Characteristics of Russian economy
Russia is the wealthiest country in the world in terms of resources.
It has the highest volumes of forests, water lakes, 40%
of world palladium and 10% of world oil and gas reserves.
It is a mixed economy with state acquiring major sectors of the economy.
Market reforms of 1999 privatized much of the
Russian agriculture and industry sector.
It was surprising that privatization also
occurred in the energy and defense rated fields.
With currency rubble Russia stands at 12th position
in terms of GDP which is about $1.350 trillion.
She place herself at 6th position when it comes to comparing its
PPP (Purchasing Power Parity) i.e., 3.938 trillion dollars.
The Russian is rising every year with an average GDP growth rate of 1.7%.
The sectors that accounts for the whole of the GDP of Russia
are agriculture (4.7%), industry (33.1%) and services (66.2%).
In Russia 13.4% of total population is living below poverty line
The labor force of Russia stands at 76.9 million.
The unemployment rate in Russia is 5.4%
If you ask the per capita monthly income of a Russian than i.e., 565$ or 32,746 RUB.
Main industries operating in Russia are petroleum, natural gas, coal, chemical,
metals, rolling mills, aircraft, space vehicles and defense equipments.
Recently Russia was placed at 40th position in terms of ease of doing business.
Russia carry out export of $285.5 billion which
mainly includes petroleum and petrol products,
natural gas, metals, wood and wood products,
chemicals, defense and civilian manufacturers.
Main exporting partners of Russia are Netherlands,
China, Germany, Italy, Turkey, Belarus and Japan.
Russian do imports with counties like China,
Germany, United States, Belarus and Italy.
Its total import expenditure is $182.3 billion.
The main goods that are imported includes machinery, vehicles, pharmaceutical
products, meat, fruits and nuts, optical and medical instruments, iron and steel.
Russian has been successful in collecting FDI worth $361 billion dollars
Strongholds of Russian economy
It is the largest country in the world therefore it is believed that 30%
of world's natural resources exists in Russia because of its vast size.
Various geographical regions in Russia contributes unevenly to Russian
economy, with Moscow taking pride in being the highest contributor.
An estimate of World Bank says the total worth of
Russia’s natural resources is 75 trillion US$.
A 2012 report says 16% of the total GDP was accounted by the oil and gas sector.
This sector was held responsible for 52% of federal
budget revenues and over 70% of total exports.
Thereby, making Russia the largest exporter of natural
gas and second largest exporter of petroleum.
This clear indicates that Russian economy is quite dependent on
its petroleum reserves and make energy super power of the world.
After petroleum and natural gas it is defense which
is another supporting pillar of Russian economy.
Russia has indigenously manufactures 5th generation fighter jets, nuclear powered
submarine, advanced firearms, short range and long range ballistic missiles.
This is what it export to war torn countries like India
which is surrounded by threats of China and Pakistan.
Russia advancement in field of military has made her
second largest exporter of defense equipments after USA.
Defense manufacturing contributes $15.7 billion
to the revenue generated by the export
Period of 2000-2012
The period between 2000 and 2012 saw rapid growth in living
standard of Russians with disposable income rising by 160%.
This happened due to heavy export of petroleum products
as the prices of oil barrels raised by five folds.
This period also witnessed significant rise in
self assessed life satisfaction of Russians.
Along with these raises, poverty and
unemployment also increased by more than half.
This growth however was unequally distributed as it was found that 110
wealthiest Russians actually hold the 35% of all financial assets.
Therefore, Moscow the official capital of Russian has been
considered capital of billionaires by Forbes every year since 2008.
Russia also lost 880 billion dollars due to the
outflow of illicit money during this period.
The pump that Russian economy got was because of the
pro-growth economic reforms that took place in Russia
along with tax reforms like imposing income tax upto 13% and
huge effort were done at deregulation in between 2000-2002.
Industries saw a rise of 75%, investments increased by 125% and
people under middle class raised from 8 million to 55 million.
Period of Recession
As the prices of oil prices reduced during the early 2014 and
due to higher dependency of Russian economy on oil and gas
she faced the recession and GDP which was growing 0.6% in 2014,
contracted to 3.7% and further in 2015 and 2016 respectively.
