The current state of the Indian economy is cautious. The Government has to meet its annual fiscal deficit target of 5.3 per cent of the GDP. Apart from this, high WPI and food inflation coupled with fall of rupee has also made the investment ecosystem weak. Some key policy decisions such as FDI approval in retail, aviation, postponing GAAR, and removal of subsidy cap, have been initiated and these measures are likely to surge the investment ecosystem steadily. Recent rate cuts by the RBI after a gap of nine months has boosted the investor sentiment but the capex loan applications in the banks by the corporate have gone down to below 10 per cent in the year 2012.
According to The Pitch Madison Media Advertising Outlook 2013 report, the media and entertainment industry is poised to grow at 7.2 per cent in 2013 and cross the Rs 30,000 crore benchmark. We try to analyse the growth chart here…
Why the ad spend will not be less than seven per cent?
With situation in Europe steadily improving, there has been a slight increase in global and domestic demand. Sectors such as FMCG, BFSI, and auto are launching new variants and are also expanding their geographies. Therefore, in spite of advertisers curtailing their budgets, brand building will not be compromised with. Hence, the sectors are likely to spend more.
Apart from this, the rural and tier II city consumption of FMCG brands has been rising very substantially. Therefore, ‘white goods’ category players would like to reach their consumers in these places. The rural demand for auto and ‘white goods’ is growing at twice the rate of the urban demand.
There will be an increase in the spend as compared to the last year, owing to consistent demand for FMCG, retail, and auto to an extent, taking the curve close to seven per cent, but beyond this point, slowdown in other sectors may curtail the growth.
Recently, at the Seventh Indian Magazine Congress, Dr Klein of Gruner+Jahr International mentioned a proportional relationship between GDP growth and advertising growth. Accordingly from estimates, India is likely to grow by at least 5.5 per cent in 2013. Therefore, by calculation, from the current size of Rs 28,694 crore, the industry should cross the benchmark of Rs 30,400 crore at least.
Why not more than seven per cent?
According to PMMAO 2013, high ad spends in the third quarter of the year had failed to drive up the volumes of goods and services. Therefore, marketers and advertisers from the slowdown sectors would like to slash the budget and divert the same money in discount sales and promotion.
Also, recent surveys have indicated that the consumers have cut their spending on restaurants, eating out, snacks and personal care products. Therefore, the advertisers in these sectors might look for other methodologies to engage audience sans the advertising. The investor sentiment in many sectors is quite weak viz: real estate and telecom. While telecom sector is fighting tax and spectrum issues with the Government, real estate sector (heavy print advertiser) is struggling with clearances and disorganised structure; therefore, there could be less spend from these sectors and growth beyond seven per cent (close to Rs 30,800 crore) may face stiff resistance from the slowdown sectors.
All the above mentioned figures have been sourced from PMMAO 2013.