Union Cabinet approves 3% DA hike for central government employees in Diwali bonanza

The DA adjustment is based on the All India Consumer Price Index

In a festive boost, the Union Cabinet, chaired by Prime Minister Narendra Modi, approved a 3 percent hike in dearness allowance (DA) on October 16, bringing Diwali cheer to over one crore central government employees and pensioners.

This increase raises the allowance from 50 percent to 53 percent of basic pay, providing timely financial relief ahead of the festive season.

The hike will be effective July 1, which means that employees and pensioners will also receive arrears for July, August, and September.

For an entry-level government employee with a basic salary of Rs 18,000 a month, the hike translates to an additional Rs 540 in the take-home pay.

The decision, announced by Information & Broadcasting Minister Ashwini Vaishnaw, is expected to benefit nearly one crore individuals, offering timely relief amid rising inflation. Vaishnaw also clarified that the DA and MSP hikes are not connected to the upcoming state elections.

The increase follows the accepted formula based on the 7th Central Pay Commission's recommendations. The combined financial impact of the DA and DR hike on the exchequer is estimated at Rs 9,448.35 crore annually.

This decision will benefit approximately 49.18 lakh central government employees and 64.89 lakh pensioners.

Recently, the Confederation of Central Government Employees and Workers recently requested finance minister Nirmala Sitharaman to address the delay in the announcement of the DA/DR hike.

The government typically revises DA twice a year — in January and July — but the July hike was delayed this year.

While DA benefits employees, dearness relief is for pensioners, offering them protection from inflationary pressures.

The DA adjustment is based on the All India Consumer Price Index (AICPI), which tracks retail price fluctuations and helps align employees’ pay with rising living costs. With inflation continuing to impact households, the hike will help ease some of the financial strain.

The anticipation over the DA hike had been building for over a week, following reports of a potential increase discussed in last week’s Cabinet meeting. On September 30, the Confederation of Central Government Employees and Workers had expressed concerns over the delay in the announcement. In a letter to Finance Minister Nirmala Sitharaman, the confederation’s general secretary, S B Yadav, urged timely action, noting the importance of the DA hike alongside performance-linked bonuses ahead of the Durga Puja festivities.

"This is good respite for the government employees to offset the impact of inflation. This will increase the liquidity in the hands of the government employees which in turn may increase their spending on durable goods during the festival," Sri Hari Nayudu, economist with National Institute of Public Finance and Policy (NIPFP), told Moneycontrol.

"This DA hike is welcome, as it will increase the disposable income in the hands of people when they need it most amidst mounting inflation. This fiscal policy response to inflationary pressure in the economy is welcome. However this gives only a short term relief," Lekha S. Chakraborty, professor at NIPFP, said.