Dearness allowance of government employees put on hold: Read complete detail here

The Indian government has put on hold the hike in dearness allowance for its government employees in a bid to contain the strain on its finances amid the COVID-19 induced crisis. The development comes less than a month after the union cabinet had approved a hike in DA from 4% to a much higher 21%. 

This decision of government will impact about 49.26 lakh central government employees and 61.17 lakh pensioners. The government revises dearness allowance twice a year to compensate for the rise in prices. Next revision is to be scheduled in July. The formula to calculate the dearness allowance was changed in 2006 by the Government. This is the first Covid-19 impact on central government employees.

The government had earlier cut salaries of ministers, PM, president and members of parliament by 30%. And also, there MPLADs scheme has been suspended for two years to provide more funds to fight the coronavirus pandemic. The total savings on the scheme would be about Rs 8,000 crore. Many states government have already announced a reduction in salaries of their employees.

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What is Allowances?

All government employers pay basic salaries to their workers/employees according to their individual pay scale. Several other components are added in respect to the basic salary and are then added to it to calculate the take-home amount. The successful compensation of government workers/employee requires consistent upgrade to assist them with adapting up to the expanding costs.

What is Dearness allowance?

Dearness allowance is a living allowance paid to employees to tackle the effects of inflation. It is applicable to government employees, public sector employees, and pensioners only. The government revises dearness allowance twice a year to compensate for the rise in prices.

Types of Dearness Allowance

Dearness Allowance is divided into two separate categories:

1. Industrial Dearness Allowance
2. Variable Dearness Allowance

Industrial Dearness Allowance: Industrial Dearness Allowance (IDA) applies to the Public sector employees of Central Government. The Industrial Dearness Allowance for public sector employees undergoes quarterly revision depending on the Consumer Price Index to help offset the impact of rising levels of inflation.

Variable Dearness Allowance (VDA): Variable Dearness Allowance (VDA) applies to the employees of the Central Government. It is revised every six months according to the Consumer Price Index to help offset the impact of rising levels of inflation.

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Dearness Allowance is calculated as per the following formula:

For the employees of Central Government

Percentage of DA = {(Average of the All-India Consumer Price Index (Base year -2001 =100) for the last 12 months -115.76)/115.76} x 100

For Central Public Sector Employees

Percentage of DA = {(Average of the All-India Consumer Price Index (Base year -2001 =100) for the last 3 months -126.33)/126.33} x 100

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