The study has addressed the following issues: What are the lessons learnt from the milk production and processing sector and how are they going to shape in future? How to integrate production and processing for a faster inclusive growth process through dairy farming? What policy and institutional changes are necessary to accelerate the inclusive growth process? The study is mainly based on the secondary data from National Sample Survey Organization (NSSO) unit level data on ‘Situation Assessment Survey of Farmers’ 2003 and Annual Survey of Industries (unit level data of 1994–95, 1999–00 and 2010–11). The secondary information was collected from various state level reports of dairy cooperatives, private sector enterprises and conventional milk marketing channels. Since Indian dairy sector is smallholder-dominated, one of the major challenges lies in organizing them through cooperative organizations, or by building a mutually beneficial business relationship with private enterprises. In both cases, the government must play a facilitating role through enabling policies, regulations, financing options and research and development in the dairy sector.