Mohammed Siraj took four wickets and Jasprit Bumrah three, as England was dismissed for 120, handing India victory by 151 runs.
Chappell noted that a number of England batsmen are not up to Test standard, while the captaincy of Joe Root is again in the spotlight.
Root's tactics on the final morning have been heavily criticised, after India's ninth wicket partnership added 89 runs in 20 overs, allowing the visitors to declare and set England 272 to win.
That partnership, between Bumrah (34 not out) and Mohammed Shami (56 not out) was pivotal in India's victory, with Root later admitting that his tactics weren't up to scratch.
But Chappell pointed out it's a captain's job to recognise the shortcomings on the field, not in the press conference after the match has been lost.
"He just loses the plot," Chappell told Wide World of Sports.
"His main problem is he doesn't have a feel for the situation. England have got themselves in a corner, because somebody should have realised a while ago that Joe isn't the right guy, especially against the better teams.
"What are you going to do? Change captain on the eve of an Ashes series? That's not a good idea. But by picking him as captain, you're giving yourself very little chance of winning."
Chappell conceded that in the absence of the injured Ben Stokes, there's no clear alternative to Root, who has captained England in 54 Tests since 2017.
He explained that an imaginative captain is often required in Australian conditions, nothing that creativity is not one of Root's strong points.
"They've got serious problems now, because they've let the situation deteriorate, to the point where they have to make changes at a time when you don't want to be making changes," he said.
"At this point, they really want to be settled against India leading into the Ashes.
"But they're anything but settled."
Chappell, who captained Australia in 30 of his 75 Tests, said Root's continuing reluctance to move up the order from number four defied belief.
The skipper has been England's most successful batsman for a number of years, his unbeaten 180 in the first innings at Lord's coming in a match where no other England batsman passed 60.
However, Root came to the crease with England 2-23 in the first innings, with Siraj on a hat-trick, and 2-1 in the second innings.
Chappell said a move to number three might solve a couple of issues.
"He comes in a 2-25 or less pretty well every innings," he said.
"Surely you've got to short circuit that. I assume four is his favourite position, but what the hell is the difference? Better to come in at one for bugger all, than two for bugger all.
"It's in the best interests of the team for him to bat three, there's some decent young players around who would have a better chance of succeeding if they batted after Root."
England's top-order remains in a state of flux, with openers Rory Burns (Test average 31.92) and Dom Sibley (28.94) both failing to impress over an extended period and placing extra pressure on those that follow.
According to Chappell, Burns, Sibley and all-rounder Moeen Ali should all be overlooked for the Ashes.
"You've got to try and win the match you're playing, but you've also got to have one eye on the future," he said.
"England have been picking guys who have no chance against the better teams. They're still doing it.
"In my opinion Sibley's got no chance against Australia. Rory Burns is not quite as bad, but pretty much the same. Moeen Ali was absolutely mauled out here four years ago, his bowling was a complete waste of time, and he did nothing with the bat."
"You've got to be thinking about how a player will go against Australia, and in those three cases, they've got absolutely no chance.
"The greater problem for England is if Burns and Sibley are indeed the best two openers in the country. If that's the case then they've got a major problem."
Chappell nominated James Vince and Dawid Malan, who both toured Australia in 2017-18, as likely replacements, as well as Zak Crawley, who was dropped in favour of Haseeb Hameed for the Lord's Test.
The 23-year-old Crawley has already played 15 Tests, highlighted by an innings of 267 against Pakistan last August.
"I look at Crawley, he might be down on confidence at the moment, but he's got a chance against Australia. Burns and Sibley haven't got a hope in hell," Chappell said.
"And on the little I saw of Haseeb Hameed, I don't like his chances much either."
"Dawid Malan got a very good hundred in Perth in 2017, the fact that he played as well as he did then tells you that the guy can cope with the bounce and decent bowling.
"James Vince is another that I'd seriously consider. OK, he gets to 20 or 30 and gets out a lot, but the 83 he got in Brisbane in 2017 was a very good innings. The 55 he got in Perth, you couldn't play any better than that, and he got an unplayable ball from Starc.
"He's shown me that when he plays well he can handle good bowling.
"I think they're at the point where they have to look at alternatives. To hell with it - I'd think about getting Malan and Vince into the side and consider (Zak) Crawley, (Ollie) Pope and (Dan) Lawrence as well.
"A few of the current guys haven't got a hope in hell in Australia this summer."
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