A Growth-oriented Budget To Boost Advertising

Ashish Bhasin Jan 23, 2024

As an industry, I feel the advertising community pays far less attention to the annual budget than it should. As a result of this, its voice is often not heard by the powers that be. Hence, year after year, fundamental issues remain unaddressed. When I was the President of the Advertising Agencies Association of India, as an industry, we wrote to the government during the COVID-19 period. While many of the issues raised went unheard, some, perhaps as a consequence of the letter, were indeed expedited.

Yet again, on February 1, we will have a budget, though interim and a vote on account. What should the advertising and media industry expect? I understand that this is only an interim budget, but I am sure the Finance Ministry is already planning for the full budget ahead, so a few observations"

1. A growth-oriented budget: What works for the growth of our economy in general also works well for the advertising industry. My observation is that the rule of thumb of 1.5 times GDP works for the advertising industry. i.e., if GDP grows at 6 per cent, as a rule of thumb, advertising will grow at 9 per cent. Hence, any budget that encourages growth for our economy is likely to be a good budget for the advertising industry. Given that the government has seen a good correlation between Vikas and votes, this budget will be growth-oriented.

2. A rural-focused budget: For many categories now, urban areas are reaching near saturation in terms of penetration. However, the room for growth in rural areas remains huge and somewhat under-tapped. A budget that does well for the rural economy will do well for the advertising industry too. FMCG companies tend to be the largest advertisers, and rural growth will have a multiplier effect that will boost advertising spends. Given that this is an election year, I expect the budget to have a rural development focus.

3. A digitally-ahead budget: India has taken a global lead in digitising the economy, whether through Aadhaar, the rapid growth of UPI or even digital governance. The world is now acknowledging our prowess in digital leadership. Digital has been the fastest-growing medium, and now the largest medium too, in advertising. Further focus, incentives and the development of digital will directly benefit the advertising industry and this budget will have a digital slant.

4. Simplification of tax procedures: The advertising industry does not mind paying taxes, by and large, but abhors spending productive time on complex, often repetitive, and hard-to-understand taxation-related laws and procedures. This applies to direct taxation as well as indirect taxes like GST. While not much may be done in the interim budget, I feel there will be a clear directional move towards simplification that will be signalled. The actual process may span a few budgets, but the direction will be alluded to in this budget.

While these are some likely expectations from this budget, there are a few suggestions for the finance minister that, if implemented, will not just benefit the advertising industry but the economy at large.

1. Treat advertising as an investment, not an expenditure: Just like R&D expenses are incentivised, advertising expenses should also be treated as such. Tax incentives should be given to advertising expenditures. Advertising creates demand, which spurs the economy. Instead, the income tax department keeps disallowing part of the legitimate advertising expenses, causing difficulties for clients, who, in turn, get wary of certain types of advertising and get discouraged from spending.

2. Simplify and rationalise: The government’s stated intent is to simplify, but on the ground, the complexities are mind-boggling. Ask a small outdoor advertising agency. It probably needs GST registration in 10–12 states. Ask media agencies. Their commission is often 1.5–2 per cent, and the TDS deducted is 2 per cent+. How can the cash flow work? In theory, you can apply for a lower rate of deduction, but in practice, it is a nightmare. Simplification and rationalisation of procedures will improve compliance and collections, as well as save a huge amount of non-productive labour and heartbreak. It will make our industry and economy more efficient.

3. Government, pay your bills on time and lead by example: The government (I am including the central government, state governments, PSUs and other government bodies in this) are the largest advertisers and they are often the worst paymasters, seldom, if ever, sticking to their agreed credit period. While there are penalties and interest charges on late payments to the government, there is no semblance of parity when the shoe is on the other foot, often crippling agencies and, in turn, media owners and vendors.

None of these suggestions have any significant negative revenue implications for the government; in fact, they may be revenue-positive in the long run. What is needed is a mindset change, which I am hoping that this interim budget and the subsequent budget will start reflecting. The advertising industry is often too meek and reticent to come together to raise a voice for itself. It’s time we changed that and let the powers that be know that this industry not only contributes to the exchequer directly and indirectly but also has the power to influence demand growth, which can bring prosperity to our country and spur the economy.