The Growth of and Support Policies for Small Firms in India

Since the 1950s, the Indian government has supported small firms in order to generate employment and promote these firms\u27 business expansion. Various preferential policies, such as tax exemptions, the reservation of certain labour intensive products for small firms, and credit assistance, have been provided on the assumption that small firms can neither get adequate credit due to asymmetric information nor enjoy economies of scale in marketing. However, some say these government policies might suppress a firm\u27s growth because if a firm grows beyond a certain level, it loses any benefits it might otherwise have obtained from the policies. Therefore, the aim of this paper uses firm level data to investigate the factors affecting the growth of a small firm. Besides firms\u27 and owners\u27 socio-economic characteristics, we examine the impact of policies on growth. In line with the existing literature on a firm\u27s growth, we find that their size and age is negatively related to growth. Also, the reservation scheme seems to affect firm growth negatively. Contrary to the literature, firms with female owners perform better than firms with male owners