This is an important step by Google, and will help curb developers offhandedly ignoring having privacy policies, while asking for various permissions from a user’s phone. It will also help reduce the number of apps that are simply hacked together to replicate functions of a more popular app. Developers that ignore privacy policies open themselves up to lawsuits, as such, the quality and security of apps on the Play Store should also improve. This move is also important in light of Google launching Android Wear 2.0 with support for Google Play.
Other than the new policy, Google imposes various other restrictions on developers, which unless followed, can earn a Play Store suspension. Our guide on the 20 common app developer mistakes that lead to Google Play suspension can be found here.