Support of the Industrial sector: Valery Karlovich Gartung

Valery Karlovich Gartung
The State Duma Deputy, member of the Tax and Budget Committee

Since the beginning of the global financial crisis a number of measures aimed at supporting Russian automotive industry were taken by the Government. One of the first and the most important measures was the increase of import duties for vehicles.

At the same time, at the beginning of the present year the exchange rate of the national currency against dollar was reduced down to 36 rubles. This measure increased competitive strength of Russian automotive industry to a certain extent. At present time, the exchange rate of Russian currency against American dollar is revaluating and this is the negative factor for the domestic automotive industry. In this connection it would be reasonable to reduce the exchange rate of the Ruble.

The decision of the Government to subsidize the interest rates on the loans for car buyers became another important measure. The further changes related to these measures are, however, positive; for example, changes in the list of vehicles which are covered by the government subsidy and inclusion of LCVs in it. The increase of the cost of a car up to 600 000 RUR caused by it must have a positive effect on the demand.

The subsidization of a part of auto loans is by all means a positive measure. At the same time, unfortunately it concerns only some segments of vehicles and thus it cannot provide the quantity demanded. To my way of thinking, the subsidization of interest rates on all vehicles, including those taken on the basis of leasing agreements would be more effective. To achieve a significant effect, these measures must be taken in consecutive order.

Protection of domestic market will be effective only if along with the appropriate support measures there will be carried out activities aimed at stimulating competitiveness. For example abroad, in spite of high competitiveness which is common for almost all sectors of economy, people try to stick to the rules of market including those connected with the development of conditions for free competition.

In our country some experts note high monopolization of some industries which was brought about by the non-market economy. In Russian market there are some problems in the sphere of anti-monopoly measures. Particularly it concerns the metal market being one of the most important materials in the automotive industry. Last year, the prices for metal in Russia went up to 60% though this growth is unreasonable. The advance in the cost was one of the main causes of the break-neck fall in car production in Russia at the end of 2008 and at the beginning of 2009. In the competitive spheres of metallurgy the prices reduced down to the level of 2006. In those spheres where the production is monopolized we observed only slight changes. Particularly the section metal of which the truck wheels with the width 7.0 and 8.5 inches are made are produced only on one plant in Russia. The cost of such section metal decreased by 5-7% meanwhile the cost of a steel sheet, type 15 or a rod the section metal is made of halved. All this leads to the fact that domestic producers of vehicle components become non-competitive and the market is flooded with the products made in China which are very often of sub-quality. In spite of the fact that now metallurgists reduce prices, there is no guarantee from their going up again. Thus the measures aimed at supporting the domestic automotive industry in practice support metallurgists. Together with protective measures the Government should take all pains to struggle with cartel agreements and official misconduct in the metal market caused by the dominant position.

There is one more problem which became acute during the global financial crisis, namely tight money resources. This problem is especially up-to-date for the automotive industry which is high-technology branch of industry. The more complicated the production process is, the more working capital is required and thus the more loans should be taken out. At the present time, even in spite of the reducing of the discount rate, the cost of lending resources for representatives of many industries remains 18-20%. By the way, this index for metallurgists is much lower. Under so high interest rates it is almost impossible for automotive industry enterprises to develop. The interest rate in the automotive industry should not exceed 10% for the payback of a loan. The optimal rate can be even 5%.

The working capital renewal-oriented measure is subsidization of 2/3 of the interest rate on the loans for technical retooling and modernization of enterprises. But it can be used by a very limited number of enterprises since the terms of subsidization are almost impossible to fulfill. For example, one of the terms is the absence of tax debts which is impossible under the present state of affairs. To say more, the loan must be used for the purchase of equipment but usually enterprises need loans for financing of working capital and they purchase new equipment for proceeds.

It is evident that we should be more loyal to the requests concerning subsidization. It is necessary to subsidize interest rates on loans intended not only for technical retooling and modernization but for financing and renewal of working capital. Of course it is impossible to pursue banks to reduce interest rates but we can use the policy of government guarantees more frequently. Probably banks will be able to reduce the creation of resources which will bring about the reduction of cost of borrowed current assets.