NEW DELHI: The Union Cabinet on Thursday approved a two per cent hike in the Dearness Allowance (DA) for central government employees and Dearness Relief (DR) for pensioners, taking effect from July 1 this year, Union Finance Minister Arun Jaitley said.
The decision will benefit more than 50 lakh government employees and more than 54 lakh pensioners, the Minister said.
"The cabinet has given its approval to release an instalment of DA to central government employees and DR to pensioners from July 1, representing an increase of two per cent of the revised basic pay/pension, to compensate for price rise," Jaitley said.
The Minister said that the increase is in accordance with the accepted formula, based on the 7th Central Pay Commission recommendations.
As per the formula, the government increases DA on the basis of the 12-month average of retail inflation, but does not consider price rise rate beyond a decimal point for reaching the deciding the DA rate.
The government pays DA as a proportion of the basic pay to mitigate the impact of inflation. The pensioners too get the DR.
The hike would cost the exchequer Rs 5,622.10 crore per annum. For the eight months (July 2016 to February 2017), the cost to exchequer will be Rs 3,748.06 crore.
The government had last hiked the DA in March this year by six per cent to 125 per cent of the basic pay.
In 2015, the DA was hiked in April by six per cent to 113 per cent of the basic pay and then to 119 per cent in September.