Dearness Allowance Hike: This comes as a major relief to central government employees amid the festive season. Central Employees get Diwali gift as Union cabinet approves 3% DA.
The central government is set to raise the dearness allowance (DA) for its over crore employees and pensioners by 3 per cent, taking the total to 45 per cent from 38 per cent. The decision was taken at a cabinet meeting this morning, weeks ahead of Diwali.
If the Cabinet increases the DA by 3%, employees will now receive 53% of their salary as DA. However, no official announcement has been made by the government yet. (see updates later).
It will benefit more than 68 lakh employees and more than 42 lakh pensioners.
This comes as a major relief to central government employees amid the festive season.
DA is given to government employees and pensioners to compensate them for increasing prices. Revised periodically twice a year, this allowance is calculated on the basis of the latest consumer price index for industrial workers.
Why is DA increased Every year twice
The Dearness Allowance (DA) is increased regularly, typically twice a year, to help government employees cope with inflation and rising costs of living.
- Inflation Adjustment: DA is a cost-of-living adjustment given to government employees and pensioners. It is linked to inflation and is meant to offset the impact of rising prices on their purchasing power. By increasing DA, the government ensures that employees maintain their standard of living despite inflation.
- Consumer Price Index (CPI): DA revisions are based on changes in the Consumer Price Index for Industrial Workers (CPI-IW), which reflects the cost of various goods and services consumed by a typical working-class family. When the CPI increases, indicating a rise in the cost of living, the DA is adjusted upwards to match the inflation rate.
- Biannual Review: The DA is reviewed twice a year, typically in January and July. This regular adjustment ensures that government employees receive timely compensation for inflationary trends without experiencing prolonged declines in purchasing power.
- Social Welfare and Employee Morale: DA hikes are also a way to maintain employee morale and ensure financial stability, especially for middle- and lower-income government workers.
- Pensioners’ Relief: DA is not just for active employees but also for pensioners, providing them with financial relief in their retirement years. As pensioners often have fixed incomes, regular DA increases help them manage inflation better.
Let’s understand this increase in DA with the help of an example
Let’s assume a government employee has a basic salary of ₹50,000. Before the hike, the Dearness Allowance (DA) was 42% of the basic salary. With the 3% hike, it is now increased to 45%.
Before the DA Hike:
- Basic Salary: ₹50,000
- Old DA (42%): ₹50,000 × 42% = ₹21,000
- Total Salary (excluding other allowances): ₹50,000 + ₹21,000 = ₹71,000
After the DA Hike:
- Basic Salary: ₹50,000
- New DA (45%): ₹50,000 × 45% = ₹22,500
- Total Salary (excluding other allowances): ₹50,000 + ₹22,500 = ₹72,500
Difference Due to DA Hike:
- Increase in DA: ₹22,500 – ₹21,000 = ₹1,500
- New Total Income: ₹72,500 (an increase of ₹1,500 in monthly salary)
Therefore, the 3% DA hike results in an additional ₹1,500 per month for this employee. For a full year, this would amount to an extra ₹18,000. The exact increase will depend on the basic salary of the employee, with higher salaries resulting in greater increases in absolute terms.
DA increases are a vital part of government policy to ensure the real income of its employees and pensioners remains stable, countering the negative effects of inflation on their standard of living.
