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In a recent move that will benefit nearly 1.15 crore central government employees and pensioners, the Union Cabinet has approved a 2% hike in dearness allowance (DA), raising it from 53% to 55% of the basic pay, effective January 1, 2025[1][2]. This decision aims to offset inflation and provide financial relief to government employees and retirees. However, the current discussion revolves around whether this increased DA will be merged with the basic pay, especially with the upcoming 8th Pay Commission.
Dearness Allowance (DA) is a crucial component of a central government employee's salary, designed to compensate for the impact of inflation on their purchasing power[5]. The DA is typically revised every six months, based on the Consumer Price Index (CPI), to ensure that employees' real wages are protected against rising costs of living[2].
Historically, DA hikes have ranged between 3% and 4% but have been lower in recent times, reflecting economic conditions[4]. The hike from 53% to 55% is moderate compared to previous years and marks a continuation of the government’s policy to adjust salaries in line with inflation[3].
The latest hike will not only increase monthly earnings but also include arrears for January, February, and March 2025, paid along with April salaries[3]. For an employee with a basic salary of Rs 18,000, this translates to an additional Rs 360 per month, amounting to total arrears of Rs 1,080[3]. Pensioners with a basic pension of Rs 9,000 will see an increase of Rs 180 per month, resulting in arrears of Rs 540[3].
The total financial burden on the government due to this DA and DR increase is estimated at Rs 6,614.04 crore per annum[1]. This substantial cost reflects the government’s commitment to maintaining the real value of earnings for its employees and pensioners.
In the past, DA has been merged with basic pay when it crossed a certain threshold. Under the 5th Pay Commission, DA was merged with basic pay once it exceeded 50%[5]. However, this practice was discontinued in subsequent pay commissions.
The decision to merge DA with basic pay under the 8th Pay Commission remains speculative. Employee unions have advocated for this merger, which could lead to a significant restructuring of salary components if implemented[5]. However, no official announcement has been made yet, and the focus is on the upcoming commission's recommendations.
Merging DA with basic pay could lead to several benefits:
However, this merger could also have implications for retirement benefits and pension calculations, as higher basic pay typically results in higher pension amounts.
The 8th Pay Commission is anticipated to bring significant changes in the salary structure of central government employees. While the commission's focus will be on revising wages and allowances comprehensively, it is uncertain whether DA will be merged with basic pay. The commission might consider reforms that address both the DA component and overall compensation packages.
The recent increase in DA from 53% to 55% provides welcome relief for central government employees and pensioners facing inflationary pressures. Whether this increase will pave the way for merging DA with basic pay under the 8th Pay Commission remains to be seen. The outcome will depend on the commission's recommendations, which could fundamentally change how salaries are structured for government employees.
