Russian defence spending to increase by one-third

25 percent of production of military enterprises account today for civilian use. Source: Sergey Mamontov / RIA Novosti

25 percent of production of military enterprises account today for civilian use. Source: Sergey Mamontov / RIA Novosti

In 2015, the national defence expenditure in the Russian budget will rise by 33 percent. Defence spending will rise to 3.8 percent of the GDP by 2016.

The Russian Government had decided to significantly hike its defence expenditure next year.

Citing the appendices to the draft law on the federal budget for 2015-2017, which the government first introduced to the State Duma, the lower house of the Russian parliament, Kommersant reported that the military expenditure in the Russian budget will increase by 33 percent to touch 3.287 trillion roubles ($ 82.7 billion) in 2015.

President Vladimir Putin had said during Russia Calling Investment Forum in Moscow on October 2 that about 3 trillion roubles ($ 75.5 billion) would be spent on modernizing the military industrial enterprises, some of which would later be corporatized and privatized. Moreover, today 25 percent of production of military enterprises account for civilian use, Putin said at the forum.

One-fifth

“The real share of national defence spending in Russia is growing. If in 2011 the defence spending was 2.8 percent of GDP, it will rise to 3.8 percent by 2016, said Alexander Deryugin, the director of the Centre for Regional Reform Studies at the Russian Presidential Academy of National Economy and Public Administration. By comparison, the United States defence spending is 4.4 percent of GDP, the United Kingdom - 2.5 percent. However, in the 1990s, the UK was also spending about 4 percent of GDP for these needs, and in the 1950s the figure even reached 8.8 percent. “Russian military spending is less than 5 percent of GDP, i.e. almost equal with the United States, although in absolute terms, the United States leaves everyone else far behind with its nearly $600 billion allocated for defence needs in 2013,” said Anton Soroko, analyst at Finam Investment Holding. “The number that exceeds the entire ten-year Russian military modernization program spending. Thus, we can say that Russia is in line with the global trends.”

According to Deryugin, the increase in defence spending in Russia is part of a large-scale rearmament program worth 20 trillion roubles ($503 billion). Back in 2011 then-Finance Minister Alexei Kudrin quit in protest over this program. These funds were allocated for the 2011-2020 state arms procurement program. In addition, about 3 trillion roubles were earmarked for developing the military-industrial complex.

Speaking at Russia Calling forum, President Putin said that some defence companies or part of their assets may be sold on the market. “It creates more favourable conditions for development. The state invests considerable resources in the defence industry for the near future,” Putin said. Moreover, according to the head of state, the Russian defence industry “releases some 25 percent of products for civilian purposes.” Among the most prominent examples, experts name Sukhoi Civil Aircraft, the manufacturer of medium-range aircraft Sukhoi Superjet 100.

 Ambiguous prospects

However, analysts are cautious on increased defence spending. “The rocketed spending for federal defence has caused federal budget deficit,” Alexander Deryugin said. “At the regional level the investment costs have been reduced,” he said, adding that repeated studies on how much defence spending increases GDP showed that it either has no positive impact on the economy or it is insignificant. “As for long-term investments they should be made in education and health,” he says. According to Anton Soroko “currently the military-industrial complex expenditure growth coincides with social budget cuts, and this is puzzling.”

The Russian government thinks otherwise. According to the Ministry of Industry, defence contracts secured the growth of Russian industry in the first half -year. In particular, in January-August 2014, “the manufacturing of ships, aircrafts, space vehicles and other vehicles” increased by 26.9 percent. This industry segment includes manufacturing of railway cars, planes, helicopters, submarines, etc., that is a significant part of vehicles, purchased by the state and state-owned companies, including military equipment. As a result, in the first half of this year, industrial production in Russia grew by 1.5 percent over the corresponding period in 2013, while overall GDP growth is around 0.8 percent.

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