The windfall, which is expected to benefit close to 25 lakh ex-servicemen, comes at time when some reform measures such as the hike in fuel prices and rationing of liquefied petroleum gas (LPG) cylinders are expected to hit household budgets.
The government also softened the hike blow for its employees and pensioners as it increased the dearness allowance (DA) of central employees by 7%, effective July 1.
Around five million employees and three million pensioners will benefit from the move.
The military pensioners' proposal was moved by a committee formed under the cabinet secretary in July to look into pay and pension-related issues. A chunk of the monetary package will be used for reducing the disparity in pensions drawn by ex-servicemen. Pensioners have been demanding equal pension for the same rank and duration of service as successive pay commissions have created disparities. The difference in the pensions of same-rank pensioners is because of the number of increments earned by them. Officers who retired before January 1, 2006 will see their pensions go up. Likewise, the pension gap between the non-officer cadre of pre- and post-January 1, 2006 will be narrowed.
"These are expected to largely meet the demands of the defence pensioners on one rank one pension," an official said. The cabinet has also increased family pension, dual family pension and financial benefits for mentally/physically challenged children of armed forces personnel. This is the third time that the UPA government has taken steps to narrow the gap between the pensioners, particularly those belonging to the other ranks.