What Would be a Good Government Policy to Encourage the Growth of Small Businesses?

. 6 min read
What Would be a Good Government Policy to Encourage the Growth of Small Businesses?

Government and businesses are closely related, with one’s decisions sometimes having implications for the other. Keeping the economy stable, among other things, by maintaining an encouraging atmosphere for small and large enterprises is in the country’s best interest. Local companies help sustain the tax base by regulating corporations and supplying workers with compensation.

Municipalities, cities, states, and the government are motivated by the prospect of workforce expansion to provide multiple ways of assistance - such as loans, research opportunities, favourable policies, and job preparation services. But what are the important policies that can be a major factor for small businesses to run and grow that can be helpful for the economy as well?

The Challenges of Small Businesses

  1. In the activity of the small business, the insufficiency of funds serves as a significant hurdle. In our region, this insufficiency occurs due to 2 main factors: poor creditworthiness and capital shortage. Many small companies are unable to obtain financial support from commercial banks, largely because of their “poor economic base.”
  2. Because of the scarcity of raw materials, small enterprises experience a large amount of loss and difficulties, and this is attributed to less working resources. During the peak season, they struggle to purchase goods in bulk and do not enjoy large-scale economies.
  3. Small companies are mostly run by the working class or disadvantaged parts of society, so they do not spend a large amount of selling their goods or services. Mostly, they rely on mediators who pay low prices, and even the suppliers’ recovery is very slow.
  4. Small business owners rely very little on the newly available technology, which can be a tremendous value to them. They choose to work with their customers offline rather than online. For example, they sometimes go through payment collection issues, etc., but they are not aware that this issue can be fixed with the existence of payment collection apps as now digitally can be done.
  5. Small businesses are mostly seen to be managed without any expertise by poorly trained or professional entrepreneurs and therefore giving very little attention to topics such as promotions, demand, availability, manufacturing strategies, potential opportunities, etc.

The growth of a nation such as India is also highly dependent on the growth of small businesses since the unorganised sector covers half of the economy. Their feedback is enormous. But micro-businesses face a variety of challenges, among which the challenge of insufficient funding, raw material scarcity, marketing concerns, less understanding of technology and poor management skills are at the top of the list.

Some Helpful Initiatives for Small Businesses

Important factors that can be initiated by the government

  1. Regulatory Framework & Infrastructure
  2. Funding & Finance
  3. Culture
  4. Mentors, Advisors & Support Systems
  5. Universities as Catalyst
  6. Education & Training
  7. Human Capital & Workforce
  8. Local & Global Markets

Simplify municipal rules for launching new firms

Allow the startup phase of a company easy. Create a central space on the local government platform that can be done through online portals or digitally and guide business owners through the process of getting started instead of pushing businesses to government offices filling out paperwork and raising questions: which forms to fill out, who to call, how long each move takes, etc. To find out how they got started, interview current company owners in the process.

Dedicate funds to financial growth

While focusing on helping people to start a business is vital, a deliberate effort should be made to help corporations expand. The government poses a whole new set of challenges. An established approach to improve the local economy is to provide firms with tools to move their industry to the next level.

What Government Policy will Encourage SME?

The government has other tools in its tax toolkit that can stimulate particular sectors, aside from the age-old claim that lower corporate income taxes promote economic investment. Tax incentives for certain kinds of firms, or incentives for customers who patronise certain businesses, will provide a strong boost to emerging markets. The company and residential solar power sector is a prime instance of this. Tax incentives allow developers to create new solar power ventures, and incentives encourage consumers to buy solar systems from small businesses and families.

To promote international investment, foreign trade policies, such as tariffs and import quotas, should be reduced or abolished. In addition to importing cheaper products, the potential to outsource labour and production to lower-cost markets continues to raise profit margins, enabling company growth.

When they work with private businesses to conduct official functions, government bodies specifically promote a commercial enterprise. Instead of having internal agencies for these operations, municipalities, for example, may deal with third-party road pavers.

One way to use tax revenue to promote economic development is through loans and grant schemes provided directly to small businesses. Another approach is to finance organisations and services that offer support to startup businesses, such as the Small Business Administration. Unemployment and other government funding benefits mean that a vast amount of citizens have ample funds to cover their taxes, providing them with more disposable revenue that is generally in possession of corporations.

In India, the importance of micro, small and medium enterprises is well known in economic growth. In particular, since the start of financial growth planning, the adequate focus has been placed on the production of MSMEs. The MSME market, mostly driven by individual ingenuity and invention, is a nursery for entrepreneurship.

Government Policies for the Small Business Sector in India

Policymaking is complex and chaotic in the field of entrepreneurship. The combination of policy decisions, including the population’s prevailing attitudes towards creativity, the structure and role of the administration, and the current levels of entrepreneurial activity, would depend on several variables.

Important MSME Sector Policy Changes in India

A variety of new policies, such as a streamlined registration process for new MSMEs, were adopted by the MSME Improvement Act of 2006. Instead of the earlier, more time-consuming process, this now requires completing a memorandum. District Industry Centres (DICs) no longer have to shoulder the logistical responsibility of MSME registration with this new phase in place. The systematic fines levied on suppliers late payments was another reform introduced in the act.


In many developed and emerging economies around the world, small and medium companies have emerged as an engine of growth. They have also emerged in India as a vibrant and competitive part of the economy because of their major contribution to GDP, industrial development and exports.

The most significant contribution of this industry, however, is to the production of jobs, which is second only to agriculture. The experience of recent years indicates that although employment in the agricultural sector has been diminishing, jobless development is still faced by large factories. The primary responsibility for work development in such a circumstance rests with the unorganised sector. It includes small and medium-sized enterprises.

Also read:

What are the most unusual business models?
What is the Difference Between Secured & Unsecured Loans?
Tips to Grow Sales of a Small Business
Success Tips for SMEs to Navigate Through Rough Patches


Q. What are the policies that the government can encourage for small businesses?

Ans: The government can implement a strategy that affects social behaviour in the corporate community. Here are some of the points that can encourage:

  • As a business catalyst policy
  • Global peace and culture of policy
  • Taxation and expenditure by the government
  • Configuring interest rates
  • Regulations and clearances

Q. What are the implications of government policy for small firms?

Ans: The government has set up many laws and legislation that guide corporations towards development. Some laws, such as the minimum wage, are obligatory, while other regulations will indirectly impact the business. As states and towns have their own set of laws, this is valid not only at the national level but also more geographically.

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