The Union Cabinet on Wednesday hiked the dearness allowance by 6%, a decision that will benefit nearly 1.08 crore central government employees and pensioners.
The hike – which will come into effect from January – will cost the exchequer Rs 14,700 crore in 2016-17, telecom minister Ravi Shankar Prasad announced after a Cabinet meeting. He called the decision “a good Holi gift for the government’s 50 lakh employees and 58 lakh pensioners”.
The dearness allowance seeks to neutralise the erosion in real wages due to inflation, and is calculated annually.
The latest hike will raise the dearness allowance from 119% to 125% of the basic salary.
Wednesday’s decision is independent of the pay hike that government employees will get within the next few months after the government takes a call on the recommendations of the Seventh Pay Commission. In its report to the government in November last, the pay panel had recommended a 24% raise for employees, most of it in the form of higher allowances.
If the government accepts the panel’s recommendation, it will cost the exchequer Rs 1 lakh crore annually.