How does the industry view the upcoming Budget? Across a cross-section of networks, marketers’ responses underline hope and endorsement and even healthy scepticism. But one common theme emerges: it’s time for action
By Aliefya Vahanvaty
The Union Budget heralds the end of the current fiscal year and offers a clean slate of exciting possibilities for the months ahead –April, 2015 to March, 2016. The Budget, to be presented by Finance Minister Arun Jaitley on February 28, will be eagerly watched by investors and the industry which considers it a litmus test for Prime Minister Narendra Modi’s ability to lead on economic policy and reform.
CEOs and marketing executives will see what the Union Budget sets in motion and return to the drawing board to start the all-important ‘15-‘16 budget planning process for their own companies and brands. For a marketer, this can be one of the most challenging yet exciting times of the year. Apart from reflecting on key successes and failures over the past year, it’s also time to think back on compelling opportunities they came across but couldn't fund due to budget restrictions. Here, industry leaders and brand heads across the country tell us their top considerations about the Budget as we enter the next planning season.
Growth expected in retail advertisement
India's purchasing power has seen a marked improvement this past year. More than ever before, customers are selective about the products they buy, and marketers are constantly trying to provide the best deals to their current and potential customers. The Budget will be an indication of the path the government visualizes for the industry. We know that the government is focusing on promoting e-commerce, innovation and entrepreneurship.
If the Budget hits the right spots and key reform Bills can be transmuted into Acts, 2015 could indeed bring acche din. Labour laws, insurance, coal, power sector reforms, Goods and Services Tax - it's a long laundry list. Inflation is down and there's every chance that crude prices will be subdued through the next year.
The Media and Entertainment (M&E) industry is today a sunrise sector for the economy and is making high growth strides. Proving its resilience all through the last year, the industry is on the cusp of a strong phase of growth, backed by rising consumer payments and advertising revenues across all sectors.
The advertising and marketing sector in India is thus, expected to enjoy a good run this year. Growth is expected in retail advertisement, on the back of factors such as several players entering the food and beverages segment, e-commerce gaining more popularity in the country, and domestic companies testing out the waters. The industry has been largely driven by increasing digitization and higher Internet usage over the last decade.
Make in India will have to become real
“I don’t think it’s fair to correlate ad spends with the Budget because the Budget after all is reflective of policy measures. But the trajectory of decision-making that the government will take in this Budget, will in effect impact consumer sentiment and if consumer sentiment is upbeat and continues to grow, advertisers will also be optimistic about their spends for the coming year,” says Subhrangshu Neogi, Director (Marketing) of Religare.
For the Modi government, at stake is a key election promise to lift the lowest living standards among emerging markets by creating jobs for about 100 million restive young Indians who will enter the workforce over the next decade or so. During 2005-12, India added only 15 million jobs, a quarter of the figure added in the previous six years. Creation of decent jobs outside of agriculture is one of the biggest challenges that confronts India in trying to achieve faster, sustainable and more inclusive growth. If the country can achieve this, jobs and the ability to spend will follow. Here are some voices:
“The upcoming Union Budget must also look to provide solutions for employment incentives and deduction of employment costs so that the retail sector can generate employment opportunities without incurring significant employment-related costs,” says Harkirat Singh, MD, Woodland.
“If the government gives a boost to infrastructure and investment, hopefully, that would create more jobs and help in the economic recovery. I'm sure the Make-in-India initiative - if the government is serious about it - will help the country as a whole,” says S Raghunandan, CEO, Jyothy Laboratories.
India continues to be a consumption driven economy and to have rapid economic growth, it is important to remove the burden on India’s infrastructure which is one of the country’s weak spots affecting economic growth.
“This Budget is going to be critical. We have been hearing about acche din but whether it will translate into reality is yet to be seen. We will need to see what specific measures are taken to channelize pent up consumer demand into actual spending and benefits for the economy in general,” says Neogi.
“One definite expectation from the coming Budget is the roadmap for GST - a clear rollout and a bit more clarity on other details will help because that is a big ticket item for all the industries. We also hope that infrastructure stimulus happens in this Budget as that will spur growth of core sectors and definitely impact other sectors as well, ultimately affecting ad spends,” says Sunil Kataria, COO - Sales, Marketing & SAARC, Godrej Consumer Products Ltd.
