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Milk production in India increased from 17 million tons in 1950-51 to 84.6 million tons in 2001-02 and is expected to reach 88 million tons during 2002-03 (GOI, 2003). Therefore, from being a recipient of massive material support from the World Food Program and European Community in the 1960s, India has rapidly positioned itself as the world's largest producer of milk. 

Milk production in the country was stagnant during the 1950s and 1960s, and annual production growth was negative in many years. The annual compound growth rate in milk production during the first decade after independence was about 1.64 percent; during the 1960s, this growth rate declined to 1.15 percent. During the late 1960s, the Government of India initiated major policy changes in the dairy sector to achieve self-sufficiency in milk production. Producing milk in rural areas through producer cooperatives and moving processed milk to urban demand centers became the cornerstone of government dairy development policy. This policy initiative gave a boost to dairy development and initiated the process of establishing the much-needed linkages between rural producers and urban consumers.

To promote domestic production, India adopted an import-substitution strategy and protected the sector from external markets through means such as quantitative restrictions on imports and exports and canalization (restricting imports and exports through government or government designated agencies). Competition within the organized sector was regulated through licensing provisions, which prohibited new entrants into the milk-processing sector. Milk powder and butter oil were available in the international market at lower prices, which made reconstitution of milk from these products cheaper than collecting and selling fresh milk. It was therefore necessary to restrict the availability of these cheap imports to encourage the indigenous production.