How did the government's control of vital industries affect the private sector during the first 40 years of independence?

It limited the policies and actions of the private sector.

The decision to develop the Indian economy on socialist lines led to the policy of the government controlling the commanding heights of the economy, as the Second Five Year plan put it. This meant that the government would have complete control of those industries that were vital for the economy. The policies of the private sector would have to be complimentary to those of the public sector, with the public sector leading the way.