As of now, Russian economy had managed to maintain a positive growth
of 0.3% in 2016 so it is official not under the threat of recession.
According to a report released in May 2016,
monthly wages feel to 450 dollars per month also
population living under poverty line raised from
16.1 million in 2015 to 19.2 million in 2016.
Digging Past for Further Analysis
During the period of 1970, when Russia was
Soviet Union, she faced the era of stagnation.
Then in 1986, Mikhail Gorbachev did efforts to stabilize the economy by converting
soviet economy to market oriented socialist economy but his unfortunately failed.
Perestroika however tried to disintegrate the economy and
politics which led to the breaking up of Soviet Union in 1991.
Period of 1991-1998
After the collapse of Soviet Union, Russian economy transformed from
centrally planned economy to globally integrated market economy.
The process of privatization was not at all planned but haphazard
and corrupt due to which major state owned firms went to oligarchs
who had political connections leaving wealth
being concentrated to a portion of society.
Afterwards Yelstin’s ‘shock therapy’ of radical and market
oriented reforms was applied to save Russia from downfall
on the recommendation of IMF and top American economist
but it came out to be a disaster and GDP fall by 40%.
Situation worsened to hyperinflation which in turn wiped out the personal
savings of Russians leading to the increase in crime rate and poverty.
1998 was the year of financial crisis for
Russia as government failed to collect revenues
and dependency on short term borrowing from
finance budget deficit led to this calamity.
Then in 1990, Russia turned towards IMF for financial help and became the largest
borrower with loans amounting to $20 billion for which IMF was later criticized.
Period of 1999-2008
This duration is considered the time period of recovery and growth of Russian Economy.
Russia devaluated her currency Rubble which helped domestic
producers to compete nationally and also on global platform.
The period of 2000-2002 changed the circumstances
for small and medium sized enterprises
as pro-growth economic reforms took place along with comprehensive tax reforms.
During the time period of 2000-2008, Russian economy got a push due to
rise in price of commodities and GDP rose to 7% on an average per year.
Poverty declined from 30% to 14% and disposable income was
more than doubled and in dollars increased eight folds.
Moreover, consumer credit between 2000 and 2006
raised 45 times also boosting private consumption.
In 2007, Russian economy got applauds from World Bank which stated that
Russian economy has achieved unprecedented macroeconomics stability.
Russian economy was successful in maintaining impressive fiscal
discipline with budget surplus every year from 2000 to October 2007
Period of 2009-2014
Impact of global credit crunch was also seen on Russian banks in 2008.
Fortunately there was no long term damage due to proactive and timely response of the
government and central bank which saved banking system from global financial crisis.
This brief period of recession was followed by
recovery period which started in late 2009.
WTO accepted the membership of Russian in 2011 after a long 16 years of negotiation.
After this Russia finally succeeded in getting
a label of high income economy by World Bank.
Due to the unpredictable rise and fall in the
prices of oil and gas, Russian leaders started
to ponder on diversifying the dependence of
economy on other sectors also like technology.
This shift however showed limited growth of 1.3%
in 2013 after performing well all these years.
Several reasons were stated for this slowdown like recession in EU, stagnant
oil prices, demographic issues and lack of strong industrial sector.
Russia also engaged in political turmoil with Ukraine during this period.
Period of 2014-Present
Annexation of Crimea in March 2014 and conflicts with Ukraine
led other powerful countries like USA, Canada, Japan
and the European Union to impose sanctions on
financial energy and defense sector of Russia.
This declined the Russian Rubble and raised the fear of financial crisis.
Russia responded to this sanction again these countries and also
imposed ban on food imports from European Union and the United States.
Growth of GDP in first half of 2014 was just 1% and grew by 0.6%
in whole of 2014 contrary to 0.5% which was predicted by ministry.
Second half of 2015 saw contraction of economy by 4.6% due
to inflation as economy once again entered recession.
To balance the state budget it was proposed to keep
the oil price at US$74 as opposed to US$104 in 2014.
Earlier Russia had the forex reserves of around $US500 million
but now it has plummeted to US$360 million in summer 2015.
Therefore the plan is to keep accumulating forex reserves
till they reach the past reserve of $US500 million again.