NewDelhi: Several groups representing central government employees and pensioners want Dearness Allowance (DA) to be merged with basic pay as a relief measure for employees facing high inflation. With the 8th Central Pay Commission continuing its work towards drafting the report, employee groups expect a possible merger of DA with basic pay.
How DA is calculated
DA is a percentage of the basic salary of an employee that is designed to help lessen the effects of inflation on their living expenses. An increase in DA results in higher take-home pay for employees, offering some relief from inflation.
The government typically announces DA hikes twice a year, once in March for the January-June period and again in September/October for the July-December period.
Dearness Allowance is calculated using the All-India Consumer Price Index for Industrial Workers (AICPI-IW). For central government employees under the 7th Pay Commission, DA is broadly calculated using the formula: DA% = (Average AICPI(12 months)–261.42)/261.42 × 100.
In April this year, the Modi government announced a 2 percent increase in DA for central government employees and pensioners. With this revision, DA has been increased to 60 percent of basic pay now from the earlier 58 percent.
Why is DA and basic pay merger demanded?
Several employee federations and associations have demanded the government merge 50 percent of DA into basic pay. Employee unions have suggested providing relief to employees as the prices of essential commodities are on the rise.
The government has not officially announced a DA merger as of June 2026. The issue of merging DA into the basic pay has gained traction as it will lead to a substantial increase in overall pay and consequently the other dependent allocations.
How will DA and basic pay merger benefit employees?
Merging DA with basic pay has long-term impacts. The basic salary determines other components of compensation such as provident fund contribution, pension, allowances, gratuity and others.
A higher basic salary raises future annual increments and increases allowances that are calculated as a percentage of basic pay. A higher pay leads to a structural rise in overall earnings.
Merging DA with basic pay when DA reaches 50 percent would significantly raise the revised basic salary. Provident fund contribution, pension, allowances, gratuity and others would then be calculated on the higher base.
Any significant change in pay structure is likely to come only through the recommendations of the 8th Pay Commission. Currently, the Commission is conducting nationwide stakeholder consultations and reviewing memoranda submitted by employee unions. The final report is expected by 2027.
Why is hike in DA and pension demanded?
Employees are demanding a hike in DA and pensions to fight high inflation and account for the delay in the implementation of the 8th CPC. An increase in DA and DR will fight high inflation by protecting the purchasing power of employees and preventing their real income from declining as the cost of living increases. Employees are requesting interim relief in the form of a DA hike as they wait for the implementation of the 8th Pay Commission.
Bureau Report
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