Feb2012, Russia&India Business Report by RBTH

50th Anniversary of Manned Space Flight

BUSINESS REPORT WEDNESDAY, FEBRUARY 8 2012

IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA

Elections There are five candidates in the reckoning; protest sentiments have spilled over from blogs into the streets.

NEWS IN BRIEF

High stakes: Putin versus others?

Kudankulam reactors are safe: Panel report

With protesters and opposition pitching for change, all eyes are on whether the once invincible Putin will return to Kremlin. MIHAIL SHEVCHUK RIBR

VASILY MAXIMOV/RIDUS.RU

The much-touted presidential elections in Russia are only 25 days away, but officially the political agitation campaign kicked off only on February 4. Russia is not the US, where the race begins a year before the polling day. Not so in Russia. The political heavyweights have long been established; there is no competition within parties. Indeed, each candidate has his own electorate with no migration between camps. The alignment seems to be almost the same as in the last 15 years. The three main candidates are: Prime Minister Vladimir Putin, Gennady Zyuganov (Communist Party) and Vladimir Zhirinovsky (Liberal-Democratic Party). Sergei Mironov, whose Just Russia party received 13% of votes at the December parliamentary elections, and billionaire Mikhail Prokhorov are relative newcomers. Yet the situation is totally different. A broad front has emerged in opposition to Putin personally and his policy. The change owes much

Icy winds didn't stop protesters' meetings nor Putin supporters' rallies, in Moscow on Feb 4 ahead of the March presidential polls.

to the mass rallies for fair elections, the Internet and Dmitry Medvedev’s presidency. Protest sentiments spilled over from blogs into the streets first on December 10, then 24, and the most recent protest rallies swept Moscow on February 4, the campaign kick-off date. Now, politicians are vying with one another in taking up the protesters’ slogans.

As a result, the number one candidate – Putin – has found himself in an unusual situation. He now faces “a common enemy.” In 2004, his election for a second term was a mere formality. In 2008, the little-known M e dve d e v wa s n o t a n “enemy” if only because he had had no time to become one. In 2012, Putin is “an enemy” for the street pro-

testers and for establishment politicians. Though recent polls put the Prime Minister’s electoral rating at 52% (Kremlin-friendly VTsIOM pollster), 46% (Public Opinion Fund) or 37% (Levada Centre), the situation is not as static as in 2008; it is more dramatic.“It is not a simple campaign for Putin: he has a solid margin of strength,but time is not on his side,”muses

Igor Mintusov, CEO of Niccolo M.“For Putin, the trend is somewhat negative.” Yet, in reality, he alone is in the presidency sweepstakes. “For all the others, apart from Putin, victory would mean gaining more votes than the pollsters predict”,says Modest Kolerov, a spindoctor.“The most they can dream of is to take it to the second round.” Putin’s opponents are seeking

to diminish his legitimacy to strengthen their negotiating stand later. “This means a lot, especially in the light of the future gubernatorial elections, and a lot of money is at stake”,he says. Mikhail Loginov,a political analyst, however, feels that Putin’s opponents might be counting on a miracle. In December, the United Russia party gained fewer votes than it had expected and,then mass rallies erupted.“Naturally, every politician is tempted to think,‘if miracles can happen, why can’t it be me?’” he argues. Be that as it may, there are two sides in the campaign: Putin and“all the others”,who seek to disturb Putin’s calm on Mount Olympus. The image of Putin is in question, too. At one time, Putin endeared himself to Russians because he was a “real man”: he flew an aircraft, displayed his muscles at fishing parties and put out fires. That no longer makes any sense, says Kolerov.A new incarnation of Putin is now needed, a new man who has learned his lessons.“He must become a statesman who does something real to improve people’s lives.”

Investors eye second half of 2012 for returns BEN ARIS RIBR

ment is expected to take a more proactive and pragmatic route to improve investment in the economy,” says Chris Weafer, head of strategy at Troika Dialog. Liam Halligan of Prosperity Capital Management (P.C.M.), the largest foreign investor into Russia, feels that investors are bored with sitting on huge piles of cash and are starting to be tempted back into the market by the bargains on offer. P.C.M. was one of the few funds in the world to see a net inflow of new money in 2011 of $300 million, says Halligan. Almost all the investment banks have the same strategy for 2012: picking solid value stocks in the first half of the year while investors are still wary of risk. Power company E.ON Russia and regional supermarket chain Magnit are two of the most popular names. Tactical de-

fensive stocks are those that pay high dividends like oil producer Bashneft, or counter-cyclical sectors such as gold producer Polymetal. Then, as the economy starts to recover in the second half of the year, investors are widely expected to start buying growth stocks, favouring sectors such as real estate, media, commodities and Internet companies, gas producer Novatek and search engine companyYandex. Sberbank is universally the top pick for growth among brokers. Despite the slowdown, Russia’s banks put in a record-breaking year for profits in 2011; Sberbank accounted for most of the sector’s loan growth by itself. Russia’s oil pipeline monopolist Transneft and AFI Development are also rated highly. Russian equity will also perform well at

The Indian branch of the Indo-Russian Science and Technology Centre is likely to be opened in February in Gurgaon, (a satellite town close to Delhi ), said India's ambassador Ajai Malhotra during his recent visit to the Indo-Russian Science andTechnology Centre in Moscow. "Both the Moscow and Delhi branches of the centre will work in tandem to enable two-way technology transfer and intensify interaction between Indian and Russian scientific/production institutes and industry," he said. If anyone has a proposal for technology partnership, the Centre can network with partners in both countries, he said. RIBR

