As India accelerates negotiations on multiple Free Trade Agreements (FTAs), the domestic dairy sector is increasingly looking to the upcoming Union Budget for policy clarity and corrective reforms. Industry stakeholders argue that while FTAs open new trade corridors, unresolved regulatory and tariff issues continue to restrict India’s dairy export potential and expose farmers to uneven competition.
Dairy Exports Caught in Regulatory Gridlock
Despite India being the world’s largest milk producer, dairy exports remain modest compared to production scale. One of the most persistent challenges is limited market access to the European Union and the United Kingdom. Industry representatives highlight that blanket restrictions on Indian dairy products, particularly ghee, have constrained exports, even as Indian ready-to-eat and ready-to-cook foods gain acceptance in markets such as the US, Canada, Australia and parts of Asia.
A major bottleneck lies in the non-issuance of health certificates by the Export Inspection Agency for dairy products destined for the EU. Without regulatory alignment and mutual recognition of quality standards, Indian dairy exporters remain locked out of high-value markets. The industry is urging the government to prioritise negotiations on health certification protocols, including one-time or system-based approvals, without compromising food safety.
FTAs and the Risk of Import Asymmetry
While exports face hurdles, imports of agri-based ingredients continue to rise under preferential trade arrangements. Low import duties on fruit and vegetable pulps and concentrates, often sourced from third countries via neighbouring nations, have raised concerns among both food and dairy-linked value chains.
Industry bodies, including PHDCCI, have recommended increasing customs duties on imported fruit pulps and concentrates to the maximum permissible bound rate of 85%, with proposals to explore further upward revisions. The current duty structure, ranging between 35% and 50%, is significantly lower than tariffs on commodities such as tea and coffee, creating price distortions that disadvantage domestic farmers.
Stricter rules of origin and higher value addition norms under FTAs have been suggested to ensure that trade benefits do not bypass Indian agriculture.
GST Structure Adds to Cost Pressures
Beyond trade policy, the dairy and food sectors are also seeking GST rationalisation. While most food products attract nil or 5% GST, essential packaging materials continue to be taxed at 18%, resulting in an inverted duty structure. This mismatch increases production costs, strains cash flows and erodes competitiveness for processors operating on thin margins.
Reducing GST on packaging materials to 5% is viewed as a necessary step to support value-added dairy processing and export-oriented manufacturing.
Budget Expectations for a Sector at a Crossroads
As global dairy markets face volatility and domestic milk production continues to rise, India’s dairy sector stands at a strategic crossroads. The Union Budget is seen as an opportunity to align trade policy, taxation and export facilitation with long-term sectoral goals.
For dairy, meaningful reforms ranging from export certification and FTA safeguards to GST rationalisation could help unlock global opportunities while protecting farmer incomes. Without such measures, industry leaders warn that India risks remaining a volume powerhouse with limited influence in the international dairy trade.
