18th October 2023, Mumbai: The cabinet decision to raise DA by four percentage points comes week after the Election Commission announced assembly polls in five states starting from November 7. The Centre on Wednesday raised the dearness allowance (DA) by four percentage points to 46% for 4.86 million central government employees along with a similar increase in the dearness relief (DR) for 6.8 million pensioners ahead of the festive season and crucial assembly polls even as retail inflation eased substantially in September. The new rates will be applicable from July 1, 2023, Union information and broadcasting minister Anurag Thakur said after the cabinet meeting. The decision will have a combined annual impact of ₹12,857 crore on the exchequer.
A Seasonal Boost for Millions
The Cabinet, chaired by Prime Minister Narendra Modi, took the decision in view of the three-month-long festive season, involving Navratra, Diwali, Chhat Puja, Gurupurab, and Christmas, an official said requesting anonymity.
Retroactive Benefits for All
Both employees and pensioners will get the raised amount retrospectively from July 1, 2023, the official said. “This increase is broadly in accordance with the accepted formula, which is based on the recommendations of the 7th Central Pay Commission,” he added.
Timing and Significance
The decision to raise DA, a routine, comes week after the Election Commission announced the assembly polls in five states – Mizoram, Chhattisgarh, Madhya Pradesh, Rajasthan, and Telangana – starting from November 7. Experts said the move will bring double cheers for more than 10 million families in general, and voters of the five states in particular, as DA relief comes week after retail inflation also cooled off significantly due to a sharp correction in vegetable inflation. They, however, cautioned that the deteriorating geopolitical situation in the Middle East may again push up food and fuel rates globally, adversely impacting India. The country imports 87% of the crude oil it processes.
Inflation Trends
India’s retail inflation, as measured by the Consumer Price Index (CPI), had jumped to a 15-month high to 7.44% in July from 4.87% the preceding month, with food inflation at its highest in 39 months because prices of vegetables, cereals, and pulses spiked. It remained above the Reserve Bank of India (RBI)’s upper tolerance band of 6% in August at 6.83%, before easing to 5.02% in September. Benchmark Brent crude jumped over 3% to $92.61 a barrel during the Wednesday trade due to a blast at a Gaza hospital.
The Role of Central Pay Commissions
Central Pay Commissions are periodically constituted to go into various issues of emolument structure, retirement benefits, and other service conditions of central government employees and to make recommendations on the required changes. According to the Commission’s report, DA is paid to central government employees to adjust the cost of living and to protect their basic pay from erosion in the real value on account of inflation. The allowance is currently based on the consumer price index-industrial workers (CPI-IW).
In a strategic move, the Indian government has chosen to bolster the financial well-being of its employees and pensioners by raising the dearness allowance (DA) and dearness relief (DR) by four percentage points, bringing them to 46%. This timely decision comes on the heels of the announcement of assembly polls in five states and is expected to have a significant impact not only on the beneficiaries but also on the broader economic and political landscape.
With the festive season around the corner, this raise in DA and DR is poised to infuse a spirit of celebration and positivity among the 4.86 million central government employees and 6.8 million pensioners. The decision, which will be retroactively applicable from July 1, 2023, is also aligned with the recommendations of the 7th Central Pay Commission, ensuring that the financial relief is in line with accepted norms.
The synchronicity of this decision with the announcement of assembly polls in five states, namely Mizoram, Chhattisgarh, Madhya Pradesh, Rajasthan, and Telangana, is not coincidental. Experts have pointed out that this move is likely to bring double cheers to over 10 million families and, more importantly, the voters in these five states. The raise in DA and DR is especially significant given the recent cooling off of retail inflation, primarily due to a significant drop in vegetable prices. However, there is a note of caution regarding the fragile geopolitical situation in the Middle East, which could potentially impact global food and fuel prices, with India being heavily reliant on crude oil imports.
A closer look at India’s recent inflation trends reveals the relevance of this decision. Retail inflation, as measured by the Consumer Price Index (CPI), had surged to a 15-month high of 7.44% in July, primarily driven by spiking prices of vegetables, cereals, and pulses. This placed it well above the Reserve Bank of India’s upper tolerance band of 6% in August, before easing to 5.02% in September. The situation in the Middle East, exemplified by a blast at a Gaza hospital causing a more than 3% jump in the benchmark Brent crude, underscores the fragility of India’s energy and food security, given its high dependence on crude oil imports.
Central Pay Commissions play a pivotal role in shaping the compensation and service conditions of central government employees. The rationale behind DA is to adjust employees’ cost of living and protect their basic pay from erosion due to inflation. Currently, DA calculations are based on the consumer price index-industrial workers (CPI-IW), which reflects the inflation experienced by this specific segment of the population.
The decision to raise DA and DR is not only a welcome boost for millions of government employees and pensioners but also a strategic move that aligns with the festive spirit and political realities of India. As the country prepares for assembly polls, this move is expected to resonate with voters in the five states where elections will be held, as it reflects the government’s commitment to improving the financial well-being of its citizens. Nevertheless, challenges such as global inflationary pressures, especially in the context of the Middle East, remain, emphasizing the need for a comprehensive and well-considered economic strategy.
-by Kashvi Gala