The Union Cabinet chaired by Prime Minister Narendra Modi on Wednesday approved a 2% increase in dearness allowance (DA) from January 1, 2017.
The announcement, which is in line with recommendations of the 7th Pay Commission, will further boost earnings of 49 lakh central government employees and 55.5 lakh pensioners.
Dearness allowance is provided to government and public sector undertaking employees and pensioners to neutralise the impact of inflation.
The move will also boost consumption demand. Analysts said that the hikes will put more money in the hands of the people prompting them to spend more, while boosting the broader economy.
“The increase is a welcome step and hopefully it will add to more purchasing power for consumers,” Soumya Kanti Ghosh, chief economic adviser, State Bank of India group told HT.
Sources said that the decision had to be kept on hold due to the assembly elections in five states.
The pay commission report was submitted in late 2015 and subsequently finance minister Arun Jaitley, while presenting the Union Budget for 2016-17 budgeted for higher salaries for central government employees.
The pay commission recommended an average 23.55% increase in emoluments of central government employees, including salaries, perks and pensions.