New Delhi – The Union Cabinet, in a decision made in October 2018, approved a 2% increase in Dearness Allowance (DA) for central government employees and Dearness Relief (DR) for pensioners. This adjustment, effective from July 1, 2018, raised the DA and DR rates from 7% to 9% of the basic pay or pension. The move aimed to compensate for the rising cost of living, reflecting the trend of inflation.

The decision directly impacted a significant portion of the Indian workforce and retired personnel. Approximately 48.41 lakh central government employees and 62.03 lakh pensioners benefited from the hike. The increase was in line with the accepted formula based on the recommendations of the 7th Central Pay Commission, which periodically reviews and adjusts these allowances.

Key details of the approval include:

  • Effective Date: The revised rates became applicable retrospectively from July 1, 2018.
  • Beneficiaries: Over 1.1 crore individuals, comprising 48.41 lakh central government employees and 62.03 lakh pensioners.
  • Previous Rate: Prior to this approval, the DA and DR stood at 7%.
  • New Rate: The increase brought the DA and DR to 9% of the basic pay/pension.
  • Financial Outlay: The additional financial implications for the government were estimated at Rs 6,112.20 crore per annum. For the eight-month period from July 2018 to February 2019 of the financial year 2018-19, the impact was projected to be Rs 4,074.80 crore.

Dearness Allowance and Dearness Relief are provided to central government employees and pensioners to mitigate the impact of inflation on their earnings and pensions. The calculation for these allowances is typically based on the Consumer Price Index for Industrial Workers (CPI-IW), compiled by the Labour Bureau, a division of the Ministry of Labour and Employment. This index reflects the average change over time in the prices of goods and services purchased by industrial workers, thus serving as a key indicator for cost-of-living adjustments.

The government's decision to increase DA and DR is a standard practice aimed at maintaining the purchasing power of its employees and pensioners. These adjustments are usually announced twice a year, in January and July, following a review of inflation data. Future revisions will continue to be determined by the prevailing inflation rates and the recommendations of subsequent pay commissions or government decisions in this regard.