The government on Thursday approved 7 per cent hike in dearness allowance (DA), taking it to 107 per cent of basic pay, a move that will benefit around 30 lakh central employees and 50 lakh pensioners including dependents.
"The Union Cabinet chaired by Prime Minister Narendra Modi, today gave its approval for the release of an additional instalment of DA to general government employees and Dearness Relief (DR) to pensioners with effect from July 1, 2014. This is an increase of seven percent over the existing rate of 100 percent of the Basic Pay/Pension, to compensate for price rise," a press statement said.
The increase is in accordance with the accepted formula, which is based on the recommendations of the 6th Central Pay Commission, it said.
The combined impact on the exchequer on account of both DA and DR would be about Rs 7,691 crore per annum and Rs 5,127 crore respectively in the financial year 2014-2015 (for eight months-July, 2014 to February, 2015), it added.
As per the practice, the dearness allowance is worked out on the basis of 12 month average of Consumer Price Index for Industrial Workers (CPI-IW).
The average rate of retail inflation for industrial workers from July 1, 2013 to June 30, 2014 was 7.25 per cent.
Therefore, the central government decided to hike dearness allowance for it employees by 7 per cent.
The previous UPA government had increased DA to 100 per cent from 90 per cent with effect from January 1, 2014, on February 28 on the basis of agreed formula for revision of the allowance.