MOSCOW, November 12 (RIA Novosti) - Modernization of Russia in the 21st century will be based on values and institutions of democracy, the Russian president said on Thursday.

"In the 21st century the country again needs an all-embracing modernization and this will be our first experience in modernization based on values and institutions of democracy," Dmitry Medvedev said at his annual state-of-the-nation address.

The president said that the largest part of the Russian economy is a heritage from the Soviet era, which is extremely outdated.

"It is high time for today's generations of the Russian people to express themselves and raise Russia to a new and higher level in developing civilization," the president said.

"Instead of an archaic society, where leaders think and decide for everyone, we will become a society that is clever, free and responsible," he added.