In what could give a significant push to consumption during the ongoing festive season, the Union government on Wednesday hiked dearness allowance (DA) for its employees and dearness relief (DR) for pensioners by 4% of basic pay/pension. The largesse will cost the exchequer Rs 8,568 crore in the current financial year and benefit about 4.77 million Central Government employees and 6.86 million pensioners.
The Centre’s DA/DR hikes are usually followed by state governments for their employees and pensioners.
The DA/DR increase effective July 1 is based on 12-month average of the Consumer Price Index for the period through June 2022.
The enhanced DA/DR rates will be paid with September salary with arrears of two months, giving a substantial sum in the hands of employees. Festive time consumption usually gives a leg-up to economic growth and tax revenue collections.
Dearness allowance is part of the salary of government employees and pensioners and is designed to offset the impact of inflation. Inflation based on the consumer price index rose to 7% in August from 6.71% in the previous month, reversing a declining trend. With the base effect turning adverse, retail inflation may remain under pressure until November if the easing trajectory of global commodity prices reverses, especially due to supply shocks. Some analysts expect it to inch up further to 7.1-7.2% in September.
The additional financial implications on account of this increase of DA to Central Government employees are estimated at Rs 6,591 crore per annum; and Rs 4,394 crore in FY23 for a period of 8 months from July 2022 to February 2023. The additional financial implications on account of the increase of DR to pensioners are estimated at Rs 6,261 crore per annum; and Rs 4,174 crore in FY23 for eight months.