With its economy in a resurgent and diversifying mode, Russia is aiming to regain its influence and economic power. Today it is playing a positive role in addressing a broad range of issues related to energy security and is, in fact, emerging as a global energy supplier. On the eve of Russian President Vladimir Putin’s visit to this country, it may be useful to look at the trajectory the country is plotting on the world stage.Energy is clearly playing a significant role in propelling Russia’s economic growth. Oil and gas accounted for approximately 70 per cent of the growth of its industrial production during 2001-05. The oil sector alone accounted for a little less than 45 per cent of the country’s economic growth. This implies that energy resources directly contributed to more than one-third of Russia’s GDP growth in the period 2001-06. The consumption boom in Russia has been due to the surplus generated by rapidly increasing volumes of oil and gas exports. Russia now sees its energy potential as the viable means to propel its economy.A combination of factors have led to the country’s economic resurgence: strong leadership, a firm handling of the transition to a free market economy, integration into the world economy, the growth in oil and gas production and increasing oil receipts due to rising prices. Russia has also simultaneously restructured its defence, industrial and banking sectors, and worked towards reviving and diversifying its economic strength.An analysis of Russia’s economic performance during 2004-2006 reflects steady economic growth. The ruble appreciated by an estimated 2.1 per cent in 2006. Gold and hard currency reserves also registered an increase. Russia has also started paying off its foreign debts much ahead of schedule. Its overall economic condition in 2006 was characterised by a lower inflation rate. In the aftermath of the August 1998 financial crisis, most observers did not expect the economy of Russia to resurge so rapidly. Therefore, when the Russian economy began to recover more than anticipated, it was argued that in view of Russia’s huge socio-political problems, growth would come to a halt. The fact is that, despite several structural problems, Russia has shown the ability to sustain a high growth rate.Increased oil revenues have made Russia emerge as the world’s largest exporter of oil after Saudi Arabia. This led to the creation of a ‘stabilisation fund’ designed to fund social welfare projects and act as a reserve to tide over future economic crises. Today Russia is in a position to pay off the entire Soviet-era debt of about £12.5 billion to the Paris Club. The stabilisation fund is seen as a tool to ensure macroeconomic stability, to create conditions for the initiation of structural reforms, reduce economic dependency on foreign markets and diversify Russia’s economy. Revenues from energy exports are fuelling strong growth in sectors like services, consumer goods, retail and real estate. In its bid to re-emerge as a great economic power by 2025, it has identified the sectors and priorities that need specific attention. The process of economic transformation in Russia from a centrally planned economy to a market economy has been extremely arduous. Lack of structural reforms was one of the reasons for the decline and stagnation of the Russian economy. Once that issue began to get addressed, things started changing. There is, today, an overall improvement in the business environment. Amendments were approved to currency restrictions, paving the way for making the ruble fully convertible by the end of 2007. To make the process easier, it has eased restrictions on the the inflow/outflow of capital and, along with this, the restrictions on receipts from exports. The development in the banking sector, too, has made the investment climate in the country much healthier in the last few years, but there is a need to curb corruption and check capital flight. Russia has, simultaneously, stopped taking financial assistance from international financial institutions. Although President Putin has been a major factor in Russia’s economic resurgence process, the Russian economic situation has now stablised to the extent that any change of leadership in 2008 would not make much of a difference to the economic situation of the country. The writer is associate fellow, IDSA, New Delhi
