2016 ad-growth rate to take a hit as spending slows

Ban on high-value currency sends advertising industry into a tailspin

The ban on high-value notes has left the domestic advertising market reeling as ad-heavy categories such as consumer goods, retail, real estate, auto and jewellery have seen a spurt in ad cancellations and postponements. 

The shortfall in ad spends for the December quarter, one of the busiest periods in an advertising year, is pegged at ~1,000-1,500 crore. This, according to ad and media agency heads, translates into a percentage point drop in advertising growth rate for calendar year 2016. 

“Most forecasts, including ours, put advertising growth rate for 2016 in the 12-13 per cent bracket. Because demonetisation has happened bang in the middle of the December quarter, a period which contributes 35-40 per cent in terms of annual spends, the overall advertising growth rate for the year will come down to the levels of 11-11.5 per cent,” says Ashish Bhasin, chairman and chief executive officer (CEO), South Asia at Dentsu Aegis Network. 

P M Balakrishna, CEO of Allied Media, the media planning and buying arm of the Percept Group, is a bit more aggressive in his assessment of the market situation. “Advertising growth rates should get trimmed to levels of 10-11 per cent for the year (2016) versus 12-13 per cent forecast earlier. But, depending on the remonetisation effort in the new year, things should ease; else, ad growth rates in 2017 could fall further by as much as four to five percentage points, if the currency situation does not show substantial improvement.” 

Balakrishna’s forecast for the new year stems from the mixed signals coming from the central bank as well as the government regarding remonetisation. While Reserve Bank of India (RBI) Governor Urijit Patel said this week that the RBI was working to ensure money circulation improved in the coming weeks, ground reports seem to suggest otherwise. Limited amounts continue to be dispensed at banks and automated teller machines, leaving citizens wanting more.  

In a presentation earlier this week, the country’s largest consumer goods company Hindustan Unilever (HUL) said consumers had been impacted with lower cash in hand and that spending by them was cautious in the short-term owing to the liquidity squeeze. “There is trade down-stocking due to the liquidity squeeze and wholesale has been impacted the most. Logistics has also been hit, particularly in long-distance routes and media heat will be lower,” HUL said. 

Anupriya Acharya, CEO of Publicis Media India, however, remains optimistic. “Our view is that with sufficient cash infusion in the coming weeks by the government, the demand for goods and services should pick up and this shortfall will only be temporary.” 

Arvind Sharma, an advertising veteran and former chairman and CEO for the India subcontinent at Leo Burnett, who is now an independent entrepreneur, agrees. “Eventually, normalcy will return and advertising spends should improve. I see this (demonetisation) as a temporary blip, which will ease in the next two quarters.”