Policy Update
Pritha Chowdhary
Background
India’s dairy sector is an important source of rural employment, household income and nutritional security. The country produced 247.87 million tonnes of milk in 2024-25, an increase of 3.58% over the previous year, retaining its position as the world’s largest milk producer (DAHD, 2025). However, the sector is characterised by a large number of small and marginal producers who depend on regular milk sales for cash income. For these farmers, disruptions in procurement, weak market demand, delayed payments and inadequate working capital can have an immediate impact on their livelihoods.
The Supporting Dairy Cooperatives and Farmer Producer Organisations (SDCFPO) engaged in dairy activities scheme was designed to strengthen producer-owned dairy institutions by providing financial support for working capital. Although the scheme originated in 2017-18, its implementation was restructured under the Infrastructure Development Fund (IDF) for 2021-22 to 2025-26. The government allocated ₹100 crore for 2021-22 and approved a total outlay of ₹500 crore for the five-year period. The scheme is particularly significant because it focuses not simply on increasing milk production but on strengthening the institutions through which farmers access organised markets.
The objectives of SDCFPO are:
- Providing working-capital support: To help dairy cooperatives and FPOs obtain affordable working capital during periods of severe market disruption, natural calamities or other unforeseen difficulties.
- Ensuring stable market access for farmers: To maintain a stable procurement channel for dairy farmers. A financially constrained cooperative may otherwise reduce procurement or delay payments.
- Ensuring timely payment to farmers: Timely payment is particularly important for small dairy farmers because milk sales provide frequent cash income. SDCFPO therefore seeks to enable cooperatives and FPOs to maintain regular payments to producers.
- Maintaining remunerative milk procurement during the flush season: Milk production can rise substantially during the flush season. Without adequate working capital, dairy institutions may find it difficult to purchase the additional milk. The scheme therefore seeks to enable cooperatives and FPOs to procure milk at remunerative prices even when supply is high.
Functioning of the Scheme
SDCFPO is a Central Sector Scheme implemented through the National Dairy Development Board (NDDB). Under the 2021 framework, the scheme consisted of two components: Component A-Working Capital Loan and Component B-Interest Subvention on Working Capital Loans. Component A was kept under suspension during 2021–22, while the interest-subvention component became the principal mechanism of support (DAHD, 2021). Under Component B, eligible producer-owned dairy institutions receive an interest subvention of 2% per annum on eligible working-capital loans. An additional 2% per annum is available for prompt and timely repayment, making the potential total interest benefit 4 percentage points for institutions meeting the repayment conditions (Press Information Bureau, 2025).
The scheme is implemented through NDDB, which evaluates and processes proposals from eligible producer-owned institutions. The support is therefore channelled primarily through organised dairy institutions rather than being provided as a direct cash transfer to individual farmers. This institutional approach is important because the immediate financing requirement often arises at the cooperative or milk-union level. Once the organisation has sufficient liquidity, it can continue procuring milk and paying farmers even when its own market receipts are temporarily inadequate.
Performance
The performance of SDCFPO can be assessed through both its financial outreach and the broader growth of India’s dairy sector. Under the scheme, interest subvention of ₹937.53 crore had been sanctioned against working-capital loans of ₹80,047.93 crore for 64 milk unions by January 2026, of which ₹693.21 crore had been released (DAHD-SDCFPO). This indicates that the scheme has mobilised substantial institutional credit to support dairy cooperatives and producer organisations.
At the sectoral level, India’s milk production increased from 222.27 million tonnes in 2021-22 to 247.87 million tonnes in 2024-25, while per-capita milk availability increased from 446 grams to 485 grams per day during the same period (DAHD, 2025). These figures demonstrate the continued expansion of India’s dairy sector during the period in which SDCFPO was being implemented, although this increase cannot be attributed solely to SDCFPO because milk production is also influenced by breeding, animal health, feed, infrastructure and other government interventions.
The scheme has also supported the functioning of organised dairy institutions. By November 2023, 62 cooperatives/producer organisations had received assistance, with ₹47,183.76 crore in working-capital loans supported through the scheme and ₹453.74 crore in interest subvention released (PIB, 2023). By January 2026, the number of assisted milk unions had increased to 64, indicating continued institutional coverage (Press information Bureau, 2023).
Table 1: State-wise progress of SDCFPO (Interest subvention on working capital) as on 31.01.2026
Source: DAHD-SDCFPO
Overall, SDCFPO’s performance shows two important trends: a substantial expansion of working-capital support to dairy institutions and continued growth in national milk production and per-capita availability. Together, these indicators suggest that strengthening the financial capacity of producer-owned dairy organisations forms an important part of India’s broader effort to develop a stable and expanding dairy value chain.
Impact
The impact of SDCFPO can be understood through the concepts of credit constraints, transaction costs and collective action. By reducing the cost of working capital, the scheme helps dairy cooperatives and Farmer Producer Organisations overcome liquidity constraints and maintain regular milk procurement and timely payments to farmers. This is particularly important for small dairy producers who depend on frequent milk sales for household income.
The scheme also reduces transaction costs by strengthening collective procurement, processing and marketing through producer-owned institutions. Stronger cooperatives and FPOs can improve farmers’ access to organised markets, reduce dependence on intermediaries and strengthen their bargaining power. Since milk is perishable, reliable procurement institutions are also important for preventing distress sales and maintaining continuity in the dairy value chain.
