Answer: A colonial economy is an economy whose nature and structure are determined by the needs and benefits of the economy is of the ruling country. Economic policies followed by the British government in India led to its rapid deindustrialization, transforming its economy into a colonial economy. 

Impact of British economic policies on the traditional industries:

• Deindustrialization of the Handicraft industry: The traditional handicraft industry faced stiff competition from cheaper machine-made goods from Britain, resulting in their rapid decline. 
• British Policy of one-way free trade favoured imports -The British imposed a policy of one-way free trade on India after the Charter Act 1813 which resulted in the rise of imports of cheaper machine-made goods from Britain, while exports from India to Britain declined. From being a net exporter India became a net importer. 
• Railways enhanced the reach of British goods in Indian markets and enhanced the prices of raw materials
• After closing the external and domestic markets, the newly introduced rail nek helped European products reach the remotest corners of India.
• Railways sped up the export of raw materials from India to Britain, making raw materials costlier for the Indian handicraft industry. 
• Abandoning of the profession by artisans: Due to the decline of the handicraft industry and repressive policies of the East India Company (e.g., in Bengal, they were forced to sell their products at low prices), artisans faced diminishing returns. This led artisans to abandon their professions and shift to agriculture to support their livelihoods.
• Decline of cities: Due to deindustrialization, the cities declined, and rural areas had to bear migration from urban areas in India, e.g., Dhaka, Masulipatnam, and Surat.

Impact of British economic policies on the agriculture sector:

• Increased Pressure on Land: Increased migration towards rural areas upset the village’s economic setup as an increased number of people were dependent on agriculture to support them. An overburdened agriculture sector became a major cause of poverty during British rule.
• Land Revenue Policies: Various land revenue policies made the land a traded commodity that allowed Europeans to own the Indian land. 
• Commercialization of agriculture: The introduction of cash crops like indigo, and cotton, forced the peasants to shift to commercial crops resulting in a reduction in food grain production.
• Debt cycle: The commercialization of agriculture made peasants borrow more money from moneylenders without any hope of profit and incentives from cash crops. 

The negative consequences of colonial rule far outweighed the few positive effects on the Indian economy like railways, telegraph, etc. The subordination of the Indian economy to the British economy’s interests led to an enormous drain of wealth from India to Britain. The impact of this was so profound that the land which once attracted Europeans for its riches was reduced to a state of penury on the eve of its independence from foreign rule.