8th Pay Commission update: Defence employees seek overhaul of DA and DR inflation formula

The All India Defence Employees’ Federation (AIDEF) has urged the 8th Pay Commission to review the methodology used for calculating Dearness Allowance (DA) and Dearness Relief (DR), arguing that the existing inflation index no longer reflects the actual cost of living faced by central government employees and pensioners.

At present, DA and DR revisions are based on the 12-month average of the All India Consumer Price Index for Industrial Workers (AICPI-IW). The index is designed to compensate employees and pensioners for rising prices and protect their purchasing power against inflation.

However, in its second supplementary memorandum submitted to the 8th Pay Commission, AIDEF said the current formula has significant shortcomings and may not adequately capture the changing spending patterns of employees and retirees.

Consumer Price Index basket

According to the federation, the revised Consumer Price Index basket introduced in 2022-23 does not sufficiently account for increases in food prices and seasonal agricultural products. AIDEF noted that food and beverages now carry a weight of 36.75% in the index, while categories such as housing, healthcare, transport, communication and digital services have been assigned a higher weightage.

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The federation argued that this composition may not accurately reflect the spending behaviour of lower-paid employees and pensioners, who devote a larger proportion of their income to essential items such as food, medicines, healthcare, education and house rent. As a result, their personal inflation experience could be significantly higher than what the official index suggests.

Challenges faced by pensioners

AIDEF also highlighted the challenges faced by pensioners, many of whom spend a substantial part of their monthly income on health insurance premiums, medicines, medical treatment and caregiving services. If the prices of these necessities rise faster than overall consumer inflation, periodic revisions in Dearness Relief may fail to fully safeguard their purchasing power.

The federation warned that such expenses can place additional financial pressure on retirees and make it more difficult for them to manage day-to-day costs.

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Given these concerns, AIDEF has called for a comprehensive review of the existing inflation formula. It has proposed the creation of an employee-specific cost-of-living index that better reflects the expenditure patterns of government employees and pensioners.

The federation has also recommended that elderly care-related expenses receive greater recognition while determining future pay and pension revisions under the 8th Pay Commission. It further suggested that changes in expenditure patterns should be considered while deciding the fitment factor for salary and pension hikes.

The 8th Pay Commission is currently examining various representations from employee organisations and pensioners' bodies, and its recommendations are expected to shape the pay structure and retirement benefits of millions of central government employees and pensioners.

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