Russian President Vladimir Putin says his country can use Western sanctions to boost economic development by becoming more self-reliant.
He is taking part in a live televised phone-in, with Russia's economic problems figuring prominently.
Mr Putin said he had told business leaders that he did not expect EU-US sanctions - imposed over Russia's actions in Ukraine - to be lifted soon.
"We need to use the situation to reach a new level of development," he said.
It is the 13th such annual phone-in - and usually they last about four hours.
The BBC's Sarah Rainsford in Moscow says the event is highly choreographed but does reveal Russians' concerns. Russians' real incomes have fallen this year for the first time since Mr Putin came to power.
About two million people have submitted questions. Russia's ailing economy is a national preoccupation.
'Encouraging signs'
Mr Putin said the Russian economy would take about two years to bounce back, or less as the rouble's value was rising again. But industrial output may shrink further, he warned.
He said there were encouraging signs that Russian agriculture was growing and replacing imports of Western food.
However, a dairy farmer introduced as "John - a Russian citizen" grilled Mr Putin over the hardship faced by farmers.
"You say everything is going well - sorry, that's not true," the farmer said. "I have five children... I need some assurance about their future in Russia. Do you believe the statistics or are they lying?" he asked in English-accented Russian.
The farmer is reportedly John Kopiski, originally from the UK, who has lived in Vladimir region for about 15 years.
Mr Putin admitted that farmers faced difficulties over low dairy retail prices and that cheap imports of powdered milk from Belarus were part of the problem.
"I don't have reason to disbelieve the statistics," he said, adding that the government would have to increase subsidies for farmers.
Mr Putin is said to have taken two days out to prepare for the phone-in by consulting ministers and other experts. The broadcast began at 12:00 (09:00 GMT) from a studio near the Kremlin.
Missiles for Iran
The Kremlin says there has been an increase in questions about foreign policy, including calls to give formal recognition to the two breakaway regions of eastern Ukraine controlled by pro-Russian separatists.
Later in the phone-in Mr Putin was asked about Russia's controversial plan to export S-300 air defence missiles to Iran.
He insisted that the missiles were not on the UN list of banned exports under the UN sanctions linked to Iran's nuclear programme.
He said he made the move because Iran had shown "a desire to reach compromise". The S-300 "doesn't threaten Israel at all, it's exclusively a defensive weapon", he added.
Our correspondent says the questions for Mr Putin are clearly vetted, with nothing too critical or too personal.
Kremlin spokesman Dmitry Peskov said about 23% of the questions submitted concerned social welfare issues, and the second biggest area of concern was housing and local services.
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