From a broader development perspective, SDCFPO contributes to institutional resilience and rural income stability by strengthening the financial capacity of producer organisations. While growth in milk production depends on several factors beyond this scheme, stronger dairy institutions can ensure that increased production is effectively linked with markets and value addition. Thus, the major impact of SDCFPO lies in easing credit constraints, reducing transaction costs, strengthening collective bargaining and improving farmers’ integration into organised dairy markets.
Emerging Issues
Despite its contribution to strengthening dairy institutions, SDCFPO faces several challenges. One major concern is its limited reach beyond organised dairy institutions, as many small and marginal dairy farmers remain outside well-established cooperative and FPO networks. Consequently, the benefits of subsidised institutional credit may not be distributed evenly across the dairy sector. The effectiveness of the scheme also depends on the financial and managerial capacity of participating organisations. Strong cooperatives may be better positioned to access and utilise institutional credit, whereas weaker organisations may face difficulties in financial management, loan repayment and maintaining efficient procurement systems.
Another limitation is that credit support alone cannot address structural constraints in dairy production. Issues such as low animal productivity, inadequate feed and fodder, animal-health problems, limited breeding services and insufficient processing infrastructure require complementary interventions. Dairy organisations also remain exposed to market volatility, including fluctuations in milk prices, feed costs, consumer demand and inventory levels. Interest subvention can reduce financing costs but cannot eliminate these commercial risks.
There are also concerns regarding regional disparities and long-term financial sustainability. Dairy development and cooperative networks are unevenly distributed across states, which may result in unequal access to the scheme. Moreover, continued dependence on interest support could create incentives for organisations to rely on government assistance rather than improving their own financial efficiency.
Way Forward
First, the future implementation of SDCFPO should focus on expanding access to small and marginal dairy producers by strengthening dairy cooperatives and FPOs at the grassroots level. Greater emphasis should be placed on improving the financial and managerial capacity of weaker producer organisations so that they can effectively utilise institutional credit and provide timely payments to farmers. Second, the scheme should also be complemented with investments in milk collection, chilling, processing, storage and value addition infrastructure to reduce post-production losses and improve farmers’ market access.
Third, there is also a need to strengthen digital procurement and payment systems to improve transparency and reduce transaction costs. Fourth, greater integration of dairy FPOs with organised markets, processors and value chains can improve farmers’ bargaining power and reduce dependence on intermediaries. At the same time, interest subvention should gradually encourage financial sustainability and operational efficiency rather than long-term dependence on government support. Fifth, strengthening women’s participation, improving animal productivity and linking credit support with animal health, feed, breeding and extension services would further enhance the long-term effectiveness of SDCFPO.
References
- Department of Animal Husbandry & Dairying. (2021, August 4). Administrative approval of the Central Sector scheme “Supporting State Dairy Cooperatives and Farmer Producer Organizations (SDC&FPO) engaged in dairy activities” during 2021–22. https://dahd.gov.in/sites/default/files/2023-08/AAOfSDCFPO2021-22.pdf?
- Department of Animal Husbandry & Dairying. (2022, May 12). Administrative approval of Central Sector scheme “Supporting State Dairy Cooperatives and Farmer Producer Organizations (SDC&FPO) engaged in dairy activities” during 2022–23. https://dahd.gov.in/sites/default/files/2023-11/AdmnApprovalForSDCFPODuring2022-23.pdf?
- Ministry of Fisheries, Animal Husbandry & Dairying. (2022, December 28). Ministry of Fisheries, Animal Husbandry and Dairying year end review 2022. Press Information Bureau, Government of India. https://www.pib.gov.in/PressReleasePage.aspx?PRID=1887058&lang=2®=48
- Ministry of Fisheries, Animal Husbandry & Dairying. (2023, December 20). Year end review 2023: Achievement of the Department of Animal Husbandry and Dairying. Press Information Bureau, Government of India. https://www.pib.gov.in/PressReleasePage.aspx?PRID=1988609&lang=2®=48
- Ministry of Cooperation. (2025, December 17). Dairy, fisheries and agricultural cooperative-based economic activities. Press Information Bureau, Government of India. https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=2205064®=48&lang=2
- Department of Animal Husbandry & Dairying. (2025). Basic Animal Husbandry Statistics 2025. Ministry of Fisheries, Animal Husbandry & Dairying, Government of India. https://www.dahd.gov.in/sites/default/files/2025-11/BAHS2025Brochures.pdf
About the Contributor
Pritha Chowdhury is a postgraduate in Economics from Jadavpur University. Her academic interests include public policy, economic development, innovation policy, and data-driven policy analysis.
Reviewers: Sneha Kohli, Prisha Sachdeva
Acknowledgment
The author extends sincere thanks to the IMPRI team for their guidance and support in developing this Policy Update.
Disclaimer
The views and opinions expressed in this policy update are those of the author and do not necessarily reflect the official position of IMPRI or any affiliated institution. While every effort has been made to ensure the accuracy of the information and data presented, readers are encouraged to verify facts independently before relying on them for any decision-making purpose.
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