The Union Budget for 2011 has evoked mixed reactions from the advertising industry. On the positive side, many advertising agencies expect companies to spend more on rural communications, with the announcement of many rural development schemes.
?Advertisers have started looking at rural markets seriously, given that an increasing percentage of sales are coming from rural belts in many categories,? said Sam Balsara, chairman & managing director of Madison World. On the flip side, Balsara feels that the decision to make service tax payable when billed is going to be disastrous for ad agencies who have to give long credit to their clients.
Highlighting the positive impact, Nagesh Alai, president of the Indian Advertising Agencies Association of India (AAAI) and executive director of Draft FCB Ulka Group said the reduction in corporate surcharge to 5% is a good measure, leaving scope for better investment into the business.
?From a macro perspective, the emphasis on financial prudence and accountability, the roadmap to bring down fiscal deficit to 3.5% over two years, move to implement DTC and GST in April 2012 and other budget highlights will augur well for the economy which in turn will augur well for the ad industry,? he added.
According to Alai, the budget focus is rightly on growth, which is good for everyone. ?From a micro perspective, there will be cost increases due to service tax on air travel and hotel bills, but agencies will take them in their stride, over time,? he said.
The AAAI currently has 90 members who together account for about 85% of the ad revenues in India. With a buoyant economy, the R 23,000-crore Indian ad industry is expected to clock around 10-15% growth in calendar year 2011.
Sharing similar sentiment, Arvind Sharma, chairman of Leo Burnett India said the budget will have positive impact on the ad industry. ?To me, the most critical aspect is 9% GDP growth. If that growth rate is achieved, it is a good budget. Our industry?s growth primarily depends upon the growth of the economy,? he explained.
On the other hand, Srinivasan K Swamy, chairman of RK Swamy Hansa Group, said the finance minister has ignored the ad industry?s legitimate request to either reduce or withdraw the 2% tax deducted at source (TDS). ?In the finer details of Budget 2011, there are some new rules on service tax. The new rules could lead to a serious cash flow crunch for agencies, as until now, service tax was a ?collect and pay? tax, whereas, post-budget, it is to be paid much before collection. It’s bad news for many ad agencies,? he added.
