The Global Value Chain (GVC) approach has emerged as a novel methodological device for analysing economic globalization and international trade. The suitability of the chain metaphor and strategies for moving up the ladder of GVCs (“upgrade”) is widely echoed in international development agencies and public agencies in the Global South. Most of the existing GVC studies focus on new forms of firm-to-firm relationships and the role of lead firms and chain governance in defining upgrading opportunities. This paper examines the role of the state and local institutional initiatives in promoting upgrading in agricultural GVCs originating in rural areas of the Global South. The paper draws on research conducted in the South Indian smallholder tea sector. The paper argues that successful forms of state-led chain interventions not only contribute to upgrading of the smallholder-brought leaf factory strand of the GVC originating in the South Indian tea sector, but might also result in increasing bifurcation of smallholders integrated into high-margin markets through prominent bought leaf factories and a mass of “others” outside this tightly coordinated strand of the tea value chain.