OVL plans to buy 15% stake in Yamal LNG

Russia to supply $7.7 bn arms to India in 2012

The year 2012 has kicked off on a good note, with investors bullish on Russia. The country’s R.T.S. index was up 10.2% by Jan 23, but analysts believe that the first half of the year is going to be difficult due to the eurozone crisis.“The markets are upbeat (for now) and the consensus is for a good second half of the year, but things are already starting to look pretty good,” says Marcus Svedberg, chief economist at East Capital, the biggest retail fund investing in Russia. Many Russian brokerages believe that the R.T.S. Index will keep within the current

range of 1,400-1,500 points until the end of 2012, reported Russian journal “Kommersant Dengi”.This is due to an economic slowdown in Europe externally and political turbulence surrounding the March presidential polls internally. But the more optimistic believe these risks are overstated. Russia’s biggest investment bank Troika Dialog, which has just been taken over by state-owned retail behemoth Sberbank, surprised Russia-watchers by revising its end-of-year target up to 2,200 in the middle of January, which would mean a whopping 60% over the course of the year. “If we get that crisis-rebuild scenario in Europe and elsewhere, then the case for Russian market out-performance in second half of 2012 and into 2013 will be boosted by the fact that the next govern-

Indian branch of S&T Centre to open soon

ONGC Videsh Ltd (OVL), the foreign arm of the ONGC, is planning to acquire 15% stake in OAOYamal LNG – a subsidiary of Russian based OAO Novatek for developing a natural gas field. According to an Indian business daily, the transaction will also include tie-up for a natural gas liquefaction project and joint marketing of liquefied natural gas (LNG). OAOYamal LNG has the licence for exploration and development of the South Tambeyskoye field. Last October, France based TOTAL S.A acquired 20% stake inYamal LNG. OAO Novatek, which owns 80% of the unit, is offering a 29% stake for participating in the project. RIBR

SEE THE OPINION PAGE FOR CONTRASTING VIEWS ON PUTIN'S PROSPECTS.

Finance Economic recovery in Europe, oil prices, political stability will impact returns on investment, equities in Russia

Investors are upbeat about Russia's economic growth this year. But the eurozone crisis may make the first few months difficult.

The Indian government recently sent a special committee composed of 15 members to review the Russia-assisted Kudankulam nuclear power plant in Tamil Nadu. The committee has completed its work, and confirmed that the reactors are safe for operation. The Indian People’s Movement Against Nuclear Energy, one of the organisations, which stages protests, can now present the results of the report to the people to dispel their fears, a representative of the panel said. If some additional explanations are needed the committee can send an expert, he added. Itar-Tass

some point, as equity valuations have rarely been this cheap. But perhaps the most telling indicator is the oil price implied by the equity valuations. As Russia is heavily dependent on oil exports, the stock market gains and losses tend to move in lock-step with the vagrancies of the international price of oil. In

the boom years, Russian equities occasionally got ahead of the price of oil. However, the current low index level implies an oil price of $60 — way below the current price of about $100. But by and large, the Russian market, says Weafer, has outperformed other global emerging markets in spite of the political turbulence.

Investors are bullish as Russia's RTS index shot upto 10.2% in January.

Russia plans to supply $7.7 billion worth of armaments and military equipment to India this year, RIA Novosti reports, quoting a press release by the Centre for Analysis of World Arms Trade (CAWAT).“This year, Russia will supply arms and military equipment worth $7.7 billion to India, about 60% of Russia’s total arms exports and 80% of India’s arms imports,” CAWAT said in the release. CAWAT attributes this breakthrough in the Russian-Indian military and technical cooperation in 2012 to supplies within the framework of several large-scale programmes . RIA Novosti

Nerpa attack submarine to leave for India

People Outbound Travel Mart-2012: Russia hopes to attract a larger share of over 12 million Indians travelling abroad

Russian tourism to unleash charm in Mumbai With India's GDP growing and more international flights, Russia is stepping up marketing to attract more Indians to the country. ELENA IVANOVA RIBR

LORI/LEGION MEDIA

Welcome to Russia. This country packed with marvels ranging from breathtaking snowy landscapes and ancient heritage sites to modern cities will entice Indians once again at Outbound Travel Mart (OTM),

Lake Baikal is a big draw with tourists.

an international trade fair. “The World without Borders”association under the aegis of the Rostourism will present a special Russian stand at the Mumbai Exhibition Centre on Feb 17-19. The exhibition, Russians hope, will open new vistas and draw in more Indians to travel to explore Russia’s rich cultural and historical heritage.With twice as many Russians visiting India than vice-versa, tourism promotion in India has become a

high priority for Russia. Compared to 120,000 Russians travelling to India every year, there are only 50,000 Indian visitors to Russia per year, and tourists are just around 10% of that number. The potential of Indian outbound tourism is huge, thanks to India’s growing GDP (8% per year) and the increasing number of flights between India’s big cities and international airports. According to UNWTO infor-

mation, the number of the international tourists in the country in 2010 amounted to 12.5 million people, and keeps on growing by an average 17% per year. Russia’s ambassador to India Alexander Kadakin hopes that the tourist fair will offer its participants an opportunity to exchange views on the pressing issues of tourist business and find new and reliable promising partners. The envoy hoped that the meetings will lead to

agreements on launching new tourist offices and travel agencies in the two countries. Acknowledging the importance of the OTM exhibition, Alexandr Radykov, the Russian Federal Agency for Tourism (Rostourism) says business programmes, meetings and events organised within the framework of this fair will help increase the Indian tourists' inflow to Russia. This fair is specially important for Russia, he says.

PRESS PHOTO

Nuclear-powered attack submarine (SSN) Nerpa, leased by Russia to India a week ago, will leave Russian waters by Feb 10, reported Khabarovsk regional government on Jan 30. According to a release posted on the Khabarovsk government's official website, the sub will stay at Vostok marine equipment plant for some time in Bolshoi Kamen for preparatory activities. "The sub is being fully equipped with appropriate hardware, armaments, and other supplies needed for journey to a new basing site, i.e. naval baseVishakhapatnam on India's east coast. SSN Nerpa will be navigated by Indian crew, which had passed training near St. Petersburg. However, the crew will be assisted by Russian experts," saidVladimir Bychenko, Minister of Industry, Khabarovsky Krai. RIBR

BUSINESS REPORT

Technology

IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA WEDNESDAY, FEBRUARY 8 2012

Technology Cloud services market in Russia predicted to touch $1.2 bn in 2015; IT products to grow to $32 bn in 2013

Russia's IT industry seems headed on a winning journey, with some push from cloud technology. But there are many challenges on the way. VSEVOLOD PULYA RIBR

