Why is India taxing nutrition? A closer look at the higher GST on ghee vs oils

Why is ghee—India’s most celebrated health fat—taxed higher than ultra-processed seed oils? Despite being deeply rooted in Ayurveda and traditional diets, ghee attracts a 12% Goods and Services Tax (GST), while palm and soybean oils enjoy just 5%.This taxation disparity not only affects what consumers buy but also how retailers stock, price, and promote nutrition-led FMCG products.

Retail Implications: Pricing, Promotion, and the GST Effect

The increased GST on ghee has a direct effect on how it is priced, advertised, and viewed on shelves in contemporary Indian retail, whether it be in supermarkets, kirana-tech platforms, or quick-commerce. Packaged ghee has a higher tax burden, which restricts competitive pricing strategies, whereas refined oils are frequently offered in combos, discounts, or private labels that benefit from the 5% GST slab. This influences consumer choice, particularly in markets where consumers are price sensitive and a ₹10–₹15 difference can influence a purchase. Retailers will also have less margin flexibility, which will lessen the push for ghee-based products in promotions. At a time when consumers are becoming more health-conscious, retailers can be empowered to highlight healthier, traditional staples by matching GST rates with the nutritional value of products like ghee.

GST Disparity: Ghee vs. Refined Oils

Under the current GST structure, ghee is taxed at 12%, while several refined vegetable oils, such as soybean, sunflower, and palm oil, attract a lower rate of 5% . This discrepancy affects consumer choices and has broader implications for public health and the economy.

Impact on Consumer Behavior and Market Dynamics

The higher GST on ghee has multifaceted implications. For producers, especially in the organized sector, the higher tax translates to increased production costs, which are often passed on to consumers. In rural India, where brand loyalty is minimal, and purchases are driven by product type rather than brand, this price hike can deter consumers from choosing packaged ghee. This trend is felt most by organized FMCG players in the ghee category, who struggle to compete on price against local, unregulated sellers not subject to GST

“With higher GST, the prices of products increase, making them expensive for the consumer,” explains a dairy industry expert. “Rural areas do not consider the brand; they only look at the word ‘ghee’ while buying it. Also, local producers do not pay any GST or taxes; everything goes into their pockets, and the end customer ends up paying more money. So, lower the GST, the lower the overall price of the product, and the more the sale will be.”

According to dairy retailers, this tax disparity is reshaping shelf movement. “We see ghee sales dipping where oil is more aggressively priced, especially post-COVID,” says a Mumbai-based dairy distributor.

Calls for Policy Reassessment

Recognizing the need for policy intervention, stakeholders in the dairy industry have raised concerns with governmental bodies, including the Ministry of Agriculture, the Finance Ministry, and the Indian Dairy Association. The aim is to bring attention to the disparity and advocate for a tax structure that supports nutritious, traditional foods.

The Indian Dairy Association (IDA) has urged the government to reduce GST on ghee from 12% to 5% to combat adulteration and promote the health benefits of ghee. “Reducing GST on ghee from 12% to an earlier rate of 5% would make it more affordable for the common man and boost its consumption, which is a healthier option than vegetable oil,” stated the IDA president. The move is expected to benefit both consumers and dairy farmers in the country.

Cultural and Ayurvedic Significance

Ghee’s importance extends beyond its nutritional profile. In Ayurveda, it is considered a vital component for balancing bodily doshas and enhancing overall well-being. Ghee is believed to aid digestion, improve memory, and lubricate connective tissues. Its role in traditional diets is not merely for taste but for its therapeutic properties, making it an integral part of India’s health and wellness practices.

Dairy Industry in Promoting Healthier Food Policies

The dairy industry plays a pivotal role in shaping the nation’s nutritional landscape. With a growing emphasis on high-protein diets, especially for the elderly, dairy products like milk and ghee are essential. By promoting and making accessible traditional dairy products, the industry can contribute significantly to public health. However, supportive policies, including equitable taxation, are crucial to enable this contribution.

In conclusion, the current GST structure, which imposes a higher tax on ghee compared to refined oils, raises questions about the alignment of tax policies with public health objectives. As stakeholders advocate for a reevaluation, it becomes imperative for policymakers to consider the nutritional value, cultural significance, and economic impact of such taxation. Aligning tax policies with health and tradition can pave the way for a healthier, more equitable society.