New Delhi, Feb. 28: The central government has raised the dearness allowance to its employees to 100 per cent of the basic pay, racing against the poll schedule clock to announce a decision that will benefit 8 million families.
Senior bureaucrats now stand to gain between Rs 7,000 and Rs 11,000 a month, according to back-of-the-envelope calculations by some officials.
The Union cabinet today decided to raise the dearness allowance by 10 per cent from 90 per cent — the second two-digit hike in less than a year. The new rate will be effective from January 1, this year.
The combined impact of the dearness allowance revision on the exchequer is estimated to be about Rs 1,2920 crore for 14 months from January 2014 to February 2015.
The dearness allowance revision will benefit 3.5 million employees, 1.5 million defence forces and 3 million pensioners — a considerable segment in an election year.
It will also cause heartburn among state government employees in Bengal where the chief minister had pleaded inability to match the central rate. The Bengal government now pays dearness allowance at the rate of 52 per cent of the basic pay.
The cabinet also decided that the Employees Provident Fund, which pays retirement benefits to most industrial employees, would raise the minimum monthly pension to Rs 1,000 a month from Rs 800.
The Centre also approved the terms of reference of the Seventh Pay Commission, a move that would pave the way for the eventual merger of 50 per cent dearness allowance with the basic pay.
The decisions came at a time the Election Commission is giving finishing touches to the general election schedule. Once the dates are announced, the model code will kick in and no decisions that can be construed as inducements can be taken.
The government said the new pay commission would make its recommendations on possible increase in salaries of civil servants and defence personnel within 18 months of the date of its constitution.
The merger of dearness allowance with basic pay means allowances like housing, city compensation, which are calculated as percentages of the basic pay, will also go up. However, this will take place only when the pay commission submits an interim report, not expected before the next calendar year.
The decision to raise the minimum pension for retired subscribers to the provident fund will mean the EPFO will have to shell out an extra Rs 1,217 crore in 2014-2015. The pensioners will get the benefit with effect from April 1. Around 28 lakh pensioners, including 5 lakh widows, are expected to gain.