The Union Cabinet chaired by Prime Minister Narendra Modi on Wednesday raised the dearness allowance (DA) by three per cent to 34% for 4.77 million central government employees and a similar increase in the dearness relief (DR) was announced for 6.86 million pensioners to provide them respite from price rise.
“The combined impact on the exchequer on account of both Dearness Allowance and Dearness Relief would be ₹9,544.50 crore per annum,” an official statement issued after the Cabinet meeting said.
Both employees and pensioners will get the raised amount retrospectively from January 1, 2022, it said. “This increase is in accordance with the accepted formula, which is based on the recommendations of 7th Central Pay Commission,” it said.
Central Pay Commissions are periodically constituted to go into various issues of emolument structure, retirement benefits and other service conditions of central government employees and to make recommendations on the required changes.
According to the commission’s report, DA is paid to central government employees to adjust the cost of living and to protect their basic pay from erosion in the real value on account of inflation. The allowance is currently based on the consumer price index-industrial workers (CPI-IW).
The announcement of the latest hike came in under five months after the government raised the DA and DR by three per cent points to 31% in October 2021. In July 2021, the Union government revoked a suspension on DA and DR that was imposed due to unprecedented economic disruption because of Covid-19, and raised the two allowances from 17% to 28%.
{{/usCountry}}The announcement of the latest hike came in under five months after the government raised the DA and DR by three per cent points to 31% in October 2021. In July 2021, the Union government revoked a suspension on DA and DR that was imposed due to unprecedented economic disruption because of Covid-19, and raised the two allowances from 17% to 28%.
{{/usCountry}}Experts said that while the decision will provide relief to over 11.6 million people, it may not have any significant impact on fiscal deficit.
Dr Devendra Pant, chief economist at India Ratings and Research, said: “Change in DA is a normal process and is based on movement in relevant price indices and formula recommended by the pay commission. Being formula based and a regular practice, government makes provision for this in the budget. This is unlikely to have any impact on fiscal deficit.”
According to a government official, barring the pandemic time, the central government has been providing adequate relief to both its employees and pensioners. “In view of the unprecedented situation which arose due to the Covid-19, three additional instalments of DA to central government employees and DR to pensioners, which were due from 01.01.2020, 01.07.2020 and 01.01.2021, had been frozen,” the official said, asking not to be named.
“However, when the situation improved, the government increased these allowances with effect from 01.07.2021 and raised it to 28% from 17% of the basic pay or pension,” he said.
After Covid-19 hit in March 2020, the government in April 2020 held payments of DA to all central government employees for 18 months to save about ₹37,530 crore that could be used in its fight against the pandemic.