A spoonful of policy change: Why a lower tax slab for ghee under GST 2.0 is good for hearts, homes, and farmers
As an increasing number of people seek to adopt healthier lifestyles, essential ingredients such as ghee are once again becoming staples of many diets. A recent report by market intelligence firm iMARC Group suggests that India’s per capita ghee consumption is expected to increase to 4.07 kg by 2034, up from 3.27 kg in 2024 and 2.68 kg in 2014. This growth can be attributed to the rising demand driven by cultural significance and an increasing awareness of its health benefits. India’s ghee market is projected to reach Rs 6.93 lakh crore by 2032, from Rs 3.2 lakh crore in 2023.India needs to recognise a simple yet crucial truth about its diets, asserts Dr Sachin Shah, Director of Neonatal and Paediatric Intensive Care Services at Surya Hospitals in Pune. “Ghee is a healthier staple compared to refined oils and butter. According to research published in the Journal of Food Science and Technology— the official publication of the Association of Food Scientists and Technologists of India—improves nutrient absorption, strengthens the immune system, and contains essential vitamins A, D, E, and K. It helps with energy production, digestion, and brain development in kids. Ghee, when used moderately, can be an ally in the fight against lifestyle diseases by providing protection,” Shah says. He adds that traditional Indian diets recognised this wisdom centuries ago, but in the rush toward so-called ‘modern’ cooking oils, we lost touch with the benefits of ghee. “Unlike refined seed oils linked to inflammation and heart risks, ghee provides nutrients the body can absorb and use effectively,” says Shahida Chaudhary, a former senior dietitian at Moolchand Hospital, echoing this view. “For the average household, a spoon of ghee can improve satiety, boost immunity—and even aid heart health when taken in moderation.” It is this very nutritional value of ghee, experts argue, that makes its affordability a matter of public health concern. In recent times, ghee prices have gone up due to an increase in milk prices and growing demand, apart from the high GST. Experts contend that if healthier fats like ghee are kept out of reach because of high taxes, people will continue to fall back on cheaper, less safe oils.Industry observers suggest that making ghee more affordable could involve reducing its GST burden, as consuming ghee is not a luxury but rather a matter of preventive health. “If millions of families are priced out of healthier options, they will turn to harmful substitutes,” says Chaudhary. “Lowering GST on ghee is a health investment for the country, not just a tax tweak.”
Live Events Prime Minister Narendra Modi on August 15, 2025, made a big announcement regarding the GST structure in the country, aimed at reducing taxes on daily-use items. “The government will bring Next Generation GST reforms, which will bring down the tax burden on the common man. It will be a Diwali gift for you,” he states.With both health experts and industry voices aligned, along with PM Modi’s announcement, the call for lowering GST on essentials like ghee has intensified. This change would not only provide tangible relief to households but also support the industry. Citing both public health benefits and sound economic logic, dairy leaders, policy experts, and cooperatives are advocating a 5% GST on ghee—similar to the tax applied to curd, buttermilk, and edible oils. An expert in the health sector and advisor at the National Health Systems Resource Centre, Dr K. Madan Gopal, calls a lower GST a “sound economic and public health move.”Under the GST regime, ghee and butter are subject to 12% tax, whereas curd and buttermilk are taxed at a rate of 5%. “While historically consistent, today it contrasts sharply with nutritional and policy logic,” says Pankaj Jain, Indirect Tax Partner at EY.India’s dairy sector supports over 80 million smallholder households, and more affordable ghee would “directly improve nutrition, raise real incomes, and reduce informal trade,” Gopal observes. Currently, only about 15% of the ghee market is formal, leaving the rest vulnerable to adulteration and tax evasion, he informs. “A 5% GST is not just a tax adjustment; it is a timely correction that benefits farmers, consumers, and public health alike,” he argues.
