Even as central government employees eagerly await a hike in dearness allowance (DA), the government is gearing up to announce the latest increase. The DA hike, set to take effect from July 1, 2023, is anticipated to be 3%, as reported by various media outlets.

This hike will bring the dearness allowance to a total of 45%. But what does this mean for the salaries of government employees? Let’s break it down:

Calculating the Impact of the Expected 3% DA Hike

Suppose an employee currently receives a monthly salary of Rs 50,000 with a basic pay of Rs 15,000. With the existing DA rate of 42%, they receive an additional Rs 6,300 (42% of the basic pay).

“After the expected 3% hike, the employee will receive Rs 6,750 per month, which is Rs 450 higher.”

So, for an individual with a monthly salary of Rs 50,000 and a basic pay of Rs 15,000, the upcoming DA hike will result in a salary increase of Rs 450 per month.

How Is Dearness Allowance Calculated?

The dearness allowance for government employees and pensioners is determined based on the latest Consumer Price Index for Industrial Workers (CPI-IW), published monthly by the Labour Bureau, a wing of the Labour Ministry. The most recent data reveals that the All-India CPI-IW for July 2023 increased by 3.3 points, reaching a value of 139.7. This represents a 2.42% increase in a month compared to the previous month, a significant rise compared to the 0.90% increase recorded a year ago.

It’s important to note that DA is provided to government employees, while DR (Dearness Relief) is provided to pensioners. These allowances are adjusted twice a year, in January and July.

What’s in Store for Central Government Employees?

Currently, over one crore central government employees and pensioners receive a 42% dearness allowance. Shiva Gopal Mishra, General Secretary of the All India Railwaymen Federation, had previously stated that the Federation was demanding a four-percentage-point hike in dearness allowance. However, the expected DA hike is likely to be slightly over three percentage points, bringing it to 45%.

Mr. Mishra also mentioned that the expenditure department of the finance ministry would formulate a proposal for the DA hike, including its financial implications. This proposal would then be presented to the Union Cabinet for approval.

During the last hike in March 2023, the DA was increased by 4%, reaching 42%. Given the current inflation rate and reports from various sources, the next DA hike is projected to also be 4%.

State Governments Increasing Dearness Allowance

Notably, several state governments, including Madhya Pradesh, Odisha, Karnataka, Jharkhand, and Himachal Pradesh, have recently increased dearness allowance for their state government employees. This move is in response to rising living costs and inflation.

How Does the Government Determine the DA Hike?

The decision to hike DA and DR is based on the percentage increase in the 12-month average of the All India Consumer Price Index (AICPI) for the period ending in June 2022. While the central government revises these allowances on January 1 and July 1 each year, the official announcement typically comes in March and September.

In 2006, the central government revised the formula for calculating DA and DR for its employees and pensioners:

As central government employees look forward to the upcoming DA hike, it remains an essential factor in ensuring their salaries keep pace with the ever-changing cost of living.