Lubianitskii Pavel Yurievich

PhD in Philosophy, Petrova Yulia Andreevna

Rostov State University of Economics (RIPE)

Modernization of the fixed capital in Russia

Fixed capital renovation is the key factor which determines development of the real sector of our economy without which Russia is destined for the technological underdevelopment and role of the raw-material appendage of developed countries. In 90’s of the 20^th century, the country had experienced social and economic shock which according to the President of the Russian Federation V.V. Putin in his article “About our economic tasks” (2012) led to the situation in which “We have actually experienced the large-scale deindustrialization, the loss of quality and total simplification of the production structure”. “Deindustrialization” of economy is directly connected with the significant moral and physical wear of fixed assets of Russian companies. That is why its accelerated renewal is the basis for recovery of the economic power of the country in general.

With joining of Russia to the World Trade Organization (WTO), we have obtained an opportunity for creating actual competition which will make the country, heads and owners of companies focus their attention on the key factor which provides the triumph in the competition, i.e. modernization of fixed capital.

The economical science defines fixed capital or funds as assets which are used for commercial or entrepreneurship activity within the long period of time, they particularly include production facilities, i.e. machines, equipment, structures, etc. That is why the condition of fixed capital influences the long-term indicators of the economic development of Russia and sustained growth of welfare of its citizens.

The problem of fixed capital renovation is first of all the problem of investment. All sources of investments to fixed capital renovation can be divided into internal which include depreciation expenses of enterprises, business profits, available funds of natural persons and state budget and extra-budgetary funds and external, i.e. foreign investments.

Let’s start with the depreciation expenses which are one of main sources of funds for the fixed capital production.

Depreciation is wear and tear of fixed capital during the process of their production use calculated in monetary terms. Depreciation expenses are spent first of all for the replacement of morally and physically worn equipment. Annual depreciation expenses are included to the production costs. That is why it is advantageous for the entrepreneurs to use this very source for fixed capital renovation. This allows avoiding payment of taxes. In the countries with developed economy such the USA, Great Britain, France, the method accelerated depreciation expenses is applied. It allows entrepreneurs quickly update equipment and expand production on the basis of the advanced technology. It seems this method should be introduced in our country on the large-scale basis.

The second internal source of investments is business profit the share of which in the total volume of investments in the fixed capital within the last years fluctuates from 15 to 23%. One of principal directions of these investments increase is improvement of the tax policy of the country. The decision taken by the government to exempt from property taxes new equipment, machines and tools purchased by Russian enterprises will undoubtedly intensify motivation of enterprises to invest profit to fixed capital renovation.

One more source of internal investments is private capital. The trend in Russia is the following: private persons are not in a hurry to invest their funds in the real sector of economy except the mining industry preferring investing money to more profitable and less risky spheres such as banking sector, trade, business speculation. Benefits for domestic entrepreneurs distinctively dominate over interests of the national economy development.

It has happened within the historic period that the state is the anchor investor in renewal of fixed capital. During the last decade, the Russian state has accumulated significant gold and foreign exchange reserves which allow more actively invest in modernization of production particularly now when joining the WTO has made improving competitiveness of enterprises the factor of our industry survival. We think that one of the reasons for excess of caution of the government of the Russian Federation in investing in the national economy is the fact that among the public officials who are responsible for the economy development, there are a lot of supporters of the “monetary theory” which considers not manufacturing but financial indicators as the basis for the economic development. It is considered from this point of view that it is safer to accumulate gold and foreign exchange reserves from profits from high prices for oil and gas than use them for the large-scale investments to the real sector of economy. There are also alternative theories in the world economic science such as Keynesian theory which is geared to the active role of the state in the economic life.

The high potential is peculiar to such means of fixed capital renovation as leasing, i.e. long-term renting of commercial equipment and structures which provides the possibility of their further buy-out by the lessee. From one side, leasing is the kind of production investment, from the other side, it is a credit. But it has a number of advantages over the credit. Firstly, the company may obtain property for fixed capital renovation without the preliminary accumulation of its own funds; secondly, the company has tax benefits.

In virtue of its advantages, leasing obtained a wide circulation in the economy of developed countries. For example, the share of leasing among other sources of financing fixed assets is: about 30% in the USA, 15.7% in Germany. In the Russian Federation, this indicator is only 7%. That is not enough for the modernization of the state economy.

In conclusion, it should be marked that for fixed capital renovation of Russia, we should not forget about stimulation of the economic interest with the help of creating the ideological atmosphere. People also should more intensively invest the reserves of the state in the industrial sectors of economy thanks to which the economy will come to a higher level and reduce the technological inferiority from other countries. We also should not forget about increasing investment attractiveness of our country for foreign investors. Relying only on domestic investments, we cannot reckon on the same economic leap which has happened in China. Not a less important task is mastering an innovative development of economy which will result to the intensification of the international standing and growth in prosperity of all sections of population.

Literature

1. S.Ogloblin, ”Gender Earnings Differential in Russia, Industrial and Labor Relations review”, Vol. 52, No. 4, 1999, p. 608

2. S.Y. Roshchin, “Labor supply in Russia: microeconomic analysis of population economic activity.” Preprint 02.2003; p. 212-234

3. http://www.econlib.org/library/YPDBooks/Marx/mrxCpB8.html

4. http://www.russian-tax-code.com/PartII/Section8/Chapter25.html

5. http://bricsmagazine.com/en/articles/not-a-large-country-but-with-a-bright-future