In a potential boost to consumption ahead of the festival season, the Union government’s employees and pensioners will likely see their emoluments rise effective July 1, thanks to a likely big hike in dearness allowance (DA) and dearness relief (DR). The move is seen to enhance their monthly pay by Rs 3,000 to Rs 30,000, depending on the pay scales.
The DA/DR hike, a prospective accumulation due to restoration of three frozen instalments and July instalment, will take DA/DR allowance rate to about 30% from the existing rate of 17% of basic pay/pension, which ranges from Rs 23,000 at entry level to Rs 2,25,000 the top level.
The total budgetary impact of the DA/DR hike will be around Rs 30,000 crore in FY22 for the Union government. The states, which conventionally follow the Union government’s pattern on DA/DR are expected to spend another about Rs 60,000 crore among themselves in the current fiscal.
To reduce the fiscal stress after the Covid-19 outbreak, DA increases for central government staff and DR for pensioners, as recommended by the 7th Pay Commission, were frozen for the period between January 2020 and June 2021. As a result, the Centre was estimated to save Rs 25,000 crore in FY21. The states were expected to save another Rs 55,000 crore among themselves in FY21, taking total savings for general government budget in FY21 to a considerable Rs 80,000 crore. Another Rs 40,000-crore savings were expected for both the Centre and states in April-June of FY22 (including March dues paid in April).
Dearness allowance is part of salary of government employees and pensioners, and is designed to offset the impact of inflation. The enhanced rates with effect from July 1 will be paid before Dussehra (October 15) with arrears of two-three months, giving a substantial sum in the hands of employees to splurge on consumption. Festival time consumption usually gives a leg-up to economic growth and tax revenue collections.
Separately, the government would also incur additional expenditure as the enhanced DA/DR rates will also be applicable on house rent allowance and transport allowances, but it is difficult to arrive at an exact estimate as it is not availed by all the employees.
“As and when the decision to release the future instalment of DA and DR due from July 1, 2021, is taken by the government, the rates of DA and DR as effective from January 1, 2020, July, 2020 and January 1, 2021, will be restored prospectively and will be subsumed in the cumulative revised rate effective from July 1, 2021,” the finance ministry had said in an office memorandum on April 23, 2020.
Currently, there are about 48.3 lakh Union government employees and 65.3 lakh pensioners. The DA/DR increases are in accordance with the accepted formula, based on the recommendations of the 7th Central Pay Commission.