The main focus of the economic policies pursued by the colonial government was to make India a mere supplier of Britain's own flourishing industrial base. The policies were concerned mainly with the fortification and advancement for their home country. The interests of the Indian economy were completely ignored. Such policies brought structural changes in the Indian economy by transforming it to a supplier of raw materials and consumer of finished products from Britain. The impacts of these policies are discussed as follows in detail;
(i) Low Economic Development
Throughout the British rule, Indian economy experienced very low level of economic development. The reason for such a low level of development was that the British government was more concerned with the promotion of economic interests of their home country.
Consequently, the colonial rule transformed India's agriculture sector to a mere supplier of raw materials for the British industries. This not only affected the production of the agricultural sector but also ruined the small manufacturing units like handicrafts and cotton industries. These manufacturing units faced a stiff competition from the British machine made textiles and handlooms.
(ii) Backwardness of Indian Agriculture
Under the colonial rule, India was basically an agrarian economy employing nearly 85% of its population. Nevertheless, the growth of the agriculture sector was meager. This was due to the prevalence of various systems of Land Settlement, particularly Zamindari system. Under this system, the zamindars (owners of land) were required to pay very high revenue (lagaan) to the British government, which they used to collect from the peasants (landless labourers, who were actually cultivating). The zamindars were mainly concerned with extracting high revenues from the peasants but never took any steps to improve the productivity of the land. Moreover, in order to feed British industries with cheap raw materials, the Indian peasants were forced to grow cash crops (such as, indigo, cotton, etc.) instead of food crops (such as, rice and wheat). This commercialisation of agriculture not only increased the burden of high revenues on the poor peasants but also led India to face shortage of food grains. Therefore, Indian agriculture remained backward and primitive.
(iii) Deindustrialisation of Indian Economy
India failed to develop a sound and strong industrial base during the colonial rule. The status of industrial sector during the British rule can be well defined by the term 'systematic deindustrialisation'. The cause of deindustrialisation can be attributed to the downfall of India's handicraft industry and the cause of bleak growth of modern industry was the lack of investment. On one hand, the British government imposed heavy tariffs on the export of Indian handicraft products and on the other hand, allowed free exports of Indian raw materials to Britain and free imports of British products to India. As a result of the heavy tariffs, the Indian exports became costlier and its demand in the international market fell drastically that led to the collapse of Indian handicrafts industries.
Simultaneously, the demand for the handicrafts products also fell in the domestic markets due to stiff competition from the machine made textiles of Britain. As a result, the domestic industries lacked investment and growth initiatives.
(iv) Regression in Foreign Trade
During the colonial rule, the British government owned the monopoly power over India's foreign trade. The British government used the trade policy according to the interests of their home country. The exports and imports transactions were restricted only to India and Britain. On one hand, the exports from India provided the cheap raw materials to the British industries and on the other hand, India's imports from Britain provided a virgin market for Britain's products. In either ways, British industries were benefited.
Moreover, the surplus generated from the foreign trade was not invested in the Indian economy; instead it was used in administrative and war purposes by Britain to spread their colonial power.