At the time of independence, India faced enormous economic challenges due to the impact of two-century long British colonial rule. The government's economic policies were more concerned with protecting and promoting British economic interests rather than developing the Indian economy.

The agricultural sector was in a state of stagnation and deterioration. It was saddled with surplus labour and suffered from extremely low productivity, despite the fact that the largest section of the Indian population depended on it for sustenance.

The industrial sector was crying for modernisation, diversification, capacity building and increased public investment. The British rule led to the collapse of India's world famous handicraft industries without contributing significantly to its replacement by a modern industrial base.

Foreign trade was oriented to feed the Industrial Revolution in Britain rather than serving India's economic needs. Infrastructure facilities, including the railway network, needed upgradation, expansion and public orientation.

The prevalence of rampant poverty and unemployment required welfare orientation of public economic policy. There was lack of adequate public health facilities, and frequent natural calamities and famines pauperised the people, resulting in high mortality rates.