Dairying is an important activity in Indian economy contributing about 27 per cent of the agricultural gross domestic product (GDP) and around 4.35 per cent of the national GDP. The total milk production has increased from 48.40 million tonnes in 1988-89 to 127 million tonnes in 2011-12. Dairying in India is more inclusive compared to crop production in the sense that it involves a majority of the vulnerable segments of the society for livelihoods. Land fragmentation also impacts the distribution of dairy animals because of integration of agricultural land with dairying. Increase in the number of agricultural holdings and their continuous sub-division among the family siblings seemed to be affecting the consolidation of milk animal holdings. As a result of land fragmentation, the numbers of operational holdings across the landless, marginal and small categories have increased over the years resulting in reduction in the average size (Government of India, 2006). It is with this background that this paper has studied the structural transformation and current structure of the Indian dairy sector, along with its contribution to the household income. It has also examined the contribution of dairy sector to achieve the inclusive and equitable growth process in the country. The study observed that fragmentation of land has led to increase in the operational holdings across different categories in the last four decades. The study also revealed that the proportional expenses on dairying to total production expenditure at the household level is inversely related to land ownership whereas as income from dairying to total family income of the households is also inversely related to land ownership. Therefore, dairying has the capacity to reduce poverty at the household level and it should be an integral part of poverty alleviation programmes.