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. Last Updated: 07/27/2016

IRG: Doubling GDP a Numbers Game

The size of the nation's economy can be doubled much sooner than the deadline set by President Vladimir Putin, according to the Interactive Research Group, or IRG.

According to IRG, the State Statistics Committee greatly underestimates the shadow economy and all that is needed to see gross domestic product rise is to cut taxes and calculate GDP in dollars rather than rubles.

Russia's real GDP last year was not $347 billion, but $500 billion, IRG said, and predicted that it could reach $1 trillion in five years.

Based on surveys of Russian companies and its own research into the consumer market, IRG demonstrated that the State Statistics Committee is greatly underestimating real incomes and consumer spending in Russia.

Of the official $347 billion, $175 billion was domestic spending, $60 billion was state spending, $74 billion was savings or investments and $37 billion was net exports. But according to Alexander Utochkin, an economist with IRG, official statistics are only accurate for state spending.

In his opinion consumer spending and the consumer goods market was worth between $290 billion and $310 billion in 2002, while investments were around $100 billion.

Meanwhile, net exports were actually lower than the committee's figures, due to hidden imports of about $25 billion. Therefore, Utochkin said, real GDP last year was between $490 billion and $500 billion.

The State Statistics Committee estimates that the shadow economy accounts for 20 percent to 25 percent of GDP, while IRG puts the figure at between 45 percent and 50 percent.

"These figures are possible," Peter Westin of Aton said.

Based on Westin's own research, the shadow economy is gradually contracting and in 2002 accounted for 37 percent of GDP, though this, he emphasized, was "the minimum value."

Westin compared the rising GDP to the increased use of electricity, transport services and other indicators. The committee's figures for industry can generally be believed, he said, but added that it underestimates the services sector and especially small businesses.

Utochkin agreed: "Small business accounts for around 25 percent of GDP, not 10 percent." About 60 percent of the $150 billion IRG is adding to GDP comes from small business activity that falls below the committee's radar, he said.

"Small business is about 100 percent in the shadow economy," said Stanislav Voskresensky, deputy head of the tax committee of the Russian Union of Industrialists and Entrepreneurs.

"If GDP grows at 7 percent to 8 percent per year in real ruble terms, and the real exchange rate sees the ruble rising against the dollar by 7 percent to 8 percent a year as well, GDP could exceed $1 trillion as soon as 2007," Utochkin said.

Utochkin said that the real rate of income tax paid by citizens in 2002 was 3.5 percent, and the real rate of social security tax was 10.8 percent. Officially, the income rate tax is a flat 13 percent for everyone, while the social security tax employers must pay is on a regressive scale and can be up to 35.6 percent.