While alarming in of itself, there are a few factors which still need to be taken into account:
1. Russia's GDP is about the same size as Italy's. Pouring all these resources into arms means a far smaller slice of pie is left for other things.
2. This overspending on the military is reflected in the generally dismal state of other Russian economic endeavours. For example, Italy has a small military force, but also produces coffee makers, cars and other things Russia does not (well, to be fair, Canada does not produce locally designed cars or coffee makers either).
3. The small and very specialized industrial base means it is difficult for Russia to truly innovate. Note that the PAK-FA was designed and built decades after the F-22, is deficient in its electronics (according to the Indians, who want in on the program) and still does not have engines of sufficient power to perform at F-22 levels.
4. Russia has a very limited force projection ability
5. China is on Russia's other border.