The Russian IT market is set to grow by 15.8% in 2012 and by 18.1% to reach $32 billion in 2013, predicts Russia's Ministry of Economic Development. Minister of Communications Igor Shchegolev says that the country’s IT market saw a growth spurt of 14.6% in 2011. In a recent report entitled “Targeting the IT Market”, Infin, the stock analysis center, contends that the market could return to the pre-crisis growth rates very soon as long as nominal GDP grows by 18.5% annually and the ruble continues to strengthen. Currently, Russian IT companies control 1% of the global market for IT product and services, worth roughly $16-20 billion. But despite these encouraging statistics, certain questions loom large about the IT sector’s overall potential. The World Economic Forum rates Russia 77th in

the world for growth in the IT sector and third among resource-oriented countries. Today Russia exports around $1.5 billion of IT services, and around 300,000 people work in the IT industry. Hardware continues to make up for more than 50% of the Russian IT sector, compared to only 30% in the European IT market. “Many Russian companies started making or assembling hardware, but this share is shrinking gradually as more and more com-

cloud service for organising inter-departmental computerised interaction, which provide state and municipal services to the public. Market intelligence firm IDC predicts that the value of the cloud services market in Russia will increase from $35 million in 2010 to $1.2 billion in 2015. Cloud technology is one of 15 priority areas supported by the Skolkovo Innovation Center, Russia's “Silicon Valley” coming up outside Moscow.

The Russian government has emerged as the biggest customer in the IT market

Experts say that the future of the IT market is in the regions in the next five to 10 years

panies are switching to making software and other high marginal segments,” says Konstantin Chernyshov, a chief analyst at Uralsib financial corporation. The future, it seems, lies in cloud technology, with Chernyshov predicting a high growth rate in this niche area by 2015.The Russian government is a major promoter of cloud technology. One project in the works is a national

The Russian government has emerged as the biggest customer in the IT market, with many companies created to serve governmental purposes.This has both positive and negative consequences. For one thing, it makes the sector much more sensitive to changes in the state budget. Additionally, the state does not have the best track record in developing IT projects. For example,

the federal target programme Electronic Russia (2002–2012) did not work out and was replaced by the state programme Information Society (2011–2018).The state programme for creating high-tech technology parks, which was supposed to use $342 million to create 10 development areas by 2010, was suspended due to dismal results. While many feel that the government's support helps, both Ilya Rachenkov, an analyst with InvestCafe, and Chernyshov believe that the private sector would do a better job in developing the IT industry. However, there are barriers to entry. Russia’s IT market is dominated by 10 firms, which control 54% of the Russian IT market. New IT start-ups, therefore, have to struggle to get funding. Although Russoft saw a 17% gain in the export of software from Russia (upto $3.1 billion) in 2010 over 2009, analysts believe imports will continue to form the majority of the Russian software market. Moreover, cash-rich foreign competitors such as Apple, HP, Foxconn and TrendMicro are entering the

MARKET IT PRODUCTS' Having scored success in Russia, Ravi Sachdeva has a message for Indian IT pros: Just don’t miss the bus! ELENA KROVVIDI RIBR

“In Russia, unlike the US, it’s vital to have close Russian partners,”says Ravi Sachdeva, a leading Indian IT professional based in Moscow. “When you’re on your own, you can’t achieve quite as much as when you have a Russian team, it’s the peculiarity of this market.” Trust Sachdeva to tell you a thing or two about Russia’s IT industry, which bristles with opportunities for the talented and enterprising, but may out off those looking for an easy ride. “I think the IT sphere is more complicated than other industries that Indians in Russia traditionally set their foot in, such as metallurgy or pharmaceutical industry, because when you are in IT business it’s not just about selling goods, it’s all about people people-to-people communication.” This is especially true of Russia where “a top-down approach”reigns, and being a good networker is a great asset, says Sachdeva, Coun-

try Director in the IT training and solutions company Meridian Technologies (the Master franchisee of Aptech Worldwide in Russia). Starting the business from scratch, in the initial days, Indian embassy-Moscow supported him by introducing and endorsing Meridian to the state regional heads. Knowing governors of several Russian regions also helped him to implement his ideas in Russia. Clearly, there are some problem areas for Indian IT

'In Russia, a topdown approach reigns, and being a good networker is a great asset.' cos. relating to doing IT business in Russia.These include challenges understanding legal system, layers of bureaucracy, work culture, weak IPR enforcements with wide spread infringements, language barrier, etc. To overcome most of these hurdles, Russia is now offering an unparallel opportunity having launched Skolkovo innovation centre-‘i-Gorod’. Skolkovo cluster has a full

Russian IT market in droves. Another problem is the pool of qualified specialists in Russia is limited. With foreign companies attracting Russia’s top IT specialists, the qualified personnel crunch will only get acute in days to come. Many experts say that the future of the IT market is in the regions. The IT sector is concentrated in Moscow and St. Petersburg, but Internet users in the regions are expected to soar in the next five to 10 years. Search engines and navigation software are other growth areas.The complexity of the Russian language has allowed local com-

p a n i e s l i ke Ya n d e x t o dominate the market for search, with Google a distant second.While Glonass – Russia’s answer to GPS – has stimulated development in navigation, the growth in the IT sector will depend on real economic growth, an increase in investment, stabilisation of the country’s financial and political situation, an increase in personal incomes, a stable exchange rate, moderate inflation and benefits that can encourage new enterprises.

Growth rate of Russian GDR (nominal), IT market, IT service segment (%).

Full version at www.at indrus.in

Games they play: Russian firms spin a virtual empire From Cut the Rope to Stand O' Food, Russian apps are money-spinners as they attract millions of mobile gamers across the world. NIKITA DULNEV RIBR RUSLAN SUKHUSHIN

'INDIANS CAN HELP RUSSIA

A Clean Room at the Mikron factory, the largest integrated circuit manufacturer in Russia and CIS.

