Economic activities remained subdued in January-July this year, compared to the same period of the previous year. The deceleration was reflected in the growth of manufacturing sector, which was lower than last year, the MCCI said in the Review released yesterday.

"The latest available data period shows that the quantum index of production (QIP) of all industry in April 2003 increased by 4.76 per cent compared to an increase of 6.88 per cent in April 2002. The QIP for the manufacturing sector increased by 4.44 per cent compared to 5.93 per cent increase in the previous year," the MCCI said.

The recession is manifested most in the manufacturing sector, particularly in those industries that serve the domestic demand. This is validated by a fall in imports of intermediate goods, depressed growth of the QIP, lower growth in VAT collection and slower off-take of credit by private sector, it said.

A number of leading companies in the pharmaceuticals, electronics and agro-inputs sectors have reported a drop in sales. The companies put the drop down largely to erosion of purchasing power, particularly in the rural areas caused by low prices of jute, slow procurement of Aus and Boro crops in the wake of bumper production, the Review said.

Industries faced with such demand contraction are in serious jeopardy because of high interest rate, which the MCCI termed a practical problem for business growth. High lending rates are the result of rates now offered by commercial banks for term deposits. An important element, which determines interest rates for term deposits, is the rates of government bonds, which are the highest in South Asia, it said.

"The Bangladesh Bank offers 10 per cent interest on treasury bills of a five-year tenure, which is 5.18 per cent in India and 4.29 per cent in Pakistan."

Law and order uncertainty and increased activities of hoodlums often in close nexus with politicians also put a brake on economic activities, it noted.