The state government will have an important role to play in the new industrial policy framework. But they would have to rethink their role reflecting the changed scenario. Rather than distort market prices through subsidies and tax concessions, they would have to assist the firms in heir states to secure competitive advantages over time. This paper argues that such competitive advantages can through actions to increase productivity overall for the whole range of industries and through careful targeting of strategically selected industries. Fundamental issues such as labour relations, careful appraisal of projects, functioning infrastructure and continually improving quality of labour force require attention. Innovations need to be encouraged through coordinated efforts among industries and between educational institutions and the industry. Politically more visible actions of securing megaprojects and promoting non-resident Indian (NRI) investments might have had their attractions in the past. In the changed context, state governments will have to pay far greater attention to the fundamental issues for promoting industries. Sustained industrial development calls for a long-term view, it may take more than a decade for a state to build competitive advantages.