The Centre on Wednesday hiked the dearness allowance of its staff and dearness relief of its pensioners to 17 per cent from 12 per cent as it seeks to beef up flagging consumption during Diwali and push growth, which was at a six-year low in the first quarter.

The Diwali bonanza for 50 lakh central government employees and 65 lakh pensioners will take effect from July 1 2019 and result in an additional outgo of Rs 16,000 crore.

Economists said the additional sum could act as a stimulant to boost demand, particularly consumer durables.

“This is the highest ever percentage points increase in DA in one go by the central government,” information and broadcasting minister Prakash Javadekar said, while briefing the media on the decisions taken by the cabinet chaired by Prime Minister Narendra Modi.

In February, DA and dearness relief were raised to 12 per cent from 9 per cent, effective January.

The government said the combined impact on the exchequer on account of both DA and dearness relief would be Rs 15,909.35 crore per annum and Rs 10,596.80 crore in financial year 2019-20, for a period of eight months from July 2019 to February 2020.

The additional financial implication on account of the increase in DA is estimated at Rs 8,590.20 crore per year and Rs 5,726.80 crore in the current financial year.

The additional financial implication on account of the dearness relief is estimated to be Rs 7,319.15 crore per annum and Rs 4,870 crore in the current fiscal.

The general secretary of the Confederation of Central Government Employees and Workers, M. Krishnan, said the hike in DA and dearness relief needed to be reviewed as it was on the basis of a Pay Commission formula, which did not reflect the reality of the actual increase in the cost of living.

DA and dearness relief are paid to central government employees and pensioners, respectively, to adjust the cost of living and to protect their basic pay/pension from erosion in real value. They are revised twice a year in January and July. Dearness allowance is part of a person’s salary. It is calculated as a percentage of the basic salary.

This amount is then added along with house rent allowance to get the total salary. The hike in the DA/DR is as per the agreed methodology of taking average of Consumer Price Index-Industrial Workers for the past 12 months.