8th Pay Commission update: No proposal to merge DA, DR with basic pay, clarifies finance ministry

No proposal to merge DA, DR with basic pay

At a time when discussion around the 8th Central Pay Commission intensifies, especially around the merger of dearness allowance with the basic pay, the government has clarified that there hasn’t been such a proposal as an intermediate relief measure for central government employees.

“No proposal regarding merger of the existing dearness allowance with the basic is under consideration with the government at present,” Pankaj Chaudhary, minister of state in the ministry of Finance told Lok Sabha in a written reply dated December 1, 2025.

The minister of state was replying to the questions raised by the member of Parliament, Anand Bhadauria, on the issue, citing that the central government employees and pensioners are facing unprecedented inflation during the last 30 years since DA, DR given to employee are not in consonance with the real-time retail inflation.

Even various organizations representing government employees have been demanding the merger of 50 percent DA with the basic pay ever since the government announced the terms of reference for the 8th CPC in early November.

“While employees argue that rising inflation and erosion of real wages justify the hike, the government must balance these demands with fiscal discipline, especially in a pre-election environment where deficit targets remain strict,” said Rohitaashv Sinha, Partner, King Stubb & Kasiva, Advocates and Attorneys.

Role of fitment factor on future DA, DR hike

Tax analysts believe that the government will take a cautious stance before announcing any interim relief, and that the new fitment factor will play a crucial role as it resets the base on which future DA and DR percentages are calculated.

Fitment factor is the multiplier of basic pay and pension amount received by central government employees or pensioners as per their level (Group A, B, C, and D) in the pay matrix. Its revision remains crucial to expectations among employees and pensioners.

Sinha explains that an increased fitment factor, whether 2.5 or 3.0, would directly raise minimum basic pay and consequently push up all linked allowances such as HRA, TA and other special allowances.

“A simple illustration showing that a jump from the existing 2.57 to 3.0 could raise the entry-level basic pay by over 15–20 percent,” said Sinha. “Pensioners, too, would see parallel gains since pension is computed as 50 percent of the revised basic pay, thereby influencing long-term wage and pension growth.”

With only days left for the 7th CPC to end on December 31, the future of DA and DR remain unresolved. “Employees await clearer signals on whether DA, or DR, will continue under the existing formula or pause until 8th CPC recommendations are formally adopted, making the coming period crucial for pay revision outcomes," said Sinha.

The minister of state in its reply reiterated that the revision of DA, DR rates will be made periodically every six months to protect basic pay, or pension, from erosion in real value on account of inflation on the basis of All India Price Index for Industrial Workers (AICPI-IV) released by the Labour Bureau, Ministry of Labour and Employment.