Small firms in India have a crucial and seminal role to play which arises out of both the late industrialization context and the particular historical experience of industrialization thus far that has contributed to the evolution of the industrial structure. Analyzing the Indian reality in the context of the experiences of Japan and East Asia and the insights of Dennis Anderson (1982), it is argued that macro-economic, trade and exchange rate policies do not favour the rapid growth and transformation of small firms, even as they do not favour manufacturing in India, in a situation where Indian manufacturing has to compete with many countries but most notably the dynamic East Asian. East Asian economies, these unambiguously are South Korea, Taiwan, Hong Kong, Thailand, Malaysia and China; and now possibly Vietnam which are well on their way to industrial transformation provide the necessary context of late industrialization.