Cabinet approves 4% hike in Dearness Allowance for government employees

Prime Minister Narendra Modi-led Union Cabinet on Thursday approved the release of an additional installment of Dearness Allowance (DA) to Central Government employees and Dearness Relief (DR) to pensioners. The new rate will be effective from January 1, 2024, and will represent an increase of 4% over the existing rate of 46% of the Basic Pay/Pension. The hike in the Dearness Allowance and Dearness Relief came as compensation against the price rise.

Dearness Allowance (DA) is an allowance paid to employees as a percentage of their basic salary to offset the impact of inflation on their cost of living. It is typically adjusted periodically, usually every six months, to account for changes in the cost of living index.

The government said that the hike will cost ₹12,868.72 crore per annum to the state exchequer and will benefit 49.18 lakh Central Government employees and 67.95 lakh pensioners across the country.

“The combined impact on the exchequer on account of both Dearness Allowance and Dearness Relief would be ₹12,868.72 crore per annum. This will benefit about 49.18 lakh Central Government employees and 67.95 lakh pensioners. This increase is in accordance with the accepted formula, which is based on the recommendations of the 7th Central Pay Commission,” the press note from the Cabinet said.

Dearness Allowance reaches 50%

With the current Dearness Allowance reaching 50%, both the house rent allowance (HRA) and the upper limit for gratuity will experience an increment. The new gratuity limit has been raised to ₹25 lakh, up from its previous value of ₹20 lakh.

The previous Dearness Allowance hike came in October 2023, when it was raised by 4% from 42% to 46%. The government said that the hikes are according to the recommendations of the 7th Central Pay Commission. The fresh hike in the Dearness Allowance is significant as it came just ahead of the Lok Sabha elections 2024 and the Model Code of Conduct (MCC) can come into force anytime now.