India’s inflation remained higher than 7 per cent in August and is expected to reach the highest levels in five months in September. Hit by rising global food prices, and household savings in India have hit a five-year low as a recession looms on the horizon. Amidst difficult times, India’s cabinet has approved a hike in Dearness Allowance (DA), to provide relief for government employees.
Relief to brighten up the festive season
The union cabinet has approved a DA hike of 4% for 4.7 million employees of the central government, while 6.8 million pensioners will get Dearness Relief (DR). The decision comes after the retail inflation for industrial workers in July was reported at 5.78 per cent, based on the consumer price index (CPI-IW). The CPI-IW provides an accurate idea about inflation in a country by calculating the market price that people are paying for everyday essentials.
Dearness Allowance is an amount paid by the central government to its employees for offsetting the impact of inflation on their households. Dearness Relief on the other hand does the same for people receiving a pension from the government. The allowance is calculated against India’s consumer price index for three months as a base for central government employees, while AICPI for 12 months is taken as the base for central public sector employees.
A timely measure with tough times ahead
DA and DR are revised twice a year, once in January and then in July, while both are usually hiked for government employees ahead of the festive season. The move is likely to relieve stress on monthly bills and increase purchasing power during Diwali. This is a timely move since household savings in India dipped by 5 per cent between FY21 and FY22, as people spent their savings to cope with inflation in the post-pandemic era.
The approval for a 400 basis points DA under the seventh pay commission, will take DA to 38 per cent of the basic salary.