Tech Talk Small domestic market drives designers to conquer global ones

INTERVIEW RAVI SACHDEVA

'It's a land of opportunity, but Russian team helps'

Russian IT market bounces back, rides high on cloud

eco-system that is going to serve as a good platform both for established companies as well as the start-ups, a place where one can develop new ideas and get state funding. In the IT training business, the language is the key barrier. “English is the language of IT, and in Russia not everybody speaks it. And because of the dynamism of the IT industry, constant updates, we have to spend a lot on translations every year,” he says. But Sachdeva is enthusiastic about the future of IT business in Russia. “Don’t miss this bus! Russia is a land of opportunities in the IT sphere if one understands the way things work here. For example, even though there are a lot of creative specialists in this country, Russians often have trouble selling their products, and this is what Indians are very good at.You need to find and evaluate the right synergies.” Indeed, it’s been a long journey for Sachdeva who even as a 17-year-old had an inkling that IT will be his future. After finishing high school in Delhi, Sachdeva entered St.Petersburg’s renowned ITMO university. After graduating, he founded an IT start-up in India, which he decided to exit after six years and later moved with his family to

FACT BOX

Flying high Ravi Sachdeva studied at St.Petersburg's University of Information Technologies, Mechanics and Optics, graduated with EMBA degree from Skolkovo Moscow School of Management, now is Country Director in Meridian Technologies.

Russia inYear 2004 (his second home) on his current assignment with Meridian group. One of Meridian group’s projects was the launch of ‘Fly’, a brand of mobile handsets in Russia. Meridian group which has operations in Russia since year 1992, started with an experiment of distributing mobile phones in Russia in Year 2001 and today this business has grown with a $ 1 billion plus global revenue and a market share of 9% in Russia. Ravi Sachdeva enjoys training young IT specialists. Sachdeva doesn’t see much difference in professionalism between Russian and Indian university graduates in the branch. But he points out that the competitive selection process gives an edge to Indian institutions.

Doodle Jump and Zombieville USA, get out of the way. Russian players are here. Among the emerging players with world-class products are traditional mobile content companies, Dynamic Pixels, Herocraft and i-Free, or Game Insight, which originally focused on social games. In Game Insight’s new Crime Story, each gamer can become his own crime boss, building a criminal empire by eliminating rivals and expanding the business. Founded in Moscow in 2005 as a mobile development studio, G5 Entertainment is now a global company developing mobile and PC games on a massive scale, one release per week, claims the company's website which boasts international successes as Stand O'Food,Virtual City Playground and Supermarket Mania 2. The company is listed on the Aktie Torget equity marketplace in Stockholm and operates from Moscow, Stockholm, San Francisco and Ukraine. But many much smaller developers are also making their way. Tens of millions of mobile gamers across the globe are now familiar with Cut The Rope. The game, featuring a little monster fed with candies, was developed by a Russian team. Moscow programmer Maxim Petrov has built a flourishing business with Power Amp, which has been praised as one of the best available media players on the Android market. “The Russian mobile con-

tent industry has been developing for almost a decade,” says Leonid Kovalev, marketing director of Dasuppa, a Moscow-based mobile game company. “But in recent years, the new generation mobile games and apps have created a new situation. Through global stores such as the Apple App Store or the Android Market, Russian developers can easily sell everywhere. Their vision and practice are now global.” The limited size of the domestic market drove Russian companies to focus on the thriving international market. Smartphone sales are growing fast in Russia, more

than doubling from 2010 to 2011, but the share of smartphone owners is still two times less than in Europe and in the US, according to a recent TNS survey. The total number of iPhone and Android-supported smartphone owners barely reaches 1.5 and 5 million respectively, according to recent estimates from i-Free. In addition, monetisation is more difficult in Russia than elsewhere.“Most Russian users are ready to pay for good mobile products,” said i-Free co-founder Kirill Petrov. “But Apple's App store and Google's Android Market accept payments almost exclusively through

bank cards, which Russians are reluctant to use for digital payments.” New generation mobile applications and games generate huge revenues in tens of millions for Russian developers, says an upbeat Petrov.Although the Russian market of traditional mobile content – from ringtones to themes to Java games – still counts in hundreds of million dollars, its decline has been anticipated by a number of developers who are switching to new generation content. This article has been prepared in partnership with East-West Digital News.

Russia’s Top 3 mobile and gaming apps.

TITLE: CUT THE ROPE

TITLE: MEWSIM

TITLE: STAND O'FOOD

PLATFORMS: IPHONE,

PLATFORMS: IOS, BADA

PLATFORMS: IPAD, ANDROID

DEVELOPER: DYNAMIC

DEVELOPER: G5

ANDROID DEVELOPER: ZEPTOLAB

One the biggest global successes, Cut the Rope has a straightforward gameplay: the player has to swipe a finger across the screen to cut ropes which hold candies to feed the little monster Om Nom. After hitting Apple’s Appstore on October 4, 2010, the game has been downloaded more than 60 million times. It was masterminded by twins from Moscow, 29-year-old Semyon and Efim Voinov.

PIXELS

MewSim is a comic interactive simulator that allows players to raise a cat into an obedient and affectionate pet or just a small terror. You can choose gender and colour of your pet, give it a name and choose unique characteristics. After initial success in Russia and abroad, it was made available in 2010 to iPhone and Samsung users in English, French, German, Italian, Polish, Russian and Spanish.

ENTERTAINMENT

In this fast-paced restaurant challenge, gamers have to speed up to feed a host of hungry patrons before they leave, slapping together burgers and cooking up bacon. They learn to put the sandwiches together in the correct sequence and earn money to purchase condiments and upgrade equipment. Since its release on the iPhone in June, 2009, the game has had close to 2.2 million downloads.

