Putin defends state support for Russian industry

* Putin pledges state support until demand returns

* Putin Says deindustrialisation a dead end

* Extends car scrappage scheme into 2011

By Gleb Bryanski

NIZHNY NOVGOROD, Russia, Sept 14 (Reuters) - Prime Minister Vladimir Putin on Tuesday defended his use of state money to prop up struggling companies during the global financial crisis, saying Russia had no future if it allowed its industry to die.

Russia was hit harder by the crisis in 2008 than any other major developing economy but has returned to growth this year after the government spent billions of dollars on supporting companies such as AvtoVAZ (AVAZ.MM), Russia's biggest carmaker.

"We often hear people say: why bother with our own production when we can buy everything abroad -- planes, ships, cars and even some weapons?" Putin told activists from his ruling United Russia party.

"Yes we can, by selling oil and gas. We will even save money," Putin said. "But I am deeply convinced that the de-industrialisation of Russia is a dead end."

Putin said allowing its major industry to die would push Russia to "the bottom of the pyramid of the international division of labour" and hurt living standards while increasing the economy's dependence on the sale of oil and gas.

The comments from Putin -- seen as Russia's paramount leader who rules in tandem with President Dmitry Medvedev -- indicate Russia will keep spending high to help growth and sooth social tensions ahead of the 2012 presidential elections.

Russia was helped through the world economic crisis by windfall oil revenues which Putin stored up while presiding from 2000 to 2008 over the longest economic boom in a generation.

But when the crisis hit in 2008, Putin swiftly changed gear, spending billions of dollars on key sectors in an attempt to kickstart growth and save millions of jobs.

"We will continue the policy of support for technologically advanced sectors of economy. We will continue doing it until market demand is fully restored," Putin said in the city of Nizhny Novgorod, about 400 km (250 miles) east of Moscow.

He promised to allocate 14 billion roubles ($456.6 million) to extend into 2011 a car scrappage scheme which helped Russian automakers survive the crisis. The extended programme will include old trucks as well as cars.

"Why do the problems of the global car industry have to be solved at Russia's expense? Why do our companies have to give up their market and workers have to be thrown out to the street," he said, calling on Russian car makers to expand abroad.

But Putin criticised the head of truck maker KAMAZ (KMAZ.MM), Sergei Kogogin, saying truck drivers he met recently in the Far East had complained about the quality of KAMAZ trucks.

"I promised to the lads that I will take their complaints to you personally. I am now doing it publicly," Putin said.

Putin promised continued support to the aviation sector, which is set to receive a total of $6.5 billion from the state budget in 2009-2011. The auto industry has received about $5.5 billion in 2009-2010. (Editing by Matthew Jones)