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Scrutiny
  
Medvedev’s pain...
...is that he doesn’t matter in Russia’s growth story. IIPM Think Tank shows how Russia could well be the leader of the BRIC countries!
07/08/2008

Allow us the liberty of using as hackneyed a metaphor as we could find. In the recently concluded Euro Cup, after Russia was routed in their first game by Spain, almost everyone had written them off. But little did the world know that their ace striker Andre Arshavin would make Russia have a phoenix like resurgence and make many experts eat their words. Eventually, Russia lost in the semifinals, but not before winning many hearts, defeating the tournament favourites Holland, and making a statement that Russia is here to stay.

We know you loved the simile. We didn’t either! But seriously, with the demise of communism and the political and economic crisis that followed soon after, Russia was reduced to a caricature of its former glory. The world community remained a silent witness to the loot of state enterprises that was engineered by powerful oligarchs in the name of reforms. And like Andre Arshavin, Putin, in less than a decade, has again made Russia a power to reckon with. The country, whose reforms in the 90s were laughing stocks for the world, has indeed come a long way to be part of the BRIC brigade. Powered by huge earnings from the sale of natural gas, oil and defence equipment, Russia is now a $1.28 trillion economy (2007).

In spite of embracing market economy, at heart, it remains opposed to the unilateral moves of the US. No wonder many look at the resurgence of Russia as the perfect counter to US unilateralism. In the 2003 Sachs Report, like we mentioned before, it was estimated that Russia would have a $5.87 trillion economy by 2050 while overtaking Italy before 2020 and Germany before 2030. Similarly, while the report had predicted Russia to have a GDP of $847 billion by 2010, the nation had already crossed the $1.2 trillion mark in 2007. As the reader might remember, the subsequent 2007 Goldman Sachs report, BRICs and Beyond, claimed that by 2050, Russia would have a GDP of $8.56 trillion. By today’s standards, it might look big enough but not when compared to what has been projected for India and China. The report states that by 2050, India would have a projected GDP of $38.22 trillion and almost equal to that of America at $38.52 trillion, while China’s would stand at a staggering $70.6 trillion. Now, in that case, is it fair enough to expect that a country which has the world’s largest natural gas reserves [1680 trillion cubic feet: 2008 survey of Oil and Gas Journal] and is the second largest oil exporter, would merely grow seven times of its present size in the next 40 years?
This sounds bemusing, especially against the backdrop of Goldman Sachs’ projection that even countries like Indonesia and Mexico would have GDPs of $7 trillion and $9.3 trillion respectively by 2050. On the Growth Environment Score (GES) Index, which measures the growth conditions of countries, Russia has fared better than India and Brazil. In fact, no other nation has managed the windfall profits from the export of oil better than Russia, which created the Oil Stabilisation Fund for national welfare and for paying off external debts.

The whole assumption by Goldman Sachs about the Russian economy slowing down eventually and becoming merely one-fifth of India’s and literally one-ninth of China’s by 2050 stands on the pretext of a declining population and slower growth rate. While the populations has been projected to be 109 million by 2050 from the current 142 million, the economic growth rate is assumed to come down from 4.3% during the period 2006-2015 to as low as 1.5% by 2045-2050.

Now, this is where the fallacy lies. The Russian economy has been consistently growing at 7% per annum for many years now. While the Goldman Sachs Commodities Index has estimated the price of oil to reach $90/bbl by 2009, in reality, the price is expected to touch $200/bbl before the end of 2008. And with natural gas becoming an increasingly better avenue of energy source, GDP of Russia [with the largest reserves of natural gas in consideration] can only go up and the $8 trillion GDP mark can be achieved far before 2050. The second assumption on account of shrinking population reducing the inherent demand has been made on the line of European developed countries like France, Italy or Germany. But unlike them, Russia is a gigantic country blessed with enormous natural resources.

By:- Pathikrit Payne
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