The Union Cabinet on Wednesday has approved a proposal to
increase the dearness allowance for central government employees and pensioners
by 3% to 34% of the basic pay from 31% previously.

The DA hike will come into effect from January 1, 2022.

The cabinet has given its approval to release an
additional instalment of dearness allowance (DA) to central government
employees and dearness relief (DR) to pensioners effective January 1 this year.

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The increase in DA is according to the accepted formula,
which is based on the recommendations of the 7th central pay commission. The
combined impact of Dearness Allowance and Dearness Relief on the exchequer will
be approximately 9,544 crores per year, the government said in a statement. It
will benefit 47.68 lakh central government employees and 68.62 lakh pensioners.

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What
is Dearness Allowance?

Dearness Allowance (DA) is the major element in the
salary structure of Government employees. It is paid twice a year by the
government to its employees as well as pensioners to compensate for the impact
of inflation. The effective salary of government employees requires constant
raises to help them cope with the increasing prices. DA varies from employee to employee based on their presence in the urban, semi-urban or rural sector.

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Dearness allowance and Dearness Relief, both are the
same, but DA is granted for existing Central Government employees and DR is
granted for retired Central Government employees.

Types
of Dearness Allowance

The two separate categories to calculate Dearness
Allowance are:

Industrial
Dearness Allowance: Industrial
Dearness Allowance or IDA is the allowance applicable to employees of public
sector enterprises. The IDA undergoes quarterly revisions depending on the
Consumer Price Index to help compensate for the impact of rising levels of
inflation.

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Variable
Dearness Allowance: VAD or Variable
Dearness Allowance is revised every six months for central government
employees. VDA in itself is dependent on three different components as given
below.

Base Index – remains fixed for a particular period.

Consumer Price Index – impacts VDA as it changes every
month.

Variable DA amount that has been fixed by the Government
remains fixed unless the government revises the basic minimum wages.