MOSCOW, April 10 (Reuters) - After a worrying dip in economic growth late last year, Russian President Vladimir Putin is now cracking the whip on his economic team, telling them to aim higher and reform faster.
In a rare public rebuke on Monday, Putin told his cabinet to be "more ambitious" in developing the economy, demanding they offer fresh ideas before his state of the nation address later this month.
In his two years in the Kremlin, Putin and his cabinet, backed by a largely benign parliament, have picked up the gauntlet of economic reform, long forgotten in storms of political intrigue under his predecessor Boris Yeltsin.
Their measures -- especially those that slashed corporate and personal tax bills -- were acclaimed as successful.
Now the biggest danger to the economy, said Brunswick UBS Warburg economist Denis Rodionov said, "is that people will rest on their laurels and we'll gradually fall into stagnation."
Putin was sending a message to his cabinet that the decks were clear for further radical reform measures.
"You should look at (Putin's criticism) as a justification of more radical measures to be taken in the future," Rodionov said.
Putin's remarks came just after the Communists, blamed for holding up key bills as well as the government's plan to lift the Soviet era ban on farmland ownership, were voted out of top committee posts in the Duma lower house of parliament.
"It is easier now to go to the Duma with more radical reforms, and you can argue that if you don't do that there won't be economic growth," Rodionov said.
Economists say the two things that kept the economy growing in the first years of Putin's presidency -- gushing oil revenues and a rouble weakened by Russia's 1998 financial crisis -- should no longer be counted on as growth drivers.
More and more, they say, it is up to the government to encourage neglected areas of the economy -- especially small businesses that don't live off Russia's vast mineral wealth.
GROWTH FIZZLES
After peaking at 9.0 percent in 2000, GDP growth ground to a halt by the end of last year, though for the year as a whole growth came in at 5.0 percent and it did start to pick up again early this year.
"Domestic factors have taken over as a driving force of growth. The government estimate is that in 2000 about 31 percent of growth could be related to external factors," Aton economist Peter Westin said. "In 2001 that dropped to 16."
After the 1998 financial meltdown battered the rouble, Russian industries such as textiles and machinery began to replace suddenly prohibitively expensive imports.
The government also used some of the oil wealth to help out the poorest sections of society, raising pensions and civil servants' salaries. It also slashed tax rates.
"For the last couple of years, the economy was in free float on high oil prices and the devaluation effect," Westin said.
But by the end of last year, growth had gone flat.
Westin and others say the industrial revival is bringing many factories near capacity, meaning they will have nowhere left to grow without fresh investment.
THIRST FOR CAPITAL
Among key measures designed to sustain domestic demand and diversify the economy, the Duma is due to consider slashing tax bills and simplifying accounting for small and medium size businesses.
"Retail trade, small manufacturing, restaurants -- that's where you'd have small business," Westin said. "Russia has 4,000 software development companies, most very tiny. But it's a process that's already starting."
In addition to encouraging entrepreneurs, that legislation will also help businesses fill a lack of working capital.
Moscow Narodny Bank economist Paul Forrester said that is the worst problem Russian businesses face.
RAISING THE TARGETS
Economists said Putin, his eye on re-election in 2004, was right to think Russia's economic growth could be more impressive.
Forrest said the government could aim for eight or nine percent GDP growth per year if it finds a way to pump capital into the manufacturing and service economy.
That is also the target of Putin's outspoken economic adviser Andrei Illarionov.
But Westin said it was more important to ensure stable growth around 3-5 percent a year, calling eight or nine percent spikes "extraordinary."
"Russia is not China. The tiger economies started from an agrarian base," he said. "Russia inherited a distorted industrial structure."