BUSINESS REPORT

Opinion

IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA WEDNESDAY, FEBRUARY 8 2012

PUTIN'S COMEBACK? DEBATE RAGES AHEAD OF POLLS AND ITS IMPACT ON RUSSIA'S FUTURE NO SERIOUS RIVALS, RUSSIANS PREFER PROGRESS TO EXTREMES Dmitry Polikanov RT.COM

he presidential election campaign is gaining momentum with the ratings of Vladimir Putin slightly up. Despite protest rallies, he looks set to win the first round, thereby avoiding a second round. The Russian society today is split between three major groups.The first group consists of“angry city-dwellers”,mainly the typical self-made middle class of Moscow, St. Petersburg and several other cities with 1 million-plus population. They would like to see political reforms, new faces in power and a fair approach to their claims, including total respect for the law by officials at all levels. The second group is much more conservative – they live in rural areas and small towns, and they simply want to preserve stability and want some improvements in their living standards. They are mostly those who depend significantly on social benefits from the budget and are not very much interested in politics.The third group contains the“swamp”– people in medium-sized towns, the working class, those working for state corporations. They are trying to work out what they stand to gain from this battle. However, all three groups, deep in their hearts follow the simple principle – they are driven by fear of upsetting their current status. In recent years, Russians have learned to live better, and they appre-

ciate stability.A close analysis indicates that they do not take seriously Putin’s rivals in the race, most of whom are dummy figures or hardened opposition leaders. This paradox is marked in Putin’s recent publications outlining his vision of Russia’s future and his electoral manifesto. The bulk of it is based on the People’s Program, a compilation of expert opinions, public debates and street surveys. Over 1.5 million Russians participated in the project last summer. Unlike the opposition, Putin invites the general public to co-author his programme with the help of a website and discussion in the media. He cannot avoid reminding the audience of the achievements of the last decade and how his team has managed to overcome two major crises: the chaos of the late 1990s and the 2008-2009 global economic turmoil. Putin’s message is clear – Russia is entering a new phase in its development.The post-Soviet era is over. And we all should pass between the extremes of revolution and stagnation in favour of gradual progress. The country has changed – a new generation with nearuniversal higher education and the middle-class hungry for a modern and comfortable life has emerged. Political freedom now requires greater flexibility of the system – be it politics, economy or social infrastructure. In this logic, the ongoing political reforms are simply another step in the develop-

ment of the political system. It is not a step back or a recognition of mistakes, but rather a step forward, a method of adapting to reality. Another thesis attacks the weak point of the protest movement. Putin suggests that any discussion of the rotation in power is important only if there is a clear understanding of its direction. Somehow Russia is again at the crossroads – it has to select the path, the model for the future. “Bastion Russia” with its Orthodox-nationalistic mixture competes with“Russia in Europe”,let alone the temptation to revive the“Great Russia” with certain claims for the grandeur of the Soviet golden

age. Good or bad, there is no force that is eager to take responsibility for the choice – Vladimir Putin hints that this is debatable, his opponents focus on tactics and civil society is too weak to tackle the issue. However, this choice will have to be made – if not in March, then in the next one to two years. The presidential campaign in Russia provides an incentive for discussions, helping people to find a new consensus on the future of the country. Dmitry Polikanov is Deputy Head of the Central Executive Committee of United Russia Party.

AUTHORITARIAN REGIMES ARE SLIPPING INTO TERMINAL ILLNESS Andrei Piontkovsky THE MOSCOW TIMES

he history of successive authoritarian regimes in Russia reveals a recurring pattern: they do not die from external blows or domestic insurgencies. Instead, they tend to collapse from a strange internal malady — a combination of the elites' disgust with themselves and a realisation that the regime is exhausted. The present regime is afflicted with the same terminal disease, despite — or because of — the seemingly impermeable political wall that it spent years construct-

ing around itself. Putin's simulacrum of a large ideological regime simply couldn't avoid this fate. The leader's “heroic image”and“glorious deeds” are now critisised daily. And these verbal assaults are no longer limited to marginal opposition voices.They are now entering the mainstream media. Two events have sharply accelerated the collapse of confidence in Putin's regime, both among the elite and ordinary Russians. First, in September, at the congress of Putin's political party, United Russia, Putin and President Dmitry Medvedev formalised what everyone anticipated, with

NIYAZ KARIM

Putin announcing his intention to return for the presidency in March and thus, virtually declaring himself as Russia's life-long leader. The second blow to Putin's prestige came with the alleged large-scale electoral fraud in December's parliamentary elections. According to reliable observers such as the election-monitoring Golos and Citizens' Watch, vote-rigging in favour of United Russia led to a 15% advantage, for what is now commonly called the party of “crooks and thieves”.And the trickery began long before the voting day, when nine opposition parties were prevented from even appearing on the ballot. In the eyes of democratically minded people, these two events have rendered Putin's regime not only illegitimate, but also ridiculous. Even if Putin formally wins the presidential election on March 4, the die has already been cast. What is happening in Russia today is a part of a global phenomenon. Despite Putin's efforts to isolate Russia and its post-Soviet near abroad, anti-authoritarian trends in nearby regions, like the Middle East in the aftermath of the Arab Spring, are infiltrating. Russian voters, the establishment and intellectuals sense that Putin’s model of political system has already lost. It is now only a matter of time before events make that defeat a political reality.And after Putin falls, the leaders

of other authoritarian postSoviet regimes will not survive in power for long. In fact, authoritarianism was already on the way out in the former Soviet Union, but the global economic crisis halted the process. Georgia was the first to oust its Communist apparatchiks. Ukraine followed, but — owing to internal discord, Kremlin pressure and the European Union's indifference — the Orange Revolution was unable to deliver on the promise of democracy. Now Ukrainian President Viktor Yanukovych is trying to reverse the country's democratic gains, but he is finding it difficult, despite imprisoning opposition leaders. In Russia, mass disapproval of Putin's administration is becoming more evident. What began just a few months ago as an attitude of protest has quickly become a social norm. To stop the protests now is virtually impossible. Any resort to brute force to suppress demonstrations would seal the regime's loss of legitimacy. “We all understand this, but we can't get out. They will come for us at once,”one of the leading Kremlin ideologues recently confided to me. “So we have to keep running like a squirrel in a cage. For how long? For as long as there is strength …." Andrei Piontkovsky is a political analyst and one of the leaders of the opposotion Solidarity movement.

INDIA WILL BE WATCHING PUTIN'S NEW TEAM, FOREIGN POLICY FOCUS Samir Saran Jaibal Naduvath SPECIALLY FOR RIBR

or close to six decades, India's relations with Russia have been marked by bonhomie and myriad cultural, economic and political exchanges. However, Russia continues to be viewed in India through the prism of defence and strategic relationship and the ‘energy narrative’ with the media and polity guilty of selectively amplifying developments in these areas. As a result, the media reportage and public discourse in India on the presidential elections in Russia is very sketchy.

