Advertisers pin hopes on upcoming Union Budget to boost demand

Advertisers across sectors are eagerly looking to the upcoming Union Budget for a much-needed push to revive demand and propel growth in a challenging economic environment. The budget is likely to be tabled in the Parliament on February 1. 

As this would be the first full Union Budget in two years, there is a collective hope among India Inc. that the government will introduce “bold reforms” to address inflation and boost consumer demand in both rural and urban areas. 

“As companies recalibrate their marketing strategies in the new year, the upcoming Budget could play a pivotal role in providing the fiscal stimuli necessary to rejuvenate both consumer confidence and corporate advertising investments,” said a marketer, who leads an FMCG major. 

On Sunday, the Confederation of Indian Industry (CII) proposed lowering excise duty on fuel, which makes up 21% of petrol and 18% of diesel prices, to curb inflation and increase disposable incomes. Despite a 40% drop in global crude prices since May 2022, excise duties remain unchanged.

CII also recommended reducing marginal tax rates for incomes up to ₹20 lakh annually to enhance purchasing power and drive economic growth. Highlighting inflation's impact on low and middle-income households, CII also called for raising MGNREGS wages, increasing PM-KISAN payouts, and revising PMAY unit costs.

Additionally, it suggested introducing time-bound consumption vouchers for low-income groups to stimulate demand. Director General Chandrajit Banerjee emphasized the need for targeted interventions to sustain economic momentum and support rural recovery.

The PHD Chamber of Commerce and Industry (PHDCCI) has urged the government to rationalize the tax structure, support MSMEs, and reduce tax rates for individuals and LLPs to 25% to ease financial burdens and boost economic activity. It also anticipates an increase in the budget size from ₹48.2 lakh crore to over ₹51 lakh crore, alongside bold reforms in taxation and infrastructure investment.

Urban India also battles inflation 

Although the previous budget, presented in July 2024, focused on economic balance through enhanced spending on job creation and rural development, alongside narrowing the fiscal deficit, the country's Gross Domestic Product (GDP) growth slipped to 5.4% in the second quarter of FY25 as per the National Statistical Office (NSO) statistics. 

There was a significant drop from 7.6% during the same period last year and lowest in the last two years. This downturn was largely attributed to sluggish manufacturing growth, reduced government spending, and subdued private expenditure. 

The latest Kantar India FMCG Pulse report highlights inflation's impact on the FMCG sector, which is the largest contributor to the advertising spend. 

FMCG growth slowed to 4.3% in the August-October quarter, down from 6.4% last year. Urban volume growth also fell to 4.5%, compared to 6.9% in 2023, despite a 13% rise in per-household spending to ₹6,761, reflecting higher prices but lower consumption. 

The report warns of sluggish FMCG growth in early 2025, raising concerns for the media and advertising industry, already strained by reduced ad spending from major advertisers.

Increased demand means more ad spends

The media and advertising sector echoes the sentiments. "A simplified tax structure can reduce compliance costs and increase disposable income, boosting consumer spending. This increased demand encourages business expansion, driving economic growth. Additionally, the reduction in tax burdens can help mitigate inflationary pressures too," ad industry leaders say. 

Such budgetary measures, if taken, have the potential to provide the media and advertising sector with the momentum it needs to rebound from the current slowdown. The global economic headwinds, multiple wars, and high inflation at home have impacted the marketing and promotional budgets in FY25, ad executives told e4m. 

In the year 2023, the advertising spends in India were close to Rs one lakh crore. 

The advertising landscape this festive quarter, which is typically a bustling period for the Indian media and advertising industry, remained muted because most sectors have adopted a cautious approach amid rising inflation, softening of demand and economic uncertainty.

“From FMCG to Auto to Jewellery, top categories have curtailed ad spends this season on traditional media, particularly on TV. The ripple effects of these cutbacks have strained the advertising ecosystem, which thrives on robust spending. A little impetus by the government in the budget can revive demands in all sectors putting India's growth story back on track,” say industry watchers. 

The advertising expenditure (AdEx) has remained flat this year, influenced by factors such as the Lok Sabha elections and weakening demand. Several Fast-Moving Consumer Goods (FMCG) conglomerates have reduced their advertising budgets. For instance, Hindustan Unilever Limited (HUL) cut its ad spending by 14.8% in Q2 year-on-year, with expenses dropping to ₹1,464 crore from ₹1,720 crore in the corresponding quarter of the previous fiscal year.

On the other hand, the startup ecosystem, once a vital driver of ad sector growth over the last few years, has also faced funding constraints in the current fiscal year. According to data from Tracxn, Indian tech startups raised a total of $11.3B in 2024, an increase of 6% compared to $10.7B raised in 2023. However, it is still 56% less compared to $25.4B raised in 2022.

These factors have triggered the speculations within the industry that AdEx may not reach its projected figure by the end of this year. The Pitch Madison Advertising Report (PMAR) 2024 projected that India's advertising expenditure (AdEx) will grow by 12% in 2024, reaching Rs 1.11 lakh crore.