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A $20 Bn Opportunity: The Indian Dairy Sector

Dairy sector

The dairy sector is a significant contributor to our economy and is a priority sector for the Indian government. With a 4% share in the economy, the sector is the largest single agricultural commodity. The dairy sector is also a significant contributor towards farmer’s income. It directly involves more than 70 Million (Mn) farmers in the sector, providing employment to more than 10 Mn additional people, both directly and indirectly.

The dairy industry in India was estimated to be worth INR 10 lakh crore ($14.2 bn) in 2019. The sector has portrayed a healthy growth of 12% in value and 7% in volume over the past 5 years. The organized dairy sector is worth INR 3.1 bn and constitutes 30% of the market, growing at twice the rate. An increasing organized sector gives way to multiple benefits for the dairy industry such as improved quality due to stringent Food Safety and Standards Authority of India (FSSAI) guidelines, increased demand in domestic and urban exports markets and, higher value creation by value added dairy products. Overall, the organized sector is expected to contribute 15-16% towards market growth in the next 5 years. 

The sector provides immense opportunity for further growth and investment with a total potential of INR 125 to 140 thousand crore ($17.8 bn to $20 bn), identified across the sector. The major potential lies within two broad categories- chilling infrastructure worth $2.71 bn to 2.85 bn with an infrastructure requirement of 120-130 MMT and processing infrastructure worth $12.4 bn to 13.4 bn with an infrastructure requirement of 115-125 MMT, over the next five years. 

The dairy sector holds key importance for India. Therefore, along with numerous opportunities, it is also backed by strategic government support, both, at the central and state level. 

Central government support

Animal Husbandry Infrastructure Development Fund (AHIDF)

  • Setup with an INR 15,000 crore fund ($2.1 bn) with a 3% interest subvention to provide a boost to the private sector infrastructural investments. The fund can be used for expansion or setting up of new processing and chilling infrastructure. 
  • Provision of a 2-year moratorium with a 6-year repayment period and a credit guarantee of 25% of the principal.

Pradhan Mantri Kisan SAMPADA Yojana 

  1. Financial assistance for storage infrastructure: 
    • 35% of eligible project’s cost for general areas
    • 50% of eligible project’s cost for North East 
    • Maximum grant in aid capped at INR 10 crore ($1.42 mn) per project
  2. Financial assistance for value addition and processing infrastructure:
    • 50% of eligible project’s cost for general areas 
    • 75% of eligible project’s cost for North East
    • Maximum grant in aid capped at INR 10 crore ($1.42 mn) per project

State government support 

State governments offer multiple benefits at their level. For instance:

  1. Andhra Pradesh: 35% of capital subsidy on the eligible cost of Bulk Milk Coolers (BMCs) for new end to end projects. 
  2. Gujarat: 25% of capital subsidy on the eligible project, capped at INR 5 crores. 
  3. Provision of electricity at subsidized rates for BMC operations of approximately INR 4-5 per unit in some states such as Madhya Pradesh, Andhra Pradesh, and Tamil Nadu.