Government and Policy

Reviewed by Anjaneyulu | Updated on Aug 27, 2020


Government is a system governing an organized community and government usually consists of legislature, executive and judiciary. Government policy is a declaration of government political activities, plans and intentions relating to a particular cause.

Why is Government and Policy Important?

Government policies contain the reasons things that are to be done in a certain way and the reason for doing in that direction. Public problems can originate in endless ways, and they require different policy responses.

Governments establish many policies that guide businesses. The government can make changes in fiscal policy which leads to changes in taxes, trade, subsidies, regulations, interest rates, licencing and more. Businesses should be flexible enough to respond to changing rules and policies.

The government policies are applicable at all the levels from the national level to local levels such as states and municipalities, and these local authorities have their own sets of rules. There are few international treaties which can influence the way companies to do business.

Governments get revenue to spend from taxation. Increased spending requires increases in taxes or borrowing. Any tax increase will discourage investment, especially among entrepreneurs, who take the risks of starting and managing businesses. Increased spending also eats into the limited pool of savings, leaving less money for private investment.

Latest News

The Indian government is likely to bring e-commerce policy in 2020. The ministry of commerce informed that the National e-commerce policy is under consideration, but there is no deadline fixed for it.

Industry Impact

The government policy can influence how much tax the community pays, pensions, immigration status and laws, penalties for violation of rules, education system, commerce and trade in an economy.

The government implements a policy that changes social behaviour in the business environment. The government can enter into agreements to develop new technology that will bring the necessary change. Reduction in private investments shrinks production of goods and services. That, in turn, may lead to the elimination of jobs.

Government policy can influence interest rates, a rise in which increases the borrowing cost. Higher rates will lead to decreased consumer spending, but Lower interest rates attract investment as businesses increase production. Businesses can not thrive when there is a high level of inflation.


The government makes policies to take action against the current complications. The government policies make sure to fulfil the future obligations/requirements of the economy.