Abstract Handicrafts manufacturing is a low technology fragmented and predominantly labour intensive one. This art was learned and transferred from one generation to the next. This sector has undergone significant changes due to the ever increasing global competition, technological advancements and economic developments. This paper presents various drivers that are affecting competitiveness of handicrafts manufacturing units of a cluster through empirical study. Various challenges faced by the cluster units were identified through field visits, interaction with stakeholders and detailed analysis. Based on the study a suitable framework and recommendations for improving competitiveness of the cluster units is proposed and policy implications were identified.