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State Council Presidium meeting

April 4, 2023, Tula

The President held a videoconference meeting of the State Council Presidium on the development of the Russian industry in conditions of sanctions pressure.

Governor of the Tula Region, Chairman of the State Council Commission on Industry Alexei Dyumin delivered the main report at the meeting. He reported on the Commission’s additional proposals concerning the further development of industry. The proposals aim to boost demand for domestic goods, to improve customs tariffs regulation, to develop offset agreements as tools for boosting product demand, to reduce the tax burden on high-priority sectors and to increase the regions’ authority level and their capabilities for supporting the industry. Alexei Dyumin also drew attention to such issues as the need for additional capitalisation of industrial assets, the need to provide state guarantees for backbone enterprises when they apply for loans, to streamline science and technology policy (in particular, increasing R&D funding), switching to long-term contracts with a term of five to ten years and eliminating the shortage of engineers.

Deputy Prime Minister – Minister of Industry and Trade Denis Manturov and Minister of Finance Anton Siluanov commented on the report.

Promtekhkom General Director, Member of the Board of Directors of Tulazheldormash Alexander Silkin, Moscow Mayor Sergei Sobyanin, Nizhny Novgorod Region Governor Gleb Nikitin, Central Bank Governor Elvira Nabiullina, Moscow Region Governor Andrei Vorobyov, Kirov Region Governor Alexander Sokolov, Russian Export Centre General Director Veronika Nikishina, Director General of State Atomic Energy Corporation Rosatom Alexei Likhachev and Head of the Republic of Buryatia Alexei Tsydenov took part in the discussion.

* * *

President Vladimir Putin: Good afternoon, colleagues.

One of the top priorities on our agenda today is the development of Russia's industry, our industrial potential, including in light of such factors as external pressure.

You know that many sectors have been affected by the sanctions. The Western instigators of this blockade have severed trade, economic and cooperation ties.

Nevertheless, we were able to concentrate our resources and efforts to ensure economic stability, including by taking a number of necessary steps to replace Western products with Russian analogues or foreign ones, from friendly countries. We started investing actively in replacing imported equipment and software, and introducing new mechanisms of preferential and project financing.

At the enterprise we visited earlier today, one of the company’s managers said a remarkable phrase. He said, We were forced to switch to import substitution where we had never thought of it before. This is the key phrase – ”we are forced.“ I think if we had not been forced to do it, we would never have done it. But as it is, our colleagues are working on it and everything is working out.

I will not list everything, of course, but I would like to stress that we had to work fast and very hard, I mean across the country as a whole. We can already see the positive results. Moreover, and I spoke about this in my Address to the Federal Assembly, we have been able to enter a new cycle of economic growth.

Today, taking into account the dynamics of the situation, we will determine the next steps in industrial development. I would like to note here that the sanctions, as we all realise, are a long-term prospect, so along with the priority measures to replace imported technologies and products, we also need medium- and long-term changes aimed at ensuring the strategic goals of the country's sovereign development.

I would also like to note the following aspect. In 2014, we responded to Western sanctions and limited deliveries of foreign agricultural produce to the domestic market. Right now, we also discussed this issue with workers at the enterprise and with the plant’s staff. This became a valuable positive factor for the development of Russian agriculture, major farms and private farms with reliance on their own potential, in the first place. Essential conditions were created for rapid import substitution and for expanding agricultural production. Russian citizens obtained a wide range of Russian-made goods and foodstuffs that also proved to be more environmentally friendly, purer and of higher quality.

Not only did we manage to expand production, but we substantially increased export deliveries, and this also emphasises the high quality of our produce.

For your information, agricultural producers of all categories boosted production by 27.4 percent between 2014 and 2022. In 2022, the agro-industrial sector posted $41.6 billion worth of exports, a 2.1-fold increase on 2014, more than double.

Today, the industry, just like agriculture, has all the required conditions for active development. I am confident that we will be able to achieve the same impressive results here. Although this is, of course, a difficult and complicated objective, we will certainly accomplish it.

