The performances of the services sector, such as power, wholesale and retail trade, transport and communication contributed to higher economic growth during January-March 2005, said the Metropolitan Chamber of Commerce and Industry.

"Steady increase in private investment including FDI as indicated by movement of credit, increased imports of capital and intermediate goods, and buoyant external demand, all contributed to the enhanced economic activities," the chamber observed.

The lower growth in the first two quarters was mainly due to the contraction of agriculture production, particularly food grains, caused by the adverse impact of floods during July-September 2004, it explained.

"The decline in the growth of agriculture, the largest sector of the economy, mainly due to the failure of crop production, once again exposes the extreme vulnerability of the economy to the vicissitudes of nature," the leading chamber said.

Citing the uncertainties in agricultural production, the MCCI said a double-digit growth of industry and services sectors is essential to lead the economy on a higher growth path.

The chamber suggested appropriate steps to raise agricultural growth to its normal two to three percent level, and all-out efforts to achieve a broad-based growth in manufacturing and services sectors.

"Serious attention should be given to small-scale manufacturing (and services), which, because of their domestic market orientation, are not directly affected by extraneous factors like slowdowns in global demand, the MCCI observed.

All these will call for a significant improvement in the business climate through accelerated structural and policy reforms, the MCCI said.

The chamber interviewed 14 leading entrepreneurs about the overall economic situation and all of them noted that the business community would continue to respond favourably if the government policies proved business-friendly and supportive to growth.

Business will suffer if the policies are donor-driven and the government response is slow and half-hearted, it said.

In this context, the businessmen feel that the emerging interest rate regime, the likely restoration of the further discretionary powers of the tax administration and withdrawal of investment incentives including tax holiday are bound to have adverse impact.

All the 14 entrepreneurs regretted that regional free trade negotiations remained slow. They pointed out that political contacts between the governments in the region were of utmost importance and political commitment for economic cooperation was crucial.

The government should implement the newly formulated pay scale for the its employees but in doing so, the government must not borrow from the banking sector. Besides, the government should give urgent attention to reorganising its service set-up, it concluded.