There is concern that without state support and special tax benefits, the centuries-old business of making such nesting dolls and other traditional items could soon become history.

Nickolay Korotkov, the director of the painting plant producing the well-known Khokhloma ornaments and nesting dolls, is trying to help his ailing industry. He says he knows the way out:

“There should to be a drastic change in the whole tax system. Profit and income taxes must be lower than they are now. If income tax is lower then we'll get a bigger profit. These two things are intertwined,” he explained.

Since 2002 the company has been paying 24% tax, while income tax is 13%, but with people worried about job security and the amount of money coming in sales of handicraft goods have fallen drastically.

In order to stay afloat the factory has had to slash production. The working week has been cut to four days and salaries reduced. Artist Nelli Ushakova has been with the plant for over 30 years. She says no one is immune to the crisis.

“We now get about 25% less than we used to. And very often it's not enough. But it's not only salary. We've been here so long that we don't want to leave,” she told RT, adding, “I don't know what I'll do if something happens, because I only know how to paint these dolls and I love doing it.”

The government has promised to provide more help. Officials say the handicraft business has already received some financial support and more is on the way.

“Handicraft factories received a total of 400 million roubles in tax exemptions and various subsidies in 2008. And despite the crisis we managed to add an additional 7 million roubles to the budget for 2009,” Oleg Kascheev, deputy director from the department of forest and light industry said.

In Moscow's Arbat Street the stalls are full of Matryoshkas, but few people are buying. While the state and handicraft plants do their best to cope with the crisis, the fate of this staple of Russian souvenirs remains uncertain.