Political factors for businesses and the startup ecosystem are beyond control, but businesses must respond to the change in policies brought in by the incumbent government. After elections, when a political party comes to power, it has certain missions and goals that have a huge role to play in the development of entrepreneurship in a given geographical area.
Political factors that influence the entrepreneurship ecosystem
Social stability
Social stability has a significant impact on the running of a business. Any unrest in the country or a hostile takeover over a government will lead to looting, riots, and chaos in the country. Such situations might lead to ‘bandhs’ which can disrupt the normal working of business operations.
Foreign trade relations
The government can exert control on businesses through taxation. Foreign companies that want to set up their businesses often face the brunt of high taxes since the government wants to protect the business interests of local, small and medium scale businesses. Imposing high taxes on foreign brands will eventually cause them to increase the price of their products thus preventing people to buy more from local businesses.
Taxes
Government can increase or decrease tax for some companies or business verticals and lower it for others. For example -the state government in India earns a third of its revenue from the liquor industry. Closure of pubs and bars in the pandemic led to no sales of alcohol due to which the state government went cash strapped. To compensate for the revenue the state government allowed the liquor shops to open by hiking taxes in the liquor industry.
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Political factors for businesses and the startup ecosystem are beyond control, but businesses must respond to the change in policies brought in by the incumbent government.
Cultural attitudes and buying decisions
Any political party when comes to power its primary job becomes to favour the demands of its interest groups to remain in power. For example- Nitish Kumar led Grand Secular Alliance government decision to prohibit the manufacturing and sales of alcohol led United Breweries Ltd (UBL) to discontinue its brewing operations at its manufacturing unit in Bihar.The influence of politics has the power to subtly reshape the demographics that can have a massive impact on businesses.
Political stability, economic policies and budget
Political instability has a negative impact on the continuity of business as it disturbs market activities and labour relations. For example- if a political party that is in power has been formed from a coalition, there might arise situations of instability where a party’s views might differ from the other causing the party to break. This will result in elections again. The elections might bring a government in power that can introduce less business-friendly policies, change in business taxation and regulations. Budget policies also impact business continuity, for example, the government rolling out easy loan availability for MSMEs and startups improves India’s ease of doing business. Introduction of pay commissions in the budget increases high purchasing power among citizens that catalyses consumers to spend more which is a positive sign for businesses.
For the startups
Which political party will be in power and what pace it will lay for the businesses is something that enterprises cannot control. Therefore, instead of businesses reacting to the changes made, it should pay attention to consumer spending and cultural attitudes to develop new products or new additions to fit into the jigsaw puzzle of policies and government decisions.