We need to create a package of support measures and incentives as soon as possible. This package would make it possible to facilitate a more rapid development of the processing industry, allowing us to promptly launch production of critical goods, to increase the depth of raw materials processing, to develop entirely new products and technologies and to launch their production.

I would like to note that the Ministry of Economic Development and the Bank of Russia have accomplished a lot in the field of the so-called taxonomy. In effect, this implies the formulation of transparent criteria and standards for technological sovereignty and structural adaptation projects. Consequently, banks will abide by more lenient loan issue requirements, while financing industry (this does not mean that quality will be impaired), and loans will become more affordable.

I would like to emphasise that the Russian Federation’s territories should, of course, adopt the most proactive stance, while promoting major projects and supporting small and medium-sized industrial businesses. Today, we are staying in Tula, one of the country’s industrial centres. Of course, it is possible to see more clearly here on the ground, how the situation is developing. I am asking regional leaders to motivate their teams to work actively and to become involved in this work.

Next point. It is also necessary to develop technological partnerships with friendly foreign companies more dynamically. We are open to full-scale and long-term cooperation with all interested partners.

It is clear that considerable resources will be needed to implement the plans we have announced. But it is also obvious that the pay-off to the economy and citizens and the increase in their incomes based on high-quality jobs will be much greater. For this reason, I ask the Government to provide the effective support tools intended for the engineering industry with the necessary financial resources and to implement these programmes without delay. We will talk about this today.

The new look of the Russian economy and the labour market, the demand for science, original Russian technologies, etc., are largely dependent on the successful fulfilment of tasks posed in the context of the industrial policy. By and large, this is a matter of national security and the advancement of all the regions of this country, as well as of the national vocational training system, efforts to create up-to-date jobs, and family income growth.

Colleagues, the situation in different industries and at specific plants is, of course, different. Today, we visited a major facility producing vehicles and equipment for Russian Railways. Building, revamping, and maintaining railway tracks is certainly of strategic importance for the national economy.

The plant has questions and I heard them. It is clear that all these problems can be solved. I think we will discuss this today; this is the reason we have come here. It is clear that many plants, especially sophisticated ones, are experiencing difficulties, and it is our task to take the necessary measures that will help to promptly overcome them and in general to join the trajectory of sustained industrial growth.

The processing industry, regrettably, has seen a slight decline – 1.3 percent last year and another 1.7 percent in January and February of 2023 compared to the same period in 2022. But the forecast for 2023 is that the processing industry will increase its output by 1 percent in real terms in relation to 2022.

Therefore, for all this to materialise, we should act in a much more dynamic, aggressive and energetic way and use all the opportunities that are presenting themselves in order to achieve an active introduction of advanced technologies, fine connectivity of related industries, expansion of the range of products, consolidation of the scientific and industrial schools and new approaches to personnel training.

We need systemic incentives. At the same time, I repeat, we should look far beyond the horizon of the next few years.

We have repeatedly discussed a number of such incentives. Among them are industrial mortgages, an updated mode of operation for industrial clusters, and soft loans to help companies quickly launch projects to manufacture priority products.

Let me remind you that we have set an ambitious but absolutely realistic and achievable goal and a realistic task – to attract investment in projects to manufacture priority industrial products in the amount of at least 2 trillion rubles in 2023, and more than 10 trillion rubles by 2030. I ask the Government not to delay and, of course, to start supporting such projects.

Further. As we have mentioned today, industrial development funds – both federal and regional ones – have proved themselves to be an effective institution. They attract public and private investment in the real sector of the economy by providing soft loans.

Last year, almost 120 billion rubles were allocated for the Federal Industrial Development Fund (of course, this is not much for such large-scale work) and an additional 8.7 billion to regional funds to support specific projects and compensate enterprises for paying interest on loan agreements.

These incentives were timely, but they provided lending support only to a limited number of enterprises. At the same time, in the processing industry alone, the total amount of loans exceeds 10 trillion rubles.

