• Prices of milk across country has gone up.
  • The current price inflation in milk has mainly to do with a shortage of fat.
  • It has led dairies to increase full-cream milk prices more or to cut down fat content through rebranding of existing products.

Production statistics:

  • The share of buffaloes to total output was about 46.4% in 2021-22.
  • In 2000-01, it stood at 56.9%, even as the share of crossbred/exotic cows has risen (18.5% to 32.8%) and that of indigenous/non-descript cattle declined (24.6% to 20.8%) over this period.

Export-induced inflation

  • A more immediate reason for rising fat prices is exports.
  • During 2021-22, India exported over 33,000 tonnes of ghee, butter, and anhydrous milk fat valued at Rs 1,281 crore
  • The supply-side pressures built up just when demand was returning with the lifting of lockdown restrictions and resumption of economic activity.
  • Exports added fuel to the fire, exacerbating domestic shortages.


  • October-March is normally the ‘flush’ season in milk, when supply exceeds demand.
  • Dairies convert the surplus that they procure into skim milk powder (SMP) and butter fat.
  • The same SMP and fat is reconstituted into whole milk during the ‘lean’ summer-monsoon months.
  • Milk doesn’t attract any goods and services tax.
  • But SMP is taxed at 5% and milk fat at 12%.
  • While dairies pay no tax on milk procured from farmers, they have to shell out GST on solids.
  • And input tax credit cannot be claimed, as there’s no GST on milk itself.
  • The tax incidence goes up as the fat in the reconstituted milk increases.
  • The GST component is ultimately passed on to the consumer.
  • One way to avoid this is by doing away with GST on milk solids used for reconstitution purposes.
  • Alternatively, the GST on milk fats can be reduced to 5%.
  • Differential rates on SMP and fat probably make no sense, when both are derived directly from milk.
  • A 12% GST on milk fat is also an anomaly when vegetable fat (edible oils) is taxed at 5%.


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