ANALYSIS: India - Privatisation expected to fuel adspend explosion. Government deficit raises hopes of new opportunities, writes Atifa Hargrave-Silk

The Government, which has repeatedly missed privatisation targets because the process has been plagued by political and union opposition, kicked some life back into its failing programme in February when it approved the sale of giant telecoms firm VSNL by the Tata group and Indian Oil Corporation's successful bid for a stake in oil firm, IBP.

Arvind Sharma, chief executive officer at Leo Burnett India, says: "There was a lot of talk four years ago about privatisation, but it is only in the last three to four months that it has really started. Firms in raw materials, power and agriculture are still not advertising. But the financial sector, telecom, airlines, hotels and vehicles are hopeful. Some never advertised before, while others only advertised a little or poorly."

Prior to privatisation, there is a need for public companies to launch focused communication to build value of the corporation and its brands.

To this extent, Grey India senior vice-president Ashu-tosh Khanna says below-the-line activities are being used to change perceptions as well as to boost internal motivation. Advertising on the other hand is being used to generate more market share to boost company valuation.

The country's largest carmaker, Maruti Udyog, which was approved for a sell-off to JV partner, Japan's Suzuki Motor, is doing the latter well.

The brand has faced increased competition over the past four years from Hyundai, Fiat, Ford and local firm Tata Engineering and Locomotive, but has managed to gain 50 per cent market share, and is easily the highest spender in the category.

There are also post-privatisation opportunities for agencies. In recent years the Government sold its stake in loss-making bread maker Modern Foods. The company grew from a zero advertising brand to the highest spender in the category. Indeed, Khanna believes it is the reason why other smaller players like Harvest Gold have increased adspend.

But by most accounts, agencies have yet to see massive returns from companies that have been privatised. According to ZenithMedia, the Indian ad industry grew 10 per cent in 2001 over the previous year. Sharma believes revenue of spend from privatised companies is likely to increase by about $10 million this year.

"We are looking at this as the beginning of the process. In five years, I expect it will account for $200 million, contributing 15 per cent of the volume and this is really valuable growth to identify, adds Sharma.

However, Rajan Kapur, vice-chairman of O&M Asia-Pacific and chairman South Asia, believes that the reality is not so rosy. "Privatisation of the public sector units in steel, aluminium, petroleum and so on, are mostly infrastructure developments not branded goods and services. There are few advertising opportunities in these areas.

"In Suzuki's case, it has been a branded car for years so there are no major opportunities - agencies have been involved with Suzuki in the past. Even Air India bought out advertising for decades and it has been with JWT for 30 or 35 years, says Kapur.

But there are sectors opened to private investment, such as banking and insurance, where Kapur sees potential. In recent months, foreign players such as ING and Prudential have entered the India market through joint ventures with local companies. Meanwhile, floundering client-agency relationships are resulting in renewed calls for pitches.

Explains Kapur: "With new founded relationships there may be some turbulence, so the companies may seek a new agency. Certainly, this (banking and insurance) is the next big spender in the market. It's also a slowdown for the second year and clients' businesses are stagnating. Some relationships are such that companies are looking around. Every week some pitch or other is called. Even packaged goods are looking for new or renewed relationships."

For now, agencies are taking a long-term view of the Government's actions.

Kapur adds: "We are our own worst enemy - dogged by bad luck on the one hand and war and violence on the other.

"We were expecting the economy to pick up in the latter half of the year, but with war looming that is not likely to happen. So, we can only look to the long-term."

INDIA-STRONG PROSPECTS

Year                Adspend
              (USdollars m)
1992                    415
1993                    496
1994                    733
1995                    870
1996                  1,052
1997                  1,252
1998                  1,194
1999                  1,339
2000                  1,587
2001                  1,748
2002*                 1,912

Source: ZenithMedia
* Estimated