7th Pay Commission: Next DA hike expected in Sept for govt employees would be just Rs 6,480 annually. See calculations

The Centre is expected to announce the second increase in the Dearness Allowance (DA) and Dearness Relief (DR) for employees and pensioners at the beginning of September. It is projected that the Narendra Modi-led government may approve a 3% rise in DA and DR in this round. DA or Dearness Allowance is allotted to active government personnel, while pensioners obtain DR or Dearness Relief.

The Dearness Allowance for central government employees was increased to 50%, effective January 1, 2024. With the DA reaching 50%, several allowances including the House Rent Allowance (HRA), have been increased in the last few months. The government typically raises DA/DR biannually and discloses the increments in March and September, correspondingly. Nonetheless, the increase is executed retroactively from January and July annually.

The DA hike is based on the All India Consumer Price Index (AICPI), which tracks the change in retail prices across various sectors. Earlier, the DA increase was determined using the consumer price index with the base year 2001. However, the government has now switched to a new consumer price index with the base year 2016 for calculating the DA starting from September 2020.

The DA calculation formula utilizing the new base year is as follows:

For Central Government Employees

DA% = [(Average of AICPI (Base Year 2001 = 100) for the last 12 months – 115.76)/115.76] x 100 

For Public Sector Employees

DA% = [(Average of AICPI (Base Year 2001 = 100) for the last 3 months – 126.33)/126.33] x 100

From December 2023 to June 2024, the CPI-IW has risen by 2.6 points, increasing from 138.8 to 141.4. Consequently, the percentage of DA hike is expected to rise from 50.28% to 53.36%.

Let's analyze two scenarios regarding the calculation of Dearness Allowance (DA) for government employees.

> Central government employee with a basic salary of Rs 18,000.
> Post the July revision, a 3% DA raise will increase their total salary by Rs 540.
> This increment will result in an additional annual income of Rs 6,480 for the employee.

Example 2:
> Employee with a basic salary of Rs 56,900.
> With the DA revision, the salary will rise by Rs 1,707 per month or Rs 20,484 annually.

With DA and DR touching the 50% threshold, there have been speculations that DA and DR will be automatically merged into basic pay and raise the basic of the thousands of central government employees and pensioners. However, the government has not declared any revision in the DA and DR revision yet.

According to the recommendations of the 7th Pay Commission, other allowances and components of the salary that automatically increase with DA and DR are House Rent Allowance (HRA), daily allowance, gratuity ceiling, hostel subsidy, Children's education allowance, Special allowance for childcare, TA on transfer, and Mileage allowance for own transport.

Non-payment of DA arrear

Inquiries regarding the non-payment of 18-month DA arrears were raised during the Monsoon Session of Parliament. Two MPs asked the Finance Minister whether the government is deliberating on disbursing the withheld 18 months dearness allowance of central government employees and pensioners, a decision that was postponed during the COVID-19 pandemic crisis.

The MPs requested a response from the government, asking for an explanation regarding the rationale behind withholding the arrears, especially considering the size of the economy being the third largest globally. Additionally, they requested information on representations received on this matter from 2024 onwards and the subsequent actions taken by the authorities.

In a written reply in the Rajya Sabha, Pankaj Chaudhary, Minister of State for Finance, said: “The decision to freeze three instalments of Dearness Allowance(DA)/Dearness Relief (DR) to Central Government employees/pensioners due from 01.01.2020, 01.07.2020 and 01.01.2021 was taken in the context of COVID-19, which caused economic disruption, so as to ease pressure on Government finances.”

On account of freezing of three instalments of DA, the Centre saved an amount of Rs 34,402.32 crore. The Centre utilised the fund to tide over the economic impact of the COVID-19 pandemic.