Dearness Allowance Hiked to 5% from 4%

The Union Cabinet chaired by PM Modi has approved a 1% hike in dearness allowance (DA) and dearness relief (DR) to 5%.
It will benefit 48.85 central government employees and 55.51 lakh pensioners.

• The rise is in accordance with the accepted formula based on the recommendation of 7th pay commission
• The hike in the DA hike is as per the agreed methodology of taking average of Consumer Price Index-Industrial Workers for the past 12 months.

What is DA?

• The concept of Dearness Allowance or DA was introduced after World War II and was initially known as ‘Dear Food Allowance’. In the beginning, Dearness Allowance was provided by the government to employees due to a demand for wage revision. However, it was later linked to the Consumer Price Index. 
• Dearness Allowance is cost of living adjustment allowance which the government pays to the employees of the public sector as well as pensioners of the same. DA component of the salary is applicable to both employees in India and Bangladesh

Formula To Calculate DA

For Central Government employees:

• Dearness Allowance % = ((Average of AICPI (Base Year 2001=100) for the past 12 months -115.76)/115.76)*100

For Central public sector employees:

• Dearness Allowance % = ((Average of AICPI (Base Year 2001=100) for the past 3 months -126.33)/126.33)*100

Where, AICPI stands for All-India Consumer Price Index.

What is Consumer Price Index?

• Consumer Price Indices (CPI) measure changes over time in general level of prices of goods and services that households acquire for the purpose of consumption. 
• CPI numbers are widely used as a macroeconomic indicator of inflation, as a tool by governments and central banks for inflation targeting and for monitoring price stability, and as deflators in the national accounts.