As things stand, very little is known of presidential candidates other than Valdimir Putin, who has visited India several times, and is considered sensitive to New Delhi’s interests. However, there is also a tacit realisation that sweeping political changes globally and reverberations in Russia, which culminated in highly publicised street protests in Moscow (albeit modest in size and scale) against allegations of vote rigging in the parliamentary elections have dented Putin's standing.There is also a feeling that Putin losing his aura of invincibility, and the possible devolution and decentralisation of power in Krem-

lin, could actually usher in greater pragmatism into the Russian political ecosystem, making it a lot more dynamic and democratic.

Despite being challenged, Putin may not have lost his personal brand appeal in India. Despite being challenged, Putin may not have lost much of his personal brand appeal in India yet, for two reasons. First, very little is known of the opposition

within Russia and even less so is available in Indian media. Secondly, dissent, discord, rebellion are all part of the political landscape in India. India itself has been ruled by coalition governments intermittently for over two decades. From their own experience, Indians could relate better to Putin if he is able to carve out a consensus. Putin, slightly vulnerable and in need of reaching out, makes him more attractive to India than Putin, the steely and authoritarian figure. If Putin is re-elected, he may have to cede at least some ground to factions within his United Russia Party. In the coming days,

prior to the March elections and certainly, if voted to power, in the period after Putin’s election, policy circles in India will be closely watching what sort of ‘arrangement’ Putin may need to put in place to manage dissent and preserve his influence. Most important, the team Putin selects and how that impacts Russia’s external engagement will be important to India.As a global military power, Russia affords great counterbalance for India vis-à-vis China. If a pro-China faction emerges at the Kremlin, it will have the potential to further fuel China’s own ambitions in Asia and may drive India to

develop a deeper partnership with the US and other Asian powers to offset it. On the other hand, if the new power structure allows

If a pro-China faction emerges in Kremlin, it may drive India to seek deeper ties with the US. greater Russian outreach to the US and EU, it would not only balance the rise of China, but also help India and Russia develop a partnership beyond defence

sales. From an establishment standpoint, India has always accepted organic development of national political systems and hence, is unlikely to be either unduly concerned or patronising as long as its core strategic concerns are not jeopardised. Also, after having witnessed the upheavals in West Asia and North Africa, the media coverage of the Occupy Wall Street agitation and the highs and lows of the civil society movement against corruption at home, the larger Indian public is unlikely to be very taken in by the limited protests in Moscow. The Indian establishment will keenly follow political

developments in Russia as the importance of the election outcome and its impact on both the Asian strategic architecture and bilateral relations is not lost on them. The two countries have enormous potential for greater strategic convergence and a favourable political dispensation in Moscow could well catapult the India-Russia relationship into one of the defining global partnerships of this century. Samir Saran is Vice President at the Observer Research Foundation. Jaibal Naduvath is a communications professional in the private sector in India

IT'S ECONOMICS! A NEW STRATEGY NEEDED Felix Goryunov SPECIALLY FOR RIBR

he global economic outlook remains hazy. However, one thing is clear: developed capitalist countries will face sluggish growth while the developing world will surge. According to the World Bank’s recent Global Economic Prospects report, the eurozone may contract by 0.3% while the US will at best have a gain of 2.2%. The world economy as a whole will grow this year by 2.5%, thanks to a predicted 5.4% expansion in the economies of developing countries. Just as it happened three years ago, the world will be rescued from economic col-

lapse by the growth in the BRICS countries - Brazil, Russia, India, China and South Africa. It will prove true the International Monetary Fund’s prediction that the emerging economies as a whole will by 2013 produce more than half of global output measured at purchasing power parity (PPP). Since 1992, China’s GDP increased 5.3 times, India’s rose by 3.5 times and Brazil’s more than three. But what about Russia? During the same time span, Russia suffered an industrial and technological degradation that was more devastating than its losses in World War II. In terms of GDP estimated in PPP by the IMF, Russia is now number six in the world, while China is

second. In contrast to China and the other BRICS members, which are steadily increasing industrial production, the main drivers of the Russian economy continue to be domestic consumption and exports of raw materials. Most Russian enterprises are not expanding due to a lack of fixed investment (the extraction, metals and defence industries are exceptions here).The Russian government dreams of raising fixed investment to 25%of GDP, whereas in China its share is already 45% of GDP. The outflow of capital from Russia ($85 billion in 2011) is more than twice as big as direct foreign investment (about $36 billion). Even a balanced budget, a current account surplus and sizable

hard currency reserves ($500 billion at the end of 2011) can’t guarantee Russia’s technological resurgence and higher competitive leverage. The poorly diversified economy, addicted to imports of high-tech goods and even some agricultural products, makes Russia fully dependent on the whims of the world commodities markets. The country may face a slump even this year if the world oil prices fall below $60 per barrel.A repetition of the serious contraction of Russia’s GDP in 2009 (-7.8%) after a sharp dip in oil prices is very likely, and last September,theWorld Bank already projected a slowing of GDP growth in 2012 from 4.4% in 2011 to around 3.5%.

If versatile and sustainable economic development and its relevant strategies are the main yardsticks for assessing the global position of emerging nations, Russia actually doesn’t belong with them. Its current position as an economic lame duck among the BRICS is a direct consequence of the decision made two decades ago, when the Russian economy moved from socialism with an ugly face to capitalism with a distorted one. This distortion prevented it from building a market-oriented economy and a European-type welfare system. Today, many progressive Western economists recognise the problems with this neoliberal ideology and point to the phenomenal suc-

cesses of China, whose ruling elite adopted a national development strategy that meshed state planning and industrial policies with market guidance and encouragement of enterprise. The recent street protests that have rocked Russia are not only about vote rigging in parliamentary elections, but also crucially about the regime’s failure to ensure robust economic and social development, minimise income inequality, curb corruption, and encourage individual enterprise. In the age of the Internet and cheap foreign travel, Russians see that even formerly backward countries have devised efficient strategies of economic growth and social improvements.

NIYAZ KARIM

The recent debates between Russia’s presidential candidates reveal that a radical change of economic and social strategy is an important point of discussion among the political elite. But

All articles appearing on this page do not necessarily reflect the opinions and views of the editors of Rossiyskaya Gazeta and Russia India Business Report.

we will only know after March 4 if any actual reforms will be forthcoming. Felix Goryunov is a Moscow-based veteran economic journalist.

