DA hike benefits: What is dearness allowance? Know how its hike will aid govt employees

The Union Cabinet headed by Prime Minister Narendra Modi on July 14 announced a major relief for employees of the central government by approving the hike in Dearness Allowance (DA) and Dearness Relief (DR) benefits to employees and pensioners from 17% to 28%. Effective from July 1, 2021, the DA/DR hike would cost an outflow of Rs 34,400 crore per year to the government exchequer. The move followed the Central government freezing the DA/DR benefits in 2020 owing to a plunge in revenue collection and surging expenditure amid the COVID-19 pandemic.

What is DA/DR?

Dearness allowance is a compensation allowance to the central government employees and pensioners to meet their daily needs amid price rice driven by inflation. The quantum of DA varies with each employee depending on their pay scale and current sector. While the DA under the previous of the 7th commission, central government employees were set to get 17%, as per the latest revision, the same persons will get 21%. 

Prior to that, in the wake of the COVID-19 pandemic, the government had introduced a revision of 4% in January 2020. The revision of plans was halted because of the unprecedented impacts of a global health crisis. The government had previously informed that the revision will be resumed from July 1. DA and DR are revised twice a year - January and July. DR is the same allowance for DA. 

How will it impact govt employees & pensioners?

The latest move by the government for its employees and pensioners will directly increase the salary and higher the pension, cushioning the stunning effects of the COVID-19 pandemic. In other words, the individuals who used to get a 17% allowance on their basic salary will now get 28%. For instance, for Rs 18,000 monthly pay of an individual, the government will credit an additional 28%, that is, Rs 5,400 to the take-home salary. Similarly, the pensioners would get additional support on DR which is calculated on basic pension. 

For Central Government Employees the DA calculation formula is:

DA percentage = {(Average of the All-India Consumer Price Index (Base year -2001 =100) for the last 12 months -115.76)/115.76} x 100

For Employees of Central Public sector

DA percentage = {(Average of the All-India Consumer Price Index (Base year -2001 =100) for the last 3 months -126.33)/126.33} x 100

DA’s are broadly divided into two categories including industrial dearness allowance and variable dearness allowance. While the industrial dearness allowance is revised quarterly and is dependent on the Consumer Price Index (CPI), the variable allowance is revised every six months. The industrial dearness allowance is also to assist the employees to adapt to the hiking prices of commodities in inflation.

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