The union cabinet today gave its approval for the release of a 7 per cent additional installment of dearness allowance (DA) to central government employees and dearness relief (DR) to pensioners effective 1 July 2014.
The increase of 7 per cent in DA rate over the existing rate of 100 per cent of the basic pay/pension, will compensate for price rise.
The increase, which is in accordance with the accepted formula based on the recommendations of the 6th Central Pay Commission, will benefit around 3 million employees and 5 million pensioners and their dependants.
The combined impact on the exchequer on account of both dearness allowance and dearness relief would be of the order of approximately Rs7,691 crore and Rs5,127 crore, respectively, in the financial year 2014-2015 (ie for a period of eight months from July 2014 to February 2015).
''The average rate of retail inflation for industrial workers from 1 July 2013 to 30 June 2014 works out to 7.25 per cent. Thus the central government will hike dearness allowance for it employees by 7 per cent,'' an official said.
The previous UPA government had, on February 28, increased DA to 100 per cent from 90 per cent with effect from 1 January 2014, on the basis of the agreed formula for revision of DA.
However, the government is yet to decide on the employees' union's long pending demand of merger of DA with basic pay.
A merger of DA with basic pay will simultaneously increase other allowances paid in proportion of basic pay.
DA was to be merged with basic pay once it breached 50 per cent mark. But the 6th Pay Commission disallowed it.