Ad industry’s budget wishlist: Relief, reforms, and digital push

On February 1, 2025, as Union Finance Minister Nirmala Sitharaman presents the first Budget of NDA’s third term in office, she will have to do a well-orchestrated balancing act, as the Indian economy goes through a tough period.

India’s GDP growth is estimated to hit 6.4% in FY 2024-25, its slowest pace in four years, dropping significantly from FY24’s 8.2%, as per the government’s first advance estimates released earlier this month. The manufacturing sector, which accounts for about 17% of GDP, is projected to grow by 5.3% in FY2024-25, lower than last year’s 9.9%.

Food inflation reduced to 8.4% in December 2024 from 9% in November, and vegetables’ inflation dropped to 26.6% from 29.3% during the same period. However, both still remained high, straining consumers’ ability to spend.

Deepender Rana, executive managing director-South Asia, insights division, Kantar

Stating that India's 2025 Union Budget comes at a time of shifting consumer sentiment and evolving priorities, Deepender Rana, executive managing director - South Asia, insights division, Kantar, noted that while 67% Indians felt the last year’s Budget aligned with their needs, this sentiment has gradually declined over the last three years, coinciding with a slowing GDP.

"With inflation and financial security concerns on the rise, citizens are looking for tax relief, enhanced medical insurance benefits, and measures to address the challenges posed by AI misuse," he stated. The upcoming Budget, according to Rana, represents an opportunity to address these challenges and support India’s economic momentum.

The growth of the advertising industry is proportionately dependent on brand spending, which has been muted as most industry stakeholders have been holding back on investments. Shrikant Shenoy, assistant vice president of Lodestar UM, Interpublic Group (IPG), explained this phenomenon and its impact on advertising industry. “Many sectors like FMCG and retail, which traditionally thrive on high ad spends have cut budgets, especially on TV in response to a weak demand,” he stated.

According to Shenoy, the government should control prices and simplify taxation. This would help grow disposable incomes, restore consumer confidence, and stimulate demand. As demand improves, brands would be encouraged to increase their advertising budgets.

Raj Kamble, founder and CCO, Famous Innovations.

Echoing this sentiment, Yousuf Rangoonwala, founder, Kakkoii Entertainment observed that the low performance of the FMCG sector was alarming as it typically served as the barometer of consumers’ purchasing power. “The current struggles in FMCG are compared to historical economic downturns, such as the Great Depression in the USA,” Rangoonwala said.

While this might be a dramatic analogy, many in the industry do admit that things are worrisome, especially with the volatility in retail inflation due to higher food prices. The Economic Survey 2024, hence, proposed excluding food prices from India’s inflation-targeting framework, citing their supply-driven nature. It emphasised tackling food inflation through supply-side interventions instead of using the Reserve Bank of India's demand-focused measures.

Dazed in a maze

Commenting on the current scenario, Raj Kamble, founder and chief creative officer of Famous Innovations, poetically described the advertising industry in India as navigating a maze with ever-shifting walls. “Rising costs of ad placements remain one of the most significant challenges. Whether it is securing prime-time television spots or digital ad space on popular platforms, prices have surged, making it increasingly difficult for small businesses to advertise effectively. For many SMEs, marketing often takes a backseat, not out of choice but necessity,” he observed.

Shrikant Shenoy, assistant vice president, Lodestar UM, Interpublic Group (IPG)

According to Kamble, to address this, government should provide relief to advertisers (i.e. brands) in the form of tax benefits or subsidies to make advertising accessible and equitable for all players. “After all, shouldn’t the corner chaiwala [tea seller] have as much of a shot at advertising as the multinational beverage brand?,” he questioned.

Kakkoii’s Rangoonwala added that the high taxation and poor economic performance have led to a decline in consumer purchasing power and reduced marketing budgets in the recent past. These, in turn, have adversely impacted the advertising and creative industries in India, he said.

The Goods and Services Tax (GST) appears to be the key industry concern. The current rate of 18% for certain categories, like biscuits, mineral water, beauty products or footwear, felt more like a luxury tax and needed some rethink.

"After all, how can the tax for a INR 100 soap bar be the same as that for a INR 1 lakh Apple iPhone?" asked one industry person. "This dichotomy is severely affecting small enterprises, who form the bulk of the Indian business landscape."

Rohan Chawla, co-founder of Story Digital agrees with this conjecture. The heavy burden imposed by 18% GST rate, according to Chawla, had prompted brands to reduce their total ad spends, placing margin pressure on small agencies. “If GST rate is reduced to 12%, it will ease the financial pressure on brands and allow ad agencies to focus on growth and innovation,” he said.

Rohan Chawla, co-founder, Story Digital.

Tuhin Arya, co-founder and chief creative at Bandstand Media, explained that high GST rate also affected consumer buying, especially among the millennials as they were feeling burdened with taxes.

Terming weakening of the Indian rupee and the increasing dominance of the USD as the global currency as another challenge, Vaishal Dalal, co-founder and director of Excellent Publicity said that the government should take measures to arrest the rupee’s decline. 

Where's the money?

According to Nikkhil Kashyyap, senior vice president at RepIndia, delayed or non-payment by clients is another serious issue affecting the cash flow management of ad agencies, requiring government intervention. He believes an independent regulatory body should investigate cases of payment default.

The industry players also want the government to give special attention to the MSME sector, as several ad agencies and brands in India fall into this category. Kashyyap, who is advocating special incentives for Indian agencies, said that a major chunk of the business is consolidated under the big four networks, leaving very little scope for Indian agencies. According to him, the government should create a policy structure that encourages the establishment of India-born global ad agency networks.

IPG’s Shenoy said, “Taking the forward steps like relief in corporate tax will help startups grow. Clear guidelines on decentralised finance and blockchain technology will allow Web3 startups to attract more investment. Simplified access to credit and incentives for promotion of R&D initiatives will enable MSMEs to grow and expand their presence in the digital ad ecosystem.”

All for digital

The recent Right of Way notification by Department of Telecommunications (DoT) aims to accelerate deployment of telecom infrastructure on public and private properties by simplifying and enhancing transparency in the related regulations. The upcoming Budget can further speed up the deployment of telecom infrastructure across the country, thus, boosting business growth in small towns.

Similarly, development of digital infrastructure and providing incentives to businesses to invest in digital emerge as other key demands voiced by the advertising industry executives. Improving the digital infrastructure in tier-2 and tier-3 cities would help brands invest aggressively in these markets, in turn, creating new opportunities for advertising firms, the industry players mentioned.

Vaishal Dalal, co-founder and director of Excellent Publicity

“Last year, the government allocated INR 11.1 lakh crore to infrastructure development, representing 3.4% of GDP. Building on this momentum, a focused push towards widespread 5G connectivity and affordable high-speed internet could stimulate both, business innovation and consumer engagement across the nation,” said Kamble of Famous Innovations.

Tax-breaks or subsidies could encourage homegrown technology development and content creation, thereby facilitating widespread adoption of advanced technologies such as AI, AR/VR, and high-quality video production. These measures would stimulate growth in the advertising industry and position India as a global leader in creative solutions, he mentioned.