“The Budget will further spur growth and with customer confidence at an all-time high, we definitely will see a huge spurt in sales as well as launch of new products. With the e-commerce sector further sustaining that growth, I think marketing and advertising spends are definitely going to be up. There will be lots more spends on experiential marketing as opposed to advertising and there will be lots more spends on Digital advertising,” says Farokh Balsara, Partner, EY.
More money in hand = more ad spends
As always, the foremost expectation of every tax-payer is realignment or increase in the tax exemption limit. The basic exemption limit could be increased from the current exemption limit of Rs 2.5 lakh, keeping in mind inflationary trends. This would place more disposable income and spending power in the hands of the consumer. “The economy is showing positive signs of recovery. Consumer confidence is up and if the Budget gives the right stimulus to consumers where the disposable income actually goes up, then we should see this confidence translate into increased spending by the consumer. That is the kind of lever we expect the Budget to unleash for us,” says Kataria.
Personal income tax concessions at the basic level would be on the wishlist for this Budget. “IT concessions would directly put more money in the consumer's hands. We are in the staples business and any money in the hands of the consumer is going to be helpful. Inflation is just about cooling off but still it would give a major fillip to demand because demand has been weak on the consumption side - not only on the discretionary side, but also on the staples side,” says Raghunandan.
“What is helping and I think will translate to spends is that globally commodities are down, oil prices are down, the dollar is more favourable than last year and this is leading to margin expansion for all the FMCG players and other sectors as well. Once there is margin expansion, companies are under pressure to ensure that they plough back some money into brand investment and thus marketing - advertising or promotions - are bound to go up this year,” adds Kataria. “Everybody is looking forward to a very positive Budget but I would hope to see volume momentum come back in 2015 and once that happens, obviously spends will also go up. You will see a lot of new launches from Godrej in FY 15-16 and that will obviously require spends. Our ad spends will be up compared to last year,” he states
what’s the Quantum of HIKE FOR AD Budgets?
Says Abdul Khan, Global Chief Marketing Officer, Alef Mobitech, “I do see more gains for the middle class, like in transportation and durables. I also see some amount of tax relief for the common man and that will induce marketers to spend a little more because they will obviously think that there is .5% growth out there and people are going to spend on the product. So marketing spends will see some increase.”
“There has been positivity in the market because of the crude oil prices cooling off. This is making profitability healthier and in our categories it would also mean more competition from the unorganized sector. Therefore for the branded players in the staples area, we will definitely invest much more money into advertising in the coming year because we will need to grow share. We will also need to spend because we will need to differentiate. So we will need to defend and differentiate. The lowering of crude prices has also put more money in the company's hands we would actually have to invest more than last year in marketing. Irrespective of Budget FY 15-16, our task for the year is quite clear,” adds Raghunandan.
“In the category where we are present, specially building construction, which is faucets, tiles and sanitary wares, the demand is growing as consumers want to improve their lifestyle and the fact that there is no clutter in the market-place, will force us to spend a little more than what we spent last year. There is no option but to invest in marketing. If you want to be seen and heard and if you want to communicate a certain point of view to your audience, there is no option but to increase ad spends. We will be increasing our marketing budget, though marginally, depending on how much we can afford. I would believe that there will be at least 10-15% hike in our ad spends for FY 15-16,” says Sushil Matey, Chief Operating Officer, H&R Johnson (India).
The new GDP
The government recently forecast annual economic growth to accelerate to 7.4% in the fiscal year ending in March 2015 after India grew 7.5% in Q3 2014. Based on the new formula the Statistics Department has started using to measure the economy, India now measures GDP by market prices instead of factor costs, to take into account gross value addition in goods and services as well as indirect taxes. Besides, the base year has been shifted to 2011-12 from 2004-05 earlier. At current prices, FY15 GDP growth is estimated at 11.5%. Q1 growth was revised upward to 12.8%, Q2 at 12.8% and Q3 at 9%.
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