7th Pay Commission: What is Dearness Allowance (DA) and Will Central Employees Get Hike in October 2024?

Dearness allowance is an integral part of the pay scale of central government employees in India. The computation has been on the percentage of the basic salary. It varies from region to region, with the cost at the moment reaching 50% of the basic pay, following a hike of 4%, which came into effect on January 1, 202415.

Potential DA Hike in October 2024

Central government employees are waiting for another DA hush, which is normally viewed every six months. Media reports claim that the government is likely to announce an additional 3 to 4% from October 2024 onwards going by the general trend of changes being implemented just before major festivals like Diwali56. A 3% rise would propel it by ₹540 on a salary earning of ₹18,000. A 4% hike would push it to ₹7205.

The DA formula is based on AICPI which takes an average over the last 12 months and makes sure each raise reflects the prevailing economic condition15. Since the declaration of the percentage increase has not been officially made, there is still much hope with the employees and pensioners expecting successive updates to be announced by the government.

DA Central Government Employees Basic Salary Merger has significant consequences. The following is a brief presentation of possible implications and the current scenario of this merger.

Understanding the Merger

Definition of DA: Dearness Allowance is a Cost of Living Adjustment granted to government employees, defined in percent terms of basic salary. It is intended to minimize the discriminatory effect of inflation on the cost of living.

Threshold for Merger: In the earlier pay commission, it was stipulated that if DA goes past 50% of the basic salary then, DA can be merged with the basic pay. What would happen in such a case is that DA would be considered to be a part of the salary structure and all percentage calculations afterward for DA would zero out at that point.

Historical Perspective: It has been merged previously with the basic pay. However, it was only in the 5th Pay Commission that the same merger happened in the year 2004. Subsequently, none of the other commissions, including the 6th Pay Commission, prescribed mergers automatically but said changes in pay would take place once DA crosses a certain percentage and that too was not merged with the basic pay24.

Current Scenario

Not to be merged automatically: To date, even though DA has touched 50 percent, experts confirm that it will not be merged automatically with Basic Pay. The 7th Pay Commission did not agree to this merger, thereby allowing DA-linked allowances to go up in the light of Dearness Allowance and others, the basic salary remains untouched unless the Government plans to change it.

Impact on Allowances: No doubt the merger of DA with basic pay is unlikely to happen overnight, but several allowances pegged on DA would still go up the moment it crosses the 50 percent mark. Housing, children's education, transport, etc.

Future Developments: Although there may be a possible merger thought underway by the government in future updates, an official statement on this matter is expected. Employees are hoping that such increased compensation and overall benefits will come in the wake of the increasing cost of living.

The acquisition of DA with basic pay may ensure a more stable salaried structure and probably better reflect inflation adjustments. For now, though, there is no apparent consideration under the guidelines of the 7th Pay Commission towards the auto-merger at the threshold level of 50%. Related allowances will instead increase due to this adjustment.