Central Government Set to Raise Dearness Allowance to 45% with a 3% Hike

According to the agreed-upon formula, the Indian federal government is anticipated to raise the dearness allowance for more than one crore employees and retirees by three percentage points, taking it from the current 42% to 45%. The dearness allowance is provided to mitigate the impact of inflation on the cost of living for these individuals.

The calculation of the dearness allowance is based on the most recent Consumer Price Index for Industrial Workers (CPI-IW), which is released monthly by the Labor Bureau. The Labor Bureau is a division of the Labor Ministry responsible for monitoring and reporting price movements and inflation trends.

Shiva Gopal Mishra, the general secretary of the All India Railwaymen Federation, expressed that they had hoped for a four-percentage-point increase in the dearness allowance based on the CPI-IW for June 2023. However, the government only considers whole percentage points and ignores decimal point increments. As a result, the dearness allowance is likely to rise by three percentage points to reach 45%.

The proposal to increase the dearness allowance, along with its income implications, will be drafted by the Finance Ministry's spending division and subsequently submitted for approval to the Union Cabinet.

The new dearness allowance of 45% is set to take effect from July 1, 2023, benefiting both existing and retired central government employees. The current dearness allowance stands at 42%, which was implemented on January 1, 2023, following a four-percentage-point increase based on the 12-month average of the All India Consumer Price Index up to December 2022.

The dearness allowance is a crucial component of the remuneration package for employees and pensioners, aiming to maintain their purchasing power amid rising living costs as reflected in the CPI-IW. The allowance is regularly adjusted twice a year to account for changing inflationary pressures.