From chronic shortages of milk, India has emerged today as the largest producer of milk in the world crossing 80 million tonnes. This has been achieved largely through a smallholder economy in which .Operation Flood., one of the world's largest dairy development programme, played an important role. All this happened largely under autarkic framework and regulated public policy dictated by import-substitution strategy. Until 1991, the Indian dairy industry was highly regulated and protected through quantitative restrictions (QRs) and stringent licensing provisions. Since early 1990s, India embarked upon liberal policy framework, which got reinforced with the signing of Uruguay Round Agreement on Agriculture (URAA) in 1994. This opening-up increasingly exposed the Indian dairy sector to the global markets, which in-turn are distorted by export subsidies, domestic support and prohibitive tariffs in developed countries. This raises several issues: Will the Indian dairy sector survive in the new brave world of liberalization? What are the options for India in the coming rounds of multilateral trade negotiations, given scores of distortions that plague the world dairy markets? What sort of domestic reforms are required in the Indian dairy sector that could promote its competitiveness in a fast globalizing world? This study responds to these issues by empirically mapping the competitiveness of Indian dairy sector over the period 1975-2000 and delineating policy options for international negotiations and more importantly, domestic policy reforms, given India's commitments to the WTO.