RBI’s GDP forecast cut triggers fresh uncertainty; AdEx growth pegged at 9–10%

The Reserve Bank of India’s (RBI) decision on Wednesday to lower India’s GDP growth forecast for FY26—from 6.7 percent to 6.5 percentage—has stirred fresh concerns across sectors, including advertising, which tends to mirror broader economic trends.

The revision comes in the wake of global uncertainties and the recent imposition of 26 percent US tariffs on Indian exports.

The central bank now expects quarterly growth in FY26 at 6.5, 6.7, 6.6, and 6.3 percentage, respectively—down from earlier projections of 6.7, 7, 6.5, and 6.5 percentage.

In response to the shifting economic landscape, the RBI’s Monetary Policy Committee (MPC) has slashed the repo rate by 25 basis points and changed its policy stance from ‘neutral’ to ‘accommodative’. The move is intended to support growth in the face of rising global trade tensions.

These developments come soon after e4m published a report highlighting the fragility of the advertising sector’s recovery amid recent stock market volatility

Moderate AdEx Growth On Cards?

The advertising industry had been hoping for a strong rebound this fiscal, especially after the Union Budget’s income tax reliefs. From April 1, individuals earning up to Rs 12 lakh annually are exempt from income tax—a measure expected to boost middle-class purchasing power.

However, just a week into the new tax regime, that optimism appears threatened. A decline in disposable incomes and subdued consumer sentiment may stall spending yet again, prompting brands to rethink or delay ad spends.

Rajiv Dubey, Vice President, Dabur India, expects ad spends to grow moderately this year, instead of the strong growth many had hoped for.

“With the RBI revising its GDP forecast for FY26 to 6.5 percent and the stock market recently witnessing a nearly 5 percentage drop, we’re seeing mixed signals. Advertising growth generally aligns with GDP trends, so a 6.5 percentage outlook points to more tempered growth in ad spends than initially projected,” he told e4m.

GDP-AdEx Correlation

In India, GDP growth has long been considered a key indicator for AdEx trends. The two metrics have shown strong correlation over the past decade. Despite India’s relatively low advertising-to-GDP ratio—about 0.4 percent, lagging behind several Asian peers—AdEx typically grows at 1.5 times the GDP rate. For example, a 6 percent GDP increase usually translates to a 9 percent rise in advertising spends.

The Pitch Madison Advertising Report (PMAR) had earlier projected 12 percent growth in AdEx for 2024 (calendar year), targeting Rs 1.11 lakh crore. However, the actual figure stood at Rs 1.08 lakh crore—a 9 percentage increase. The report estimates an 11 percentage rise in 2025, pushing AdEx to Rs 1.2 lakh crore. But with the current economic headwinds and a muted GDP outlook, industry stakeholders are questioning the feasibility of achieving this target.

Some experts warn that the newly announced US tariffs alone could reduce India’s growth rate by 20–40 basis points, tightening corporate margins and delaying any revival in discretionary spending—including ad budgets.

Long-Term Picture More Hopeful

While market volatility doesn’t instantly change ad budgets, steep declines tend to push advertisers toward performance-driven channels that offer measurable returns, Dubey explains.

“Digital continues to be the growth engine, attracting a substantial share of new budgets. TV and print may see marginal gains. We’re relying on real-time ROI dashboards to monitor performance and reallocate spend efficiently. While lower interest rates are supportive, navigating FY26 will require precision, agility, and a sharp focus on delivering real value to consumers,” he added.

Ashish Bhasin, Founder of The Bhasin Consulting, agrees. “Whenever there’s uncertainty in the markets, businesses tend to hold back—particularly on discretionary spends like advertising. Brands typically stay cautious with ad investments until the economic environment stabilizes.” He noted that some large advertisers, including FMCG giants like HUL, scaled down their ad budgets in the festive quarter of FY2025.

Yet, Bhasin remains optimistic about the medium- to long-term outlook. “India continues to be the fastest-growing major economy in the world. With nearly two-thirds of the population reliant on agriculture, a favourable monsoon and a strong festive season—which typically accounts for 40–45 percent of the annual ad budget—could help revive AdEx momentum.”

According to the IMF’s October 2024 World Economic Outlook, India has recorded the highest GDP growth among the world’s top 10 economies over the past decade—doubling its GDP by 100 percent. China grew by 75.8 percentage, the US by 65.8 percentage, and Germany by 43.7 percentage. Japan’s economy, in contrast, contracted by 1.3 percent. While the domestic outlook is clouded by GDP downgrades and market volatility, the global perspective continues to offer a glimmer of hope for the industry.

Anil Solanki, Media Head at dentsuX, agrees, “Advertising spends have traditionally mirrored GDP trends, and a downward revision in growth forecasts may prompt a recalibration of AdEx expectations for FY26. However, resilient sectors like FMCG, e-commerce, and BFSI are likely to sustain their investments, supported by festive tailwinds and potential election-driven momentum in the latter half of the fiscal.”

Solanki added that while large brands focused on long-term brand equity may stay the course, a broader industry shift toward ROI-driven strategies, performance marketing, and delayed discretionary spending—especially in macro-sensitive sectors—is likely.

Prasanna Iyer, CEO of Rezilient Digital, echoes the cautious optimism. He believes sectoral pullbacks are inevitable in a slowdown, especially beyond essentials like FMCG. “Digital may prove more resilient than other channels due to its measurability and performance focus. But the operative theme across the board will be to tread cautiously amid global flux.”