Principles of implementation of industrial policy in Russia

Tatiana Skryl,
Ph.D. (Economics), Associate Professor,
Department of Economic Theory, Plekhanov Russian University of Economics,
Moscow, Russia

Development and modernization of the industrial sector of the economy is one of the priorities of the state policy of the Russian Federation. Currently, many sectors of Russian economy are dependent on imported components, which refer to high-tech products developed and manufactured abroad. The criterion for successful development of the Russian economy is the creation of a developed manufacturing and processing industry with strong export potential, consisting of innovative business units that receive the bulk of income from the sale of high-tech products.

Being the embodiment of breakthrough technologies, the industrial complex finds itself at the core of the industrial revolution 4.0, offering a wide range of economic opportunities and challenges. This is a solid growth point for the global economy, especially in the post-covid age, when many economies are in a period of stagnation.

As the economy becomes more digital, the demand for industry solutions will steadily increase. The digital economy is estimated to be worth more than $1 trillion by 2040.

The transition to a digital economy is a significant restructuring of the economic system using new digital industrial technologies. It leads to a fundamental rethinking of the current structure and changes in all processes, allows the creation of new formats in working with economic actors, such as consortia, and the adaptation of products and services to the needs of a particular economic agent. The result should be the achievement of key results of economic efficiency, optimization of costs and improvement of the quality of the provided service or produced product.

But unprecedented measures to curb the spread of COVID-19 have corrected the implementation of the transition to the digital economy and had a negative impact on the Russian economy and industrial production. According to the Ministry of Economic Development, Russia’s GDP declined by 3.3% in 2020. At the end of the year, the decline in industrial production in Russia reached 2.9%.

It should be noted that the Russian economy and industrial sector had problems with growth even before the epidemic. This was due to both structural problems and the energy crisis. The situation was exacerbated by a drop in demand for energy resources (which make up a significant part of the export income of the Russian economy) and gaps in the supply chain. In the first two quarters of 2020, energy prices fell by 18%. Now the situation has begun to improve, as production is gradually resuming, the lifting of the quarantine has dramatically increased transportation activity, as air transportation accounts for about 7% of total oil product consumption.

The industry has been particularly vulnerable to the current crisis since most workers in the sector are employed directly in production, and work is often difficult or impossible to do remotely. In addition, given the specifics of the industry, it is not always possible in principle to ensure social distance at workplaces in production facilities, warehouses, logistics, etc. The negative consequences of the crisis are particularly pronounced in the energy, automotive and aviation industries. As the COVID-19 epidemic spreads around the world, manufacturers of automobiles, electronics and aircraft face problems related to the availability of raw materials and components.

In the face of the pandemic, the Government of the Russian Federation has developed a few economic mechanisms to support the private sector, namely the introduction of tax vacations, preferential wage credits, etc. All these measures are aimed at increasing business activity and the growth of real incomes of the population. The government is aware of the problem of industrial recovery because it is the stable operation of the real sector enterprises which ensures the course of recovery of the economy.  Industry ranks second in Russia in terms of the number of people employed in the economy.

There is no denying that the raw materials sector of the Russian economy is still the income leader. Under the conditions of stagnation, additional revenues from the sale of raw materials are distributed throughout the economy through the budget mechanism, which serves as a kind of basis for the recovery growth. For the speedy recovery of the industrial sector, it is necessary to accelerate the launch of new economic mechanisms for the regulation of innovative industrial technologies. This requires an institutional environment. The existing structure at the regional level has been successfully implemented for several years by development institutions, such as territories of advanced development, innovative growth points, operating across the country (Skolkovo, Tomsk, Togliatti, Khabarovsk, Kaliningrad, etc.).

At the financial level, various support funds are created, such as an industrial development fund, an entrepreneurship support fund, and others. At the international level, state industrial policy includes the creation of additional incentives to attract foreign investment in the real sector of the Russian economy. But we cannot stop there. If short-term measures of industrial policy have been defined, then new sources of growth in industrial production should be found to continue economic growth.

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