New Delhi, Oct. 27: The Union cabinet has approved the allocation of 2 per cent dearness allowance and relief to 50 lakh central government employees and 54 lakh pensioners in a decision timed with Diwali and citing price rise.

The DA instalment will be paid with effect from July 1.

"The Union cabinet has given its approval to release an instalment of DA to central government employees and dearness relief to pensioners from July 1, 2016, representing an increase of 2 per cent of the revised basic pay/pension, to compensate for price rise," an official release said.

The increase in dearness allowance or a pay correction to cope with the rising cost of living expenses, is expected to help the broader economy too.

The central government had increased DA by 6 percentage points to 125 per cent in March this year. The DA was later merged with the basic pay following the implementation of the pay commission recommendations.

The 2 per cent payout will result in an annual burden of Rs 5,622.10 crore on the government. For a period of eight months (July-February in 2016-17), it will be Rs 3,748.06 crore.

According to the release, the increase is in accordance with the accepted formula, which is based on the recommendations of the central pay panel. The central government employee unions wanted the DA to be increased by 3 per cent, not 2 per cent.

The president of the Confederation of Central Government Employees, K.K.N. Kutty said: "The 12-month average of the consumer price index for industrial workers from July 1, 2015, to June 30, 2016, works out to 2.92 per cent. Therefore, the unions had pressed for 3 per cent DA. We are not satisfied with this."

As the increase comes during the festive season, the additional money could spur consumer spending.

Car bonus again

Savji Dholakia, a billionaire diamond merchant in Surat, has decided to gift 1,200 cars and 550 flats to his employees as Diwali bonus that will cost his company Rs 51 crore.

The announcement was made at an informal meeting of Hare Krishna Exporters as part of the company's plan to mark its 25th year, which it will complete in two months.

Last year, Dholakia's company had gifted 491 cars and 200 flats to its employees.

The Diwali bonus recipients were shortlisted on the basis of their performance, said Kanak Patel, the company spokesperson.

The employees who will be given cars will have two options to choose from: Maruti Alto or Datsun.

Those who get flats will have to pay no down payment. The company will pay their EMIs - Rs 5,000 a month for five years, the spokesperson said.