Increase in Dearness Allowance for Central Government Employees

Last Updated On: Oct. 21, 2021, 11:12 p.m.
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INCREASE IN DEARNESS ALLOWANCE FOR CENTRAL GOVT EMPLOYEES

 

What is Dearness Allowance?

Dearness Allowance is the cost of living adjustment allowance which the government pays to the employees of the public sector as well as pensioners of the same.

 

Calculation of Dearness Allowance

After the Second World War, the DA component was introduced by the government. After 2006, the formula for calculating dearness allowance has changed and currently, DA is calculated as follows:

For Central Government employees:
Dearness Allowance % = ((Average of AICPI (Base Year 2001=100) for the past 12 months -115.76)/115.76)*100

For Central public sector employees:
Dearness Allowance % = ((Average of AICPI (Base Year 2001=100) for the past 3 months -126.33)/126.33)*100
Where, AICPI stands for All-India Consumer Price Index.
From the year 1996, DA has been included to compensate for price rise or inflation in a particular financial year and hence it is revised twice every year, once in January and then in July.

 

Types of Dearness Allowance

The Two separate categories to calculate Dearness Allowance are Industrial and Variable Dearness Allowance.

  • Industrial dearness allowance or IDA is the allowance applicable to employees of public sector enterprises. Recently, the government of India has increased IDA by 5% for this sector. This decision is set to benefit all board-level executives, officers, and employees of central PSUs.
  • IDA for government sector enterprises is revised quarterly based on the movement of the Consumer Price Index (CPI) to compensate for the rising inflation in the country.
  • VAD or Variable dearness allowance is the allowance that comes as a result of revision every six months for central government employees. The changed new figure that is received as a result of taking into consideration the increase or decrease in the Consumer Price Index, CPI, is termed as Variable dearness allowance. Based on this figure, the DA of employees is revised and rolled out.
  • Three components make up VAD. First is the consumer price index, second, the base index, and third is the variable DA amount fixed by the government of India. The third component remains fixed until the government revises the minimum wages. Same way, the base index also remains fixed for a particular period. Only the CPI or Consumer Price Index changes every month and affects the overall value of the variable dearness allowance.
  • Industrial Dearness Allowance
  • Variable Dearness Allowance

 

Increase in DA for Central Government Employees

The Union Cabinet on Thursday approved an increase of 3 percentage points on the Dearness Allowance (DA) Dearness Relief (DR) for central government employees and pensioners from 28%. After this hike, the DA will increase to 31%. The hike comes into effect from 1 July, 2021, announced union minister Anurag Thakur in a press briefing in New Delhi.

 

The new hike comes just days ahead of Diwali and is aimed to benefit over 47 lakh employees and 68.62 lakh pensioners. The combined impact on the exchequer on account of both Dearness Allowance and Dearness Relief would be Rs.9,488.70 crore per annum.

Earlier this year, the government had decided to hike the DA for central government employees by 11 percentage points from 17% to 28%. The increase reflects the additional instalments arising on 1 January, 2020, 1 July 2021 and 1 January 2021.

 

The DA and DR instalments are due for four periods namely January 1, 2020, July 1, 2020, January 1, 2021 and July 1, 2021.

The government had frozen all such hikes last year as coronavirus had dented its revenue. The DA hike for central government employees is likely to cost the government about ₹34,400 crore annually.

 

 

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