DA increases frozen till July 2021; Centre, states to save at least Rs 80,000 crore in FY21

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Published: April 24, 2020 6:20 AM

Currently there are about 48.34 lakh central government employees and 65.26 lakh pensioners. The DA/DR increases are in accordance with the accepted formula, which is based on the recommendations of the 7th Central Pay Commission.

The idea is to use the savings to meet additional demand for resources for healthcare and welfare of people affected by the pandemic.

After the Centre’s budget expenditure was cut to the tune of Rs 1.4 lakh crore in Q1FY21 to reduce the fiscal stress, the finance ministry on Thursday froze the dearness allowance (DA) increases for the central government staff and dearness relief (DR) for pensioners for the period between January 2020 and July 2021.
As a result, the Centre would save Rs 25,000 crore in FY21 itself.

The states, which conventionally follow the Centre’s pattern on DA/DR, are expected to save another Rs 55,000 crore among themselves in the current fiscal, taking total savings for general government budget in FY21 to a considerable Rs 80,000 crore. Another Rs 40,000 crore savings are expected for both the Centre and states in FY22.

The idea is to use the savings to meet additional demand for resources for healthcare and welfare of people affected by the pandemic, a senior finance ministry official said. Clearly, even as the demands for large fiscal packages for the people and different sections of the industry are growing in crescendo, the Centre is treading a very cautious path of fiscal prudence and wants to make available the resources to address Covid-19, without suffering a grievous fiscal blow.

The additional installments of DA and DR due from January 1, 2020, July 1, 2020, and January 1, 2021, will not be paid, the expenditure department said in an office memorandum. On March 13, the Union Cabinet had approved increase in DA by 4% to 21% of basic pay for a six month period starting January 1, 2020; similar or altered hikes were due for the six-month periods starting July 1, 2020, and January 1, 2021, too (there are few precedents of DA hikes being rolled back).

Of course, DA and DR at current rates will continue to be paid to the employees and pensioners. The freeze in DA from January 1, 2020, to July 1, 2021, will cumulatively save Rs 37,530 crore to the Centre over FY21 and FY22. The states will also save Rs 82,566 crore, taking the cumulative Centre and state savings to the tune of Rs 1.2 lakh crore cumulatively in FY21 and FY22.

“As and when the decision to release the future installment of DA and DR due from July 1, 2021, is taken by the government, the rates of DA and DR as effective from January 1, 2020, July, 2020, and January 1, 2021, will be restored prospectively and will be subsumed in the cumulative revised rate effective from July 1, 2021,” the office memorandum noted. That means, no arrears will be paid from January 1, 2020, till June 30, 2021.

Currently there are about 48.34 lakh central government employees and 65.26 lakh pensioners. The DA/DR increases are in accordance with the accepted formula, which is based on the recommendations of the 7th Central Pay Commission.

With tax revenues down to a trickle due to lockdown since March 24, the government has recently announced cost cutting measures including slashing in budget allocation of most departments by up to 40% for Q1FY21.. The central government has also appealed to its staff to voluntarily donate one-day’s pay in April to PM CARES Fund, which was created recently to help fight adverse impact of coronavirus on people.

The Comptroller and Auditor General of India (CAG), which was asked to spend not more than 20% (from usual 25%) of its annual allocation in Q1FY21, has been permitted by the finance ministry not to cut salary expenditure. However, its non-salary expenditures has been restricted to only 10% of BEFY21 in Q1 (60% lower than 25% allowed in Q1 in normal circumstances).

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