Centre approves 2% hike in DA/DR amid inflation concerns
New Delhi: The Union Cabinet, chaired by Prime Minister Narendra Modi, approved a 2 per cent increase in Dearness Allowance (DA) for Central government employees and Dearness Relief (DR) for pensioners. The decision, announced on Friday, marks a move aimed at hedging against inflation, bringing the current DA rate from 53 per cent to 55 per cent. The hike is expected to benefit over 1.16 crore individuals, incurring an annual expenditure of Rs 6,614.04 crore, as confirmed by the Information and Broadcasting Minister, Ashwini Vaishnaw.
The announcement’s timing comes ahead of the government’s plans to set up the 8th Pay Commission, a body entrusted with revising wages and allowances for central government employees. The 8th Pay Commission, approved in January 2025, is anticipated to reshape the salary structure of government employees once implemented. Meanwhile, the recent DA increase aligns with the approved methodology as per the 7th Central Pay Commission’s recommendations. The last hike was introduced in July 2024 when the DA was raised from 50 per cent to 53 per cent.
Dearness Allowance serves as a crucial financial buffer, allowing government employees to manage inflation. As living costs rise, the DA ensures that employee salaries remain responsive to changing economic conditions. Typically, the central government revises the DA rate twice a year. While the official notification may be delayed, the rate is calculated based on the All India Consumer Price Index (Industrial Workers) (AICPI-IW) readings from January and December. Data from the Shimla-based Labour Bureau, Ministry of Labour and Employment, highlights the recent changes in the AICPI-IW. The index, which gathers data monthly from 317 markets in 88 industrial hubs, revealed a slight decline for two consecutive months. In January 2025, the index fell by 0.5 points to 143.2, following a decrease of 0.8 points in December 2024, which had brought the index to 143.7. These figures hint at a softening inflation trend among industrial workers.
A closer look at the AICPI-IW data reveals a mixed trend across various groups. The food and beverages group, for instance, recorded a decline from 151.3 in December 2024 to 148.3 in January 2025. Similarly, the fuel and light index remained unchanged at 148.6, while the housing index witnessed a rise from 131.6 to 134.6. Clothing and footwear saw a slight increase from 146.7 to 147.2, while pan, supari, tobacco and intoxicants increased marginally from 162.9 to 163.5. Miscellaneous items also registered a small rise from 138.3 to 138.6. The overall general index, however, dropped from 143.7 to 143.2.
This reduction in the index signals a drop in consumer price inflation for industrial workers on both a monthly and annual basis. The year-on-year inflation rate for January 2025 stood at 3.10 per cent, significantly lower than the 4.59 per cent recorded in January 2024.
The government’s approach to increasing the DA is rooted in a careful evaluation of inflation trends as reflected by the AICPI-IW. However, the timing of the decision has led some experts to speculate about its political implications, especially with the Bihar assembly elections on the horizon. While some perceive the hike as a strategic move, others highlight its fundamental purpose: cushioning employees from inflationary pressures.