This year, we plan to allocate more than 3 billion rubles to regional funds. At the same time, these funds in some cases can be more effective in the implementation of local projects, and they certainly need more substantial additional capitalisation. So, let us talk about it today. I know that this issue was discussed yesterday, Mr Levitin reported to me that the discussion was stormy, but that is what you gathered for.

Here I would like to additionally highlight the importance of research and development work aimed at creating new technologies and products that are in demand by the industry, including small-scale ones.

Extensive cooperation between scientists, technologists and industrialists for the purpose of solving certain tasks for specific companies is highly relevant and necessary, without doubt. At the same time, it is extremely important to update our comprehensive research and development programmes of a full innovation cycle. They must be coordinated in terms of objectives, resources and timelines, and it is necessary to ensure that research is conducted to create the groundwork and reserves that meet the demand of the industrial sector.

Implementation of these programmes requires allocation of funds under Russia’s scientific and technological development programme.

We need to focus in particular on developing engineering design centres and reverse engineering programmes that can adapt and make effective use of foreign technology.

Here, we should consider best practices and, based on this knowledge, create our own effective technologies. As an example, I want to return to what we saw at Tulazheldormash. I hope that you [the top management] will speak about this further. The plant adapted partner technologies to our local conditions to make them more effective and better suited to our conditions.

In general, it is necessary to expand financial preferences and state support measures for projects dedicated to achieving technological sovereignty, including additional subsidies for both the manufacturers and the consumers of their products.

As I said in the Address, it is necessary to introduce tax incentives for buyers of Russian high-tech equipment. The Government must create a list of such equipment and develop a procedure for granting such incentives. Colleagues, of course, I want to stress that the process must be fully transparent to prevent any corrupt elements in these decisions and to make sure that incentives are not granted on the basis of familiarity or partiality but rather to those who actually need them. And it is important to ensure that these tax incentives also apply to equipment purchased this year.

As for major breakthrough projects, they require subsidies and grants through special decisions and for the entire duration of such projects. At any rate, it is necessary to extend the terms. As a rule, the term exceeds the three-year budgeting cycle, as far as I know from what I was told today about Russian Railways. The budgeting or investment cycle covers three years but it is insufficient for a company.

Small and medium-sized businesses play a big role in industrial development. We should certainly consider this. By their nature, they can adjust quicker to changes, meet a contractor's new requirements, and flexibly restructure their operations.

Another basic area is the training of qualified engineers, technicians and workers. We have been short of these people for many years and we need to make cardinal changes and achieve tangible results in this respect. The goals facing the industry and the economy as a whole will not be achieved by themselves. They are achieved by the people, the specialists working at the companies.

By and large, we have determined the areas for developing vocational education. We must update academic programmes and the material, technical and laboratory facilities of universities, colleges, technical and vocational schools. I have just discussed this with Mr Levitin. Obviously, we must double-check their departmental affiliation. We need to find out whether everything meets the latest requirements and if the regions are able to run college education effectively in certain areas. Possibly, we should consider a vertical organisational structure for this – in the framework of certain production sectors – as we did in the past.

Industry badly needs highly qualified workers now. They study at secondary special education institutions, which are the responsibility of the regions, as I have said. I think we should return to the discussion of departmental affiliation. We have already developed good practices in this respect. I would like to ask the regional governors to share their experience, monitor these issues and resolve them in close contact with the relevant departments and ministries.

I know that at yesterday’s seminar you discussed in detail, with Government representatives, the measures I mentioned and the

regional governors’ initiatives, and mapped out specific proposals and steps. Let us analyse all of these again. I would like to ask you to tell me about the course of your discussions and the proposals and ideas that you came up with in the process.

Mr Dyomin, you have the floor, please.


Vladimir Putin: Colleagues,

First of all, I would like to thank all of you for the work accomplished yesterday during preparations [for this meeting]. Mr Dyumin, I am grateful to you and to all the colleagues who contributed to the efforts of the working group.

Here is what I would like to say. We must complete the draft list of instructions as soon as possible, without delay, ensure the implementation of all the decisions outlined and make use of the relevant instruments towards this end.

