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Over one crore Central government employees and pensioners will benefit from a Wednesday Cabinet decision to raise dearness allowance (DA) by 6 per cent effective January 1, a hike that Telecom Minister Ravi Shankar Prasad characterised as a “Holi gift”. Prasad said the decision will cost the exchequer an additional ₹14,724.74 crore annually.
“On the 119 per cent basic pay revision that they (government employees and pensioners) get right now, the government will give 6 per cent extra, which will benefit 50 lakh employees and 58 lakh pensioners,” Prasad said.
The burden on the exchequer for the current fiscal would be ₹6,795.50 crore towards employees, and ₹7,929.24 crore for pensioners, Prasad said.
The hike is in accordance with the accepted formula, which is based on the recommendations of the Sixth Central Pay Commission (CPC), and will be effective in the financial year 2016-17 (for a period of 14 months from January 2016 to February 2017).
DA is paid as a portion of Basic Pay to employees to neutralise the impact of inflation. Pensioners too get dearness relief. The government revises DA twice a year on the basis of one-year average of retail inflation for industrial workers as per a pre-determined formula.
In September, DA was increased to 119 per cent from 113 per cent, with effect from July 1, 2015. In April last year, the Centre had hiked DA by 6 per cent to 113 per cent of the basic pay with effect from January 1, 2015.
The DA hike will provide some stimulus to the economy, along with the impact of the implementation of the 7th Pay Commission recommendations and the One Rank One Pension (OROP) scheme for defence personnel.
The development comes at a time when consumption has remained flat.
With the model code of conduct (ahead of upcoming Assembly elections) in place till May 21, the Modi government is expected to issue a notification on the 7th CPC only in June. Four States –– Tamil Nadu, West Bengal, Assam, and Kerala –– and Puducherry go to polls from April 4.
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