The union cabinet at its meeting today approved a 2-per cent increase in dearness allowance (DA) for over 5 million central government employees and 5.8 million pensioners. ahead of Diwali.
The proposal to hike the DA was approved during the Cabinet meeting today afternoon at the Prime Minister's Office.
The announcement, which comes ahead of Diwali, will benefit around 11 million employees and pensioners will be effective from 1 July 2016.
Dearness allowance is provided to employees and pensioners to minimise the impact of price rise on their earnings.
Earlier this year, the government hiked dearness allowance by 6 per cent to 125 per cent of the basic pay. It was later merged into the basic pay, based on the recommendation of the 7th Pay Commission.
Central government employees had sought a 3-per cent increase in DA.
''The 12-month average of Consumer Price Index for Industrial Workers from 1 July 2015 to 30 June 2016, works out to be 2.92 per cent. Therefore the unions had pressed for 3 per cent DA. We are not satisfied with this,'' president of a confederation of center government employees K K N Kutty said.
As per the agreed formula, government increases DA on the basis of the 12-month average of the retail inflation and does not consider the price rise rate beyond the decimal point for deciding the rate of dearness allowance.