I would like to point out again that it is vitally important to ensure the priority development of the processing industry. It is one of our priorities.

First, I would like to ask the Government of Russia to provide the mechanisms of financial support for industrial projects. It is a matter of principle. I am aware of the budgetary specifics of the current situation – we are discussing it with the Government almost every day – but we nevertheless must support the production of critical industrial products. It is the most important element of our technological sovereignty.

Of course, we must do everything carefully, precluding any mistakes so as not to upset the macroeconomic stability we have achieved. But if we implement the necessary projects wisely, as we have been doing so far, our losses, economic risks and budgetary setbacks will be minimal, and the result will surpass all our expectations.

Second, we must increase the efficiency and participation of regional industrial development funds in supporting our projects. We must consider such guarantees, and so on, as Mr Dyumin has said. I have written down what he said, and this has immediately raised some questions. If some regions have sufficient budgets, as Mr Sobyanin does, they can and should issue these guarantees. But if there are not enough resources for this, it should be registered as state debt. In such case, the guarantor will be able to rely on the federal budget, because otherwise these guarantees will have no value and will not signify anything for the economic operators.

Anyway, this is what we must, of course, consider. In some cases, such regional funds can certainly act more efficiently and play a more effective role in the implementation of regional projects with due regard for local specifics. Once again, we must consider everything down to the smallest detail.

Therefore, I would like to ask the Government to seriously consider the possibility of increasing the authorised capital of regional funds, including with the resources of the National Welfare Fund, and to determine the concrete sums and stages of the capital increase.

I know that we have been sparing the NWF, which is quite correct, but in the current situation we must review allocations from the Fund and the projects that are being funded. Some of the large projects that are being financed from the NWF are being delayed for a number of reasons, including objective ones related to the sanctions, which means that these resources can be released. I am not saying that this should be done mindlessly. No, everything must be carefully considered, but we should take this resource into account.

Moving on, we need to step up our efforts to develop and introduce new technology and develop new products in order to create assets that will define the way we live in the near future. We have gone to great lengths to build a comprehensive system for supporting industrial facilities, and we must roll out the same comprehensive and expansive framework for supporting promising R&D projects, especially for critical products and technology.

This may pave the way to a package of measures, including preferences, subsidies, etc., while also supporting, taking into consideration and relying on private initiative. With this in mind, we need to pay special attention to creating conditions for raising extra-budgetary funds, while it goes without saying that the state must be there to lend its shoulder and support the most important development projects.

Our colleagues have also mentioned the need to fine-tune customs tariff regulations. I fully agree with this. I think that we need to take a serious look at this matter and make adjustments accordingly. How can it be that we offer zero customs duty on finished goods, while keeping high tariffs on raw materials and components? Where will this get us? We will not be able to make finished goods and will keep importing everything.

The idea to impose higher duties on finished goods whenever this is justified and to lower barriers for importing components has my full approval. Of course, this is what we must do, but it goes without saying that this must apply only to imports that we do not have ourselves and that we do not plan to make here. There was a proposal along these lines in Mr Dyumin’s report, and, as I have already said, I agree with this.

Of course, we need to ponder approaches for enabling regions to have a voice when taking decisions on changing the ownership of foreign companies, and Mr Dyumin mentioned this too. This is the right way to go, of course, and this is a vital matter for the regions and their development.

However, I would like to ask our colleagues in the regions to coordinate their actions with the Government, I mean the relevant Government agencies, at all times. Why? Because there is no need to give the green light and cater to the interests of countries or companies from countries who have failed to treat us appropriately. They disdain our interests and refuse to take them into consideration, so we must proceed from the present-day reality we live in.

I am also asking the Government to consider lowering the administrative and tax burden on small-scale industrial enterprises. This is very important. Of course, here too, we need to exercise extreme caution, but still, I suggest that we look into this issue as well.

To conclude, I would like to once again thank you for your work and repeat what I said at the beginning of my concluding remarks about the list of instructions. It must be finalised without delay – we have no time to spare – so that we can use all the instruments you have devised.

Thank you very much.

April 4, 2023, Tula