the GST differential is on the formal ghee-making dairy sector companies, whose ghee production is calculated at 64,000 crore rupees.
The companies complain that not only is the higher tax making consumers favour other cooking mediums, but it is also leading to rampant adulteration. “The 12 per cent GST on ghee has pushed consumers toward cheaper, often adulterated alternatives like refined oils,” said Sandeep Aggarwal, director, SMC Foods, adding, “It not only weakens demand for pure dairy but also hurts farmer incomes and mid-sized processors.”
Indications are that the next council meeting, scheduled in August, could get into simplifying the multiple slabs into just a couple (plus a luxury slab of 28 per cent), and hopefully, this should solve the anomaly. If not, it would only mean that Finance Minister Nirmala Sitharaman quite loved the barrage of memes that followed her complex differentiation in tax rates for various types of popcorn, and wouldn’t mind an encore, this time over ghee and makhan!
