india

Updated: Oct 10, 2019 00:51 IST

The Centre announced on Wednesday an increase of 5 percentage points in the dearness allowance (DA) of five million central government employees and an equal increase in the pensions of 6.5 million retired employees, with retrospective effect from July, in a move that will cost it around Rs10,600 crore this year, and which is expected to boost consumption in the ongoing festive season.

“This is a Diwali gift from the Centre to the employees,” said information and broadcasting minister Prakash Javadekar at a press conference in Delhi, announcing the decision taken by the Union Cabinet at its Wednesday meeting. “This is the highest ever 5 percentage points increase in DA in one go by the central government,” he said.

The current rate of DA is 12% and it will now become 17%. The DA is usually raised to help employees cope with inflation.

A senior official, who has been associated with employee associations in the past, said the move seemed beneficial. “It has come at Diwali time and will put money in the hands of employees. This should be good for the economy as well,” he said.

The increase will benefit 4.993 million central government employees and 6.526 million pensioners, Javadekar said.The combined impact on the exchequer on account of both DA and dearness relief is expected to be Rs 15909.35 crore per annum and Rs 10606.20 crore in the financial year 2019-20 (eight months from July 2019 to February, 2020), an official statement said.

This increase is in accordance with the accepted formula, which is based on the recommendations of the 7th Central Pay Commission. DA is paid to Central Government employees to adjust the cost of living and to protect their basic pay from erosion in the real value. DA is revised twice a year from 1st January and 1st July.

“The people who will benefit from the move at festival time are largely middle class or upper middle class consumers. More money at their disposal means that it can give impetus to demand which actually will help the economy. The government has given tax relier, focused on DBT and now is putting more money in the hands of employees. This can be seen as another effort to put the money in the hands of the consumer,” said Satyender Jain, an eminent chartered accountant based in Delhi.