High GST on ghee hurting farmers, aiding unorganised market
The Indian dairy industry is calling for a cut in Goods and Services Tax (GST) on ghee from 12% to 5%, arguing that the current rate is hurting farmers and promoting an unorganised market with adulterated products.
“Imported edible oils have only 5% GST, but Indian farmers’ produce, which supports 80 million families, is taxed at 12%,” said RS Sodhi, President of the Indian Dairy Association, in an interview with CNBC-TV18. “Ghee is a 100% pure farmers’ product. Taxing it at a higher rate directly impacts farmers’ income.”
According to Sodhi, high GST is also pushing the market towards the unorganised and adulterated sector. Of the ₹3.2 lakh crore ghee market in India, only about 15% is organised and falls under the GST net. “Walk into any tier-2 or tier-3 city store and you’ll find hundreds of local brands selling adulterated ghee without invoices,” he said. “By taxing ghee at a higher rate, we’re encouraging this parallel market.”
Sodhi pointed out that before GST, ghee attracted just 4–5% VAT in most states. The rate increased post-GST rollout, primarily to target the organised sector. But that move, he said, may be backfiring. “We are losing out on GST because a large portion of the market remains unaccounted,” he added.
Despite the challenges, ghee consumption continues to grow in India at 8–9% annually. “Everyone now agrees that dairy fat is good for health. It helps with brain development, skin, joints, and immunity,” he noted.
Defending the case for lowering GST, Sodhi argued that ghee is wrongly treated as a luxury product. “Ghee is not just consumed by people living on Peddar Road or in South Delhi—it’s consumed by delivery boys, security guards, auto-rickshaw drivers, and Mercedes owners alike. It’s a staple food,” he said.
The Indian Dairy Association has formally represented its case to the GST Council and several state finance ministers. The issue has been raised in four GST Council meetings so far, but no progress has been made. “The concern is that reducing the rate will lead to revenue loss,” Sodhi said. “But if the tax rate is cut to 5%, the entire ₹3 lakh crore market can be brought into the GST net, which could result in ₹15,000 crore of annual GST revenue—far more than the ₹5,000–₹6,000 crore being collected now.”
He also emphasised the potential benefit to farmers. “On one kilogram of ghee, the farmer pays ₹70–₹80 in GST. A 7% reduction in GST could increase milk procurement prices by ₹2-2.5 per litre. This would directly boost farmer incomes,” Sodhi added.
Source : Dairynews7x7 July 24th 2025 CNBC TV 18 by Manisha Gupta