Huge cuts in corporate tax rates may hike the advertising budget by 5-7% in the festive season, which is visible as media buying and selling agencies have been inundated with calls from their clients, showing their inclination to review the promotional strategy.
The rise will be in addition to the INR 28,000 crore that India Inc was expected to spend before finance minister Nirmala Sitharam’s rate-cut. According to Ashish Bhasin, CEO for South Asia at Dentsu Aegis Network, advertisements depend on the sentiments of the clients; clients prefer to be in a wait-and-watch mode when the sentiments are running low.
According to him, this move has completely changed the sentiments and a positive outcome is expected out of it. "The corporates will definitely have some surplus
money to spare with the taxes going down," Anita Nayyar, CEO for South East Asia at Havas Media Group, said. She further added that the money can be utilized to provide incentives to the employees, boost the bottom-line and also for promoting the brands.
Sivakumar S, president revenues at Bennet Coleman & Co Ltd feels that the positive impact of the move will get definitely get reflected on the stock market; the corporate which were deliberating on cost-cutting, would do well by taking advantage of this surge in the stock market and would shift focus from cost savings to topline growth. The availability of surplus cash due to cutting of corporate tax will be deployed on costs which would increase revenue. Advertisements are one such vital input, especially during the festive season to attract customers.
Customers for so long were reluctant to spend on the backdrop of economic slowdown, erratic stock market and due to the decrease in GDP growth that plunged to a five-year low in the June quarter
The FMCG sector has plummeted in the past four quarters since July-September 2018, both in terms of value and volume. The country recorded its worst passenger car sales in 19 years in July. It was also nine consecutive months of low auto sales across categories.
For reviving growth, the Finance Minister slashed the basic corporate tax rate from 30% to 22%. For new manufacturing companies, the tax rate has been reduced to 15% from 25%. This resulted in availability cash flow of INR 1.45-lakh-crore for reviving private investment and lifting sentiments.