Delhi: The Union Cabinet, chaired by Prime Minister Narendra Modi, on Thursday raised the dearness allowance (DA) for 4.92 million central government employees by four percentage points to 50% along with a similar increase in the dearness relief (DR) for 6.8 million pensioners ahead of the general elections even as retail inflation moderated in January.
The new rates will be applicable retrospectively from January 1, Union commerce minister Piyush Goyal said after the Cabinet meeting. The decision will have an annual impact of ₹12,868 crore on the central exchequer, he added. “As DA has reached the 50% level, therefore, consequential increases have also been made in other allowances such as house rent, gratuity limit and other benefits,” he said.
The consequential increases in HRA for various categories are -- from 9% to 10%, from 18% to 20% and from 27% to 30%, he said. Similarly, gratuity ceiling has also been raised to ₹25 lakh from ₹20 lakh, while all other benefits will go up by 25%, he added. The total financial impact of these hikes in the financial year 2024-25 would be around ₹24,400 crore.
The Cabinet took the decision on Thursday, amid speculation that the Election Commission (EC) could announce poll dates next week, which will trigger model code of conduct (MCC). From the time elections are announced by EC, the government is expected not to announce any financial grants
Experts said the move to increase dearness allowance (always expressed as a percentage of the basic salary) will bring double cheer as it comes after retail inflation -- as measured by the Consumer Price Index (CPI) -- fell to a three-month low of 5.1% in January from four-month high of 5.69% in December 2023 mainly due to cooling of food prices. It was 6.52% in January 2023.
Both employees and pensioners will get the raised amount retrospectively from January 1, an official said requesting anonymity. “This increase is broadly 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 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).
DA and DR are given to employees to mitigate impact of the inflation. Generally, DA and DR are raised twice annually – often in January and July. The last time a change was announced was on October 18, 2023, but it was implemented retrospectively from July 1, 2023