Timur Kashapov, group 4

The Role of the Government in the Russian Economy

After the privatization of the 1990s, the government dramatically reduced its
participation in the economy. But since the beginning of the 2000s public sector
has started growing, and the process, which was accelerated after 2014. Nowadays
analysts have different estimations of the government's role in the economy, but
the majority of them admit that this role is excessive and impedes modernization
and faster development. I will look at the main characteristics of state participation
in the economy and outline the positive and negative effects of the situation.
At first, some indicators create a false image of the state’s role in the economy.
Government expenses as a share of GDP are constantly growing: from 26,8% in
2000 to 35% in 2021[1]. This amount is comparable to the developed countries,
the average of OECD countries in 2021 was above 40%[2]. Moreover, the number
of state-owned companies was relatively small, about 2,5% of the total[3].
Nevertheless, we must take into consideration that state participation in the
Russian economy takes different forms. In many cases, the government owns only
a minor share of a company or controls the golden share. Another form is private
government companies such as Rostech that are also to be counted. On the whole,
the experts of FAS say that state participation in the economy reached above 60%
in 2018[4]. All in all, state presence in the economic field is not only palpable but
plays a dominant role.
One of the brilliant illustrations of such a role is government tenders. In Russia,
they are to be transparent, clear and competitive, which makes this indicator easy
to analyze. The share of government and municipal companies that received
tenders achieved 25% in 2018, with this proportion growing in some sectors up to
53% in healthcare and 77% in financial services[5]. This situation leads to
ineffectiveness and low competitiveness of state companies and damages the
whole economy.
Moving on to indirect forms of state participation, I will start with credit policy
and then proceed with a budget and fiscal one. Credit policy is conducted by the
Central Bank of Russia, an independent institution, whose main purpose is to
stabilize the national currency – the ruble. In pursuing this goal Central Bank
maintains a high key interest rate to contain the growth of inflation. Since 2013
this indicator has rarely been lower than 6%, surging up to 20% in March 2022[6].
At the same time, developed countries maintained in the same period much lower
key rates: about 0,5% in European Union and 1% in the USA. On the one hand,
this policy achieved its main purpose, inflation rates in Russia remained on
average at the 6%-level. On the other hand, with an underdeveloped stock
exchange market (39% of GDP[7]) and a lack of own resources barring companies,
especially SMEs from developing, expensive banks credits cannot provide capital
for businesses. Consequently, access to budget finance assumes crucial
importance, which expands government control of the economy.
The budget policy may be analyzed in two parts: revenues and spending. The
structure of state revenues marks key elements of Russian fiscal policy until 2022.
The major sources of revenue for the Russian consolidated budget were insurance
payments, income taxes, oil and gas taxes and value-added taxes. The first two
sources were responsible for more than 1/3 of all revenues, but they were paid by
companies and not by workers themselves. Oil and gas taxes made up about 20%
of revenues and VAT – 16%[8]. So, first, we can see that the Russian budget is
highly dependent on oil and gas exports, which have grown in recent two years.
Second, most taxes are deducted in a way that is not visible to most workers. So,
the government puts additional responsibility on firms and obscures the fact that
the biggest part of the budget is formed by people and not by oil and gas exports.
Approaching the state expenses can be divided into three main destinations: social
policy, military goals, and national economy (infrastructure). Every part
corresponds to about 25-30% of expenses[9]. The most important part, of social
policy, includes pensions and benefits for socially endangered groups such as poor
or large families. Here the government assumes the paternalist role, though its fight
against poverty is not very effective as its share remains stable – about 12%.
All in all, we can see that in all spheres the government plays a significant role,
though its interference is not always beneficial for economic development.

[1] Россия в цифрах 2021, Росстат

[2] OECD data
[3] Россия в цифрах 2021, Росстат
[4] Доклад ФАС «О состоянии конкуренции в 2018 г.»
[5] Ibid.
[6] https://www.cbr.ru/hd_base/KeyRate/
[7] Сайбель Н.Ю., Ковальчук А.В. Фондовый рынок России: проблемы и
перспективы развития // Финансы и кредит. 2018. №3 (771).
[8] minfin.gov.ru
[9] Ibid.