This paper examines various factors that hamper the innovation activities in selected Indian manufacturing firms. To achieve this, we collect data from 190 manufacturing firms located in Hyderabad and Bengaluru cities through a primary survey. Our results based on field survey reveal that factors such as uncertain outcomes from the future innovations, cost of innovation, lack of qualified labour, and lack of appropriate source of finance were largely attributed to slow down the innovation activities in Indian firms. Further empirical results based on probit regression convey that the firms entering into export markets are able to overcome the obstacles. This study provides the directions for enhancing innovation by carefully tackling the key obstacles in case of Indian manufacturing sector. Apart from the R&D constraints and lack of skilled labour, financial sources cannot be ignored, which has a greater impact in shaping the national innovation systems. Copyright © 2017 Inderscience Enterprises Ltd.