BUSINESS REPORT

Cooperation

IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA WEDNESDAY, FEBRUARY 8, 2012

Travel 80,000 Russians visit India

Defence Come spring, and all the vessel's systems will be put through extensive testing; port trials on

Russia is fast-tracking port trials and putting finishing touches to INS Vikramaditya and hopes it will be the pride of the Indian Navy. ALEKSANDR YEMELYANENKOV

RIBR

The modernisation of INS Vikramaditya for the Indian Navy at the Sevmash shipyard has moved into the last stage. The picture shows the aircraft-carrier parked on the frozen sea.

Indian Navy to get INS Vikramaditya on Dec 4, no extension of deadline INS Vikramaditya aircraft carrier will be handed over to India on December 4. Sergei Chemezov, the general director of Russian Technologies, has ruled out any further delay. “Extending the deadline is not an option. We are obligated to finish the aircraft carrier by the end of the year,” he said. Russia and India signed an agreement in New Delhi in 2004 that provided for Admiral Gorshkov Russian aircraft carrier to be handed over to India free of charge, on the

ta. Last year, the vessel was outfitted with cutting-edge equipment, tools and had its cable connections tested. “These, at India’s adamant request, were virtually replaced on the entire vessel,” said Sergei Novosyolov, the deputy general director of Sevmash. “This involved

condition that India modernises the vessel at the Sevmash plant and has a Russian production air task force outfit it. Russia also agreed to train 1,500 Indian crew for the

aircraft carrier and provide for the infrastructure to base the vessel in the Indian Ocean. The contract initially was estimated to be worth $1.5 billion dollars: 974 million for restoring its technical readiness and modernising it, and another $530 million for delivering 16 MiG-29K fighter jets and Ka31 and Ka-27 anti-submarine helicopters. The work on retooling and modernising the vessel into a full-fledged aircraft carrier was supposed to be finished in 2008. However,

the contract deadline was extended as Russia said that additional funds were needed to pay for modernising the vessel. During his visit to India on March 12, 2010, Russian Prime Minister Vladimir Putin signed a supplemental agreement for amending the cost of the reconstruction and modernisation of the Vikramaditya aircraft carrier. India now estimates the contract at $2.33 billion. The vessel is expected to be able to serve 30 years.

many kilometres and months of intense, painstaking labour.”The performance of individual units and mechanisms has already been verified and confirmed. It will be followed by the universal tests on the vessel’s main systems in different modes.

The most difficult and important tests concern the chief power unit.The second challenge is to check the electronic warfare systems, which include Indian-made ones, along with aviation and technical capabilities.When the vessel finally sets sail, interaction controls on the air-

craft carrier and its planes will be refined. Indian officers live in Severodvinsk with their families. Two apartment buildings were refurbished to accommodate them. Indian folk songs have become a must on all festive occasions at the plant. All residents of Severodvinsk

ITAR-TASS

The long wait for a cuttingedge aircraft carrier for the Indian Navy is nearing its end. The modernisation of INS Vikramaditya at the S e v m a s h s h i py a r d i n Severodvinsk has moved into the final stage. Come spring, all the vessel’s systems will be going through extensive testing. By the end of the year, the vessel will be handed over to the Indian Navy. The most challenging stage will be headed by I rank Captain Srinivas Kudravalli, the Indian Navy’s new chief observer, who has succeeded I rank Captain Rajaram Swaminathan. Capt. Kudravalli is no stranger to Sevmash. When serving as a II rank captain, he worked in the group that surveyed the reconstruction and modernisation of the aircraft carrier from May 2005 to April 2008. Even after going back to India, he kept very close track of the reconstruction process. “I am happy to come back to Russia and work on the aircraft carrier,”Kudravalli said after arriving in Russia. “I personally believe that you are on schedule. What’s most important today is that the boat is suitable for living, that the premises are prepared. A lot, of course, will hinge on how the trial runs turn out. However, I am very confident that we will have met the deadline and that this will be a great vessel for the Indian Navy.” Port trial runs began in March last year.“These trial runs held by the port are intended to prepare the vessel’s systems and equipments for factory performance tests, when the aircraft will set sail,”Sevmash’s administration told Rossiyskaya Gaze-

enjoy colourful Indian costumes and vivid dances. The members of the observation group have changed several times since 2004.The contracts are signed for two or three years and then, a new group of officers comes to Severodvinsk to supervise the repairs and upgrade of the aircraft carrier. “We manage to establish very productive relations with all the officers from the Observation Group,” says Sevmash Deputy General Director for military and technical cooperation Sergei Novosyolov.“The officers are experienced specialists, proficient in ship repairs and shipbuilding.They learn a lot here but we, too, learn a lot from them. Indian specialists are distinguished by their stringency. They go deeply into every detail and ask us to explain everything that is not clear. It's especially important and rewarding that all issues are resolved peacefully, with no serious conflicts. We have a common goal.The aircraft carrier must become the flagship of the Indian Navy, the pride of the Indian fleet.” The first scheduled training for Indian Navy officers began in 2011 for serving as a part of the Vikramaditya crew.Training was organised in two stages, with the Indian Navy officers taking theoretical classes in St. Petersburg at the Naval Academy and then going through hands-on training at the Sevmash plant, where they studied the aircraft carrier’s equipment that they are going to work with. Officers from the electrical and mechanical combat unit were being awarded their special certificates from the Russian Ministry of Defence. Another group numbering 112 people has arrived for training following the first group of 152 officers. Roughly more than 1,000 Indian military servants from the Vikramaditya crew will go through different training programmes in Russia.

