The paper undertakes a detailed mapping out of the sectoral system of innovation of India's pharmaceutical industry. The industry is one of the most innovative industries in the Indian manufacturing sector. The innovation system of the industry has three strong pillars: very pro active government policy regime especially with respect to intellectual property right, strong government research institutes and private sector enterprises which have invested in innovation. The TRIPS compliance of the intellectual property right regime making it mandatory for pharmaceutical products to be patented has not reduced the innovation capability of the industry although it has not made them work on R&D projects that may lead to the discovery of drugs for neglected diseases of the developing world. Although the innovation system has the capability to develop new chemical entities the two main components of the innovation system, namely the enterprises and the Government Research Institutes does not appear to be having all the requisite capabilities to bring a new drug to the market. Although the state has been very proactive with respect to this industry, this is an area where public policy support is still required.