GDP growth cause for “cautious optimism” for Indian advertisers, say industry experts

The positive performance of India’s GDP growth rate in the previous quarter is a cause for cautious optimism for the Indian advertising industry, opined analysts and media experts we spoke with

e4m by Abhinn Shreshtha
Updated: Dec 2, 2015 8:24 AM
GDP growth cause for “cautious optimism” for Indian advertisers, say industry experts

News that India’s GDP, the barometer of the size of the economy, grew by 7.4 per cent during the period between July to September 2015, has revitalized interest of the Indian market. What is remarkable is that this not only exceeds the growth rate of 7 per cent as was reported earlier this year, but it is also significantly higher than that of China, which has been struggling and grew at 6.9 per cent for the same period.

Also, manufacturing grew at a robust 9.3 per cent, which would come as a relief to proponents of ‘Make in India’. But what does this mean for the media and advertising industry in the country? Since the BJP-led government came to power in May 2014, business leaders have been waiting for the promised economic revival and, though, this has happened to some extent, many have also been of the opinion that the impact has not been as much as the country was led to believe in.

The ground reality, says Shekhar Banerjee, COO of Madison Media Infinity, is that there has been a surge in ad spends post Q1’15. “We had to revise estimates and H2’15 was also very strong. Investments to create consumer demand have already started,” he said.

For advertising, a sector that works completely on sentiment, the euphoria of the early days has somewhat dimmed as the months have passed. Speaking to exchange4media, Ashish Bhasin, Chairman & CEO South Asia Dentsu Aegis Network, opined that the reported growth rate of GDP is a cause for “cautious optimism” for the media industry. “The role of thumb is that ad expenditure is twice the GDP growth rate. Advertising is sentiment-driven. Information like this helps improve the overall attitude in the industry. Suddenly, you have companies more ready to invest money in communications, more pitches, etc. So this definitely good news,” he explained.

Smita Jha, Executive Director & Leader (Entertainment & Media Practice) at PWC points out that advertising gets affected by GDP but in the medium to long-term (typically ad spends grow/fall 3-4 per cent faster than the GDP, she informed us), so there would not be any visible impact in the short-term.

“These indicators are obviously positive but then these are quarter numbers so they can fluctuate. However, there has definitely been a surge in advertising even before manufacturing growth rate was released,” opined Banerjee.

Similarly, Bhasin also cautioned that one should not get carried away by the numbers. “These are quarter numbers, so we have yet to see figures for the entire year. A lot also depends on how rural markets perform and we are just now seeing stability in some of these markets after patchy monsoons in many regions of the country,” he said.

Speaking about the expectations of the media and advertising industries, he agreed that the change in government had created a very positive environment with high anticipation and now people wantd to see actual results of all the talk. “In general, 2015 has been a good year. We are expecting above 11 per cent growth and 2016 also looks good with low double digit growth. So, I would say that we need to be optimistic with a hint of caution and without exuberance,” he told us.

“The thing peculiar to India is that advertising constitutes just 0.4 per cent of total GDP in absolute numbers, which is much lower than the global average of 0.9 per cent. So there is a lot of opportunity for growth but there needs to be a transformational change in the way ad spends are looked at by marketers,” said Jha, when asked for her views on the relation between GDP and advertising in India.

To do this, she opines needs work from both parties. The ad industry needs to prove to the advertiser that there is some benefit if they spend more and brand owners need to start allocating more budgets. “We are still stuck at 4-5 per cent of the topline (for ad budgets) irrespective of how the company is doing, which needs to increase,” she opined.

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