Home / Politics / Policy /  Union Cabinet approves doubling of gratuity payment

New Delhi: The Union cabinet on Tuesday approved two worker-friendly proposals.

While one entails extra compensation to central government employees, the other proposes to extend gratuity payment norms, available at present to government employees, to staffers in the private sector companies as well as public sector firms.

Accordingly, the gratuity withdrawal limits for staff in private companies and public-sector units have been doubled to Rs20 lakh. At present, even if a worker accumulates more than Rs10 lakh as gratuity contribution, the withdrawal is capped at Rs10 lakh and the rest is paid out after deduction of taxes.

To be sure, this will only come into effect once the Payment of Gratuity Act is amended. The cabinet on Tuesday approved the introduction of the amendment bill in Parliament.

The cabinet also approved an increase in the dearness allowance (DA) and dearness relief for over 11 million central government employees and pensioners.

The hike in dearness allowance and gratuity, once implemented, may also boost consumption in the economy.

“Since there is less investment, recovery in Indian economy will be consumption-led this year. And decisions like this will support the consumption story, although mildly," said Crisil Ltd chief economist D.K. Joshi.

India’s economic growth slowed to 5.7% in the June quarter, the slowest pace in three years.

A cabinet statement said the gratuity decision will “increase the maximum limit of gratuity of employees in the private sector, and in public sector undertakings/autonomous organizations under government who are not covered under the Central Civil Services (Pension) Rules".

The doubling of gratuity withdrawal for such workers was a key demand after the central government approved the Seventh Pay Commission recommendations last year, relaxing the gratuity payment ceiling for staffers.

However, it is not clear whether the cabinet approved any change to the gratuity payment tenure rules. Currently, a worker with at least five years of continuous service is eligible to get gratuity, which forms part of the overall salary package but is not paid monthly. There have been demands to reduce this threshold from five to three years.

All organizations and firms deploying 10 or more staff come under the Payment of Gratuity Act. Gratuity is calculated according to the following formula: Last drawn salary x 15/26 x number of years of service. Salary here means basic pay plus dearness allowance; 15/26 means 15 working days’ pay of the 26 days of pay a month.

The 1% increase in dearness allowance to central government staff and dearness relief to pensioners is with effect from 1 July.

The hikes will cost the central government Rs3,068.26 crore per annum and benefit about 4.92 million central government employees and 6.11 million pensioners.

In another decision, the cabinet committee on economic affairs (CCEA) approved setting up of a Rs10,881-crore Dairy Processing and Infrastructure Development Fund. It was initially announced in the 2017 Union budget.

It will be managed by the National Bank for Agriculture and Rural Development.

The CCEA also approved a Rs2,933-crore project to acquire 48,243 line kilometres of 2D seismic data to help increase investments in domestic production of oil and gas.

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