Soft power In port city of Severodvinsk, Indians and Russians celebrate holidays together

In Severodvinsk, visiting Indian sailors have formed deep bonds with Russians, giving a new meaning to cross-cultural camaraderie. ELENA BOIKO, ALEKSANDR YEMELYANENKOV RIBR

Submarines are not known for spawning human relations or love affairs. But in the Russian shipping hub of Severodvinsk, the burgeoning military ties between India and Russia have blossomed into one big family. As soon as the first Indian s u b m a r i n e a r r iv e d i n Severodvinsk in 1997 at the ship-reconstruction factory Zvyozdochka, the city became a livelier and more colourful place. Now the city's residents pronounce with relish the names of the revamped Indian subma-

rines: Sindhuvir, Sindhuratna, Sindughosh, Siduvijay and Sindhurakshak. The Vikramaditya aircraft carrier (Admiral Gorshkov) will soon join their ranks. Indian citizens have been living in Severodvinsk for more

Indian citizens living in Severodvinsk for over 15 years have forged strong bonds with local Russians. than 15 years and have effortlessly mingled with Russians. India’s Republic Day on Jan 26 has become a city holiday. The sense of camaraderie is palpable.“We have become not only good partners, but also good friends. Our children study together, we celebrate holidays to-

gether and visit each other," says Mayor Gmyrin. Upto 40 to 45 Indian children study at the city's kindergartens and schools every year. Right now, 18 Indian students are studying at a middle school for the humanities on the island of Yagry (a district in Severodvinsk where the Zvezdochka factory is located). The students take intensive Russian language courses in the summer. Another 27 young Indian children go to the Skazka and Zorenka kindergartens. This cross-cultural connect has sparked love affairs and even marriage for some. Dmitry Kalachyov, an interpreter from Sevmash, and Darsana, an Indian interpreter working in the observation group, fell in love and got married.They now live in India. Thanks to Severod-

vinsk, an officer and mechanic from the Sindhuvidjay submarine, which was the fourth submarine to be repaired at the Zvyozdochka plant, found himself a Russian wife from the city of Kolomna, outside of Moscow. Indian families in Severodvinsk welcomed eight new children last year. Ever since the first Indian submarine arrived at the Zvyozdochka plant in 1997, 29 Indian babies have been born in the city’s maternity home.“I am glad to hear and acknowledge that these children will have Severodvinsk listed in their passports as their place of birth.This is yet another reason to develop our relations,”India’s ambassador to Russia Ajai Malhotra said during his visit to the city last summer. If one includes the students, crews

PRESS PHOTO

'Little India' spreads its wings in the shipping hub

The flag-hoisting ceremony on India's Independence Day.

from Indian vessels and their families, around 200 to 450 Indian citizens are living in the Arkhangelsk Region every year. Impressed, the Indian envoy voiced his support for setting up an Indian-Russian culture centre in Severodv i n s k . T h e e nvoy a l s o

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warmed up to the idea of establishing sister-city ties between Severodvinsk and one of India’s cities. His visit also saw the signing of a pact between the Severodvinsk municipal government and Indian military servicemen and their families living in the city.

ALAMY/LEGION MEDIA

Aircraft carrier on course A Russian tourist clicking a picture of The Taj Mahal.

Easing visa will double tourists' flow The Arab Spring is driving more Russian tourists to India, but India needs to ease the visa system to cash in on the growing potential. VIKTOR KUZMIN RIBR

The Arab Spring has had a visible impact on where Russian tourists go for their holidays. The resorts in Egypt and the Arab world were once powerful draws for Russians. Now, India has firmed up its position in the rating of the most popular places to visit. Although India still is light years behind Thailand, the main tourist attraction for Russians in the East, the number of Russian tourists holidaying in India is growing every year. Rosstat, the state statistics service, will have the final numbers available at the end of March, but preliminary estimates show that the tourist flow to India is increasing significantly. Irina Tyurina, the press secretary for the Russia Union of Travel Industry, says that Russian tourism in India rose by 24% over the first nine months of 2011. By the end of the year, the number of Russian tourists in India would have exceeded 80,000 people. This is not even one tenth of more than a million Russians who vacation in Thailand annually. The Arab Spring, although it has dampened interest in Egypt, has still brought the country of pyramids 906,000 Russian tourists over the past year. Tatyana Kazeko, a travel expert, says that Russian tourists’ favourite places in India are Goa and the“Golden Triangle” (Dehli, Jaipur and Agra). Maya Lomidze, the executive director at the Association of Tour Operators of Russia, said that the fading lure of Egypt is the main reason for a spike in Russian tourist flows to India.“India didn’t give us any prerequisites for such a jump in its tourism numbers. The easing in visa regulations between the two countries was announced only later on,”she said. Last year, the Indian government announced that it intended to expand the number of cities where tourists may receive visas right at the airport upon arriving in India. Russia, however, was missing from the list of countries to be given this privilege.“There aren’t any specific rules about this as of yet, but rather just the idea is out

there. If entry into the country is in fact made simpler, then the increase in Russian tourists will be pretty significant,”said Lomidze. The predictions are hazy for 2012. “The number of Russian tourists expected for this year is predicted to be the same as it was for 2011. All the programmes have been put in place and no changes will be made,” says Kazeko. Easing visa regulations could at least double the number of Russian tourists to India. Moreover, it should be kept in mind that besides Thailand and China, India needs to compete for tourists with South Korea as well. In 2011, the flow of tourists from Russia to South Korea grew by 13%. Many Russians, scared off by the Fukushima radiation, preferred to go to Japan’s neighbour instead. Both cruise-ship passengers and avid land-trans-

India will have to compete with Thailand, China and South Korea for Russian tourists. port tourists choose new places to head to. Lomidze predicts that in 2012, roughly 13 million Russians will travel abroad on tourists packages, which is approximately the same as in 2011.“This is a very conservative forecast. Come the end of March, we will be able to give more informed forecasts of the outcome, when the announced volumes for tour operators will become clear, plus this is when the early reservation programmes begin.They have in fact already begun, but so far the numbers are pretty meagre. Consumers are still a little careful since they have less confidence in the future. Therefore, they are spending less on vacationing,” Lomidze says. Turkey will most likely get most Russian tourists this year. Greece has the potential to affect the flow of Russian tourists going to Turkey. But experts feel that the quality of Greek vacationing has gone way down. "The kind of people that began to come to Greece in 2011 has scared off tourists who have gotten used to coming to this country for its high-quality and peaceful vacation experience,” says spokesperson for Sunrise Tour General Director Dmitry Mazurov.

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