iStockEdible oil like Palm oil is taxed at a much lower 5% under GST. Notably, supporters of this idea contend that a 5% GST would boost affordability, reduce counterfeits, encourage innovation, and increase rural incomes—without denting revenue, as higher formal consumption could expand the tax base. Ravin Saluja, Director of Sterling Agro Industries, the parent company of Nova Dairy, believes that the GST cut could lift sales by 20-25% and raise farmer incomes by Rs 2-2.5 per litre. Similarly, Sandeep Aggarwal, Director of SMC Foods, projects a revenue increase of at least 25% along with better plant utilisation.Additionally, R.S. Sodhi, Chairman of the India Dairy Association, cautions about the increasing issue of adulteration. He says that aligning ghee and butter with lower-taxed essentials will improve compliance, curb unsafe substitutes, and unlock growth in a sector vital to both farmer prosperity and national nutritional security.Following PM Modi’s announcement, the GST Council is set to meet on September 3 and 4 to decide on reducing tax levies on various goods and services. Sources indicate that the 5% slab is being considered for all food and textile products. A tale of two tax slabs, counterfeits & public health risks For mid-sized processors, the rate gap is punishing, believe dairy players. Saluja says the 12% GST directly impacts 85% of his ghee and butter portfolio, raising consumer prices by 8-10% and cutting margins by 3-5%. “The disparity has shifted 15-20% of our rural consumers to cheaper edible oils, and we’ve seen a 200% surge in counterfeit ghee,” he notes.The 12% GST inflates ghee prices by around 7%, says Aggarwal. The high GST is also cited as a factor that stifles innovation in this critical sector. Saluja believes that it “restricts R&D for fortified products or eco-friendly packaging.” Lowering GST could also free up cash flows for supply chain improvements for dairy players, notes Aggarwal. The high GST has also bolstered the informal market, industry observers say. “GST had streamlined logistics and compliance in the dairy sector,” says Sodhi, “but the 12% rate on ghee significantly compresses margins for organised brands.” He explains that these brands face stiff competition from untaxed rural or informal alternatives, making it difficult for them to sustain competitive pricing.The public health perspective is also increasingly gaining attention as cases of adulteration continue to rise. “In rural and tier II-III regions, ghee is frequently replaced with palm oil or adulterated variants. High GST makes pure ghee less competitive and encourages consumers toward unsafe alternatives,” Sodhi says.Aligning ghee with the 5% GST slab, he argues, would encourage formal, branded supply chains and reduce the appeal of adulterated products. Impact on farmers and cooperatives The ghee market in India accounts for 25-30% of milk utilisation. Lowering the GST on ghee to 5% could increase farmer incomes by Rs 2-2.5 per litre, according to Saluja. It would “remove poverty levels” for many suppliers, believes Aggarwal, and for cooperatives, tax relief could be “transformative”.Devendra Shah, Chairman of Parag Milk Foods, a cooperative, agrees. He says that applying the 5% GST slab across the entire dairy product category will make quality, branded dairy more affordable while also enabling producers to raise procurement prices. “Over time, this can uplift rural livelihoods and ensure that growth in the organised dairy sector directly translates into a better quality of life for India’s farming families,” he adds.While the farmer case is indeed compelling, experts point out that India’s tax treatment of ghee also stands out on a global scale. Keeping dairy fats in a higher slab than refined oils not only negatively impacts rural livelihoods but also contradicts nutritional policy and international standards.
iStockA significant portion of the Indian ghee market continues to rely on informal and unregulated sources for raw materials. Global lessons, local urgency Globally, dairy fats are typically taxed at a lower rate. In the European Union, including France, Germany, and Austria, as well as in the US, essential dairy fats often carry lower or zero taxes. In the UK, for instance, milk, butter, and essential food items are subject to a zero rate of VAT.The EU’s lower VAT rates for butter highlight its nutritional value, while the UK’s zero-rating ensures affordability. In contrast, industry voices believe that India’s current GST structure, which treats ghee as a semi-luxury item rather than a dietary staple, sends the wrong signal.“Key economic drivers include fraud reduction through compliance, improved rural incomes through formal channels, and public health protection by reducing adulteration—these factors are critical,” Sodhi stresses.Notably, past attempts to secure a lower GST have faltered in the Council’s consensus-driven process. However, this time, industry insiders sense a convergence of economic logic, public health arguments, and political optics—illustrated by the upcoming Bihar election in a state deeply connected to dairy. “For once, the industry is united—from private processors to cooperatives to tax experts,” says Saluja.Former Finance Secretary Subhash Garg, adds : “The fact that so many people debate about such classifications shows the absurdity of making such distinctions between related products and too many rates. Merging 12% slab in 5% is good from the point of view of bringing necessary convergence of rates. A better alternative will be to raise 5% slab to 8% and allow input tax credits on all 5% slab goods which today don’t have the facility of input credit." He cautions, however, that political compulsions may drive short-term giveaways rather than long-term reform. “The Prime Minister has promised a big Diwali gift. That may translate into effective tax cuts, but it could also delay broader rationalisation.”The Department of Animal Husbandry & Dairying, the Department of Revenue, the Ministry of Finance, and the GST Council did not respond to emailed requests for comment till the time of publication of this story.Path Forward Given dairy’s role in everyday diets and rural employment, the GST Council’s call on ghee carries weight well beyond taxation. A lower rate, experts argue, could be cast as a win for farmers, consumers, and public health alike.Meanwhile, the Group of Ministers (GoM) on rate rationalisation has backed the Centre’s proposal to move to a simplified two-rate GST structure of 5% and 18%, scrapping the existing 12% and 28% slabs. The recommendation, confirmed by GoM chair and Bihar Deputy CM Samrat Choudhary on August 21, 2025, will now go to the GST Council, set to meet on September 3 and 4, for approval. If cleared, the government's “next-gen” GST regime could be rolled out before Diwali, providing relief to the middle class, MSMEs, and farmers.Experts say the GST Council may, this time, seek data-backed projections and possibly a phased approach. If ghee and butter move into the 5% slab, consumer prices may fall 6-10%; formal producers could see sales volumes rise by 20-25%; farmers may gain Rs 2-2.5 per litre; and adulterated ghee could lose ground.As Sodhi sums up: “This is a win-win. Consumers get affordability, farmers get better incomes, and the government gets more compliant tax flows. It’s time to bring fairness to one of India’s most cherished foods.” Add
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