07 March 2014, 00:00

Government in search of growth

The Ministry of Economic Development has prepared new measures to stimulate economic growth. The department hasn’t come up with a new one, officials say Maxim Tovkaylo Margarita Lyutova Kiyoshi Ota /Bloomberg

The Ministry of Economic Development has submitted to the government another program of measures to stimulate economic growth, a government official said and was confirmed by a high-ranking official in the financial and economic bloc. In the near future, the measures will be discussed with First Deputy Prime Minister Igor Shuvalov. The Ministry of Economic Development declined to comment officially.

This is the third attempt by the Ministry of Economic Development to revive the economy. The government adopted the first plan to stimulate growth in August 2013, but it has not yet had an effect. In 2013, the Russian economy grew by 1.3% against the target of 3.6%. Investments decreased, capital outflow continued, industrial production increased by only 0.3%.

The beginning of the year was also disappointing. In January, according to the Ministry of Economic Development, GDP growth in annual terms slowed to 0.7% from 1.3% a month earlier, by December - a decline of 0.5%. Investments fell by 7% year-on-year in January. Data on business activity in industry in February also showed a continuation of its decline (in January, production decreased by 0.2% in annual terms, and in comparison with December - by 1%). The HSBC manufacturing PMI index remained in the negative zone in February - 48.5 points (a value above 50 points indicates an increase in activity, and below indicates a decrease), although it improved slightly compared to January (48 points).

The ministry submitted the second program of measures to the government on December 31. It was going, for example, to seek to reduce the costs of monopolies, develop competition and small business, and change antimonopoly legislation. However, the plan was criticized by other departments. And then the Ministry of Economic Development itself, in a letter to the government, reported that the measures were proposed by experts and the ministry did not agree with them on everything, recalls a government official. According to him, the Ministry of Economic Development wrote the new plan independently and the document turned out to be of better quality than that of the experts.

The plan, adopted in August, was designed for 2013, some measures have been implemented, some have not, says an official from the financial and economic bloc. The next plan included, according to him, unrealized measures from the August plan, for example, a proposal to create a federal guarantee fund for loans to small businesses. There are also new ideas, he continues, although they can be called new with some convention, he admits: “Most were already contained in the instructions of the president and the government. The Ministry of Economic Development simply brought them together.”

The Ministry of Economic Development’s plan includes proposals for developing small businesses, stimulating investment and innovation, improving the investment climate, supporting exports, and improving the labor market, Vedomosti’s interlocutors say. Measures to stimulate investment include the launch of investment projects at the expense of the National Welfare Fund (NWF), the adoption of a law on public-private partnerships, and giving regions the right to grant two-year tax holidays on income tax to new small and medium-sized businesses, says an official from the financial and economic block.

The Ministry of Economic Development has not proposed anything revolutionary, says a government official: the emphasis is on institutional reforms, while there is not a word about the reform of the courts and the law enforcement system. There are also no additional measures in connection with the situation in Ukraine, he notes. It is difficult to come up with something new, admits an official from the financial and economic bloc: “Events in Ukraine rather increase the relevance of measures already proposed, but not yet implemented.”

Business itself expects certainty and financial support from the state, a recent survey by the Gaidar Institute showed. The main incentives for investment were cited by 30-41% of respondents as lower prices for equipment, predictability and clarity of the macroeconomic situation, increased tax benefits, financial incentives and subsidies, lower rates on investment loans and the focus of government procurement on the manufacturer.

It is unlikely that the growth of the Russian economy will exceed 1.5-2% this year, notes Alexander Morozov from HSBC. Stimulus measures allow us to achieve this figure, and without them growth will be even lower. It is difficult to assess the effect of infrastructure projects at the expense of the National Welfare Fund, Morozov notes, but the effect will only be if budget investments and capital expenditures of state-owned companies are not reduced by this amount.