Ahead of the Diwali festival and assembly elections in Gujarat the Union Cabinet on Wednesday raised the dearness allowance (DA) by four percentage points to 38% for 4.77 million central government employees along with a similar increase in the dearness relief (DR) for 6.86 million pensioners.
The combined impact of DA and DR hike on the exchequer will be “ ₹12,852 crore per annum,” Union information and broadcasting minister Anurag Thakur said after the Cabinet meeting chaired by Prime Minister Narendra Modi.
He said the Cabinet took two key decisions keeping the current festive seasons continuing for the next three months, involving Navratra, Diwali, Chhat Puja, Gurupurab and Christmas. While the first major announcement involved the extension of free dry ration to 80 million poor for another three months with an expenditure of ₹44,762 crore and the second related to raising the DA.
The decision to raise DA has been taken in the light of surging prices of essential commodities, especially during the festive season, two officials said requesting anonymity. The headline inflation, as measured by the Consumer Price Index (CPI), rose from 6.71 % in July 22 to 7% in August, mainly due to an increase in food and fuel prices. Inflation is persisting above the RBI’s upper tolerance limit of 6%, which called for some relief to the government employees, one of them said.
Experts say that the DA relief will help employees in managing their household budget as current inflation is hard on them. “Household budgets would be adversely affected especially the lower income segments because of the relatively higher share of food and related items in their consumption baskets,” DK Srivastava, Chief Policy Advisor at EY India said.
“Driven largely by domestic causes, especially due to uneven monsoon and a heatwave having an adverse impact on food prices, overall CPI inflation has risen back to 7% in August 2022, the level that was seen in May and June 2022. While the underlying pressures on inflation have persisted due to continuing high levels of global crude prices and supply side constraints, inter-month volatility is due to domestic developments,” he said in the latest edition of Economy Watch released on Wednesday.
Another expert, who did not wish to be named said, “This will also help the ruling party in Himachal and Gujarat elections.” The dates for assembly elections in the two states are expected to be announced soon.
Both employees and pensioners will get the increased amount retrospectively from July 1, 2022, a second official said. “This increase is in accordance with the accepted formula, which is based on the recommendations of the 7th Central Pay Commission,” he said.
Central Pay Commissions are periodically constituted to go into various issues of emolument structure, retirement benefits and other service conditions of central government employees and to make recommendations on the required changes.
According to the commission’s report, DA is paid to central government employees to adjust the cost of living and to protect their basic pay from erosion in the real value on account of inflation. The allowance is currently based on the consumer price index-industrial workers (CPI-IW).