The industrial policy pursued by the British colonial administration had several significant shortfalls that adversely affected the Indian economy.

First, India could not develop a sound industrial base under colonial rule. The economic policies were concerned more with the protection and promotion of British economic interests rather than developing the economic condition of the colonised country and its people.

Second, the colonial government followed a policy of systematic de-industrialisation. This had a two-fold motive: to reduce India to the status of a mere exporter of important raw materials for modern industries in Britain, and to turn India into a sprawling market for the finished products of those industries. This ensured maximum advantage to Britain.

Third, the rule of the British-India government led to the collapse of India's world famous handicraft industries without contributing in any significant manner to its replacement by a modern industrial base. Even as the handicraft industries declined, no corresponding modern industrial base was allowed to come up.

By the time of independence, the industrial sector was crying for modernisation, diversification, capacity building and increased public investment. The colonial policy thus left India industrially backward and dependent on Britain for manufactured goods.