The Centre today raised dearness allowance to 100 per cent, from 90 per cent, benefiting its 50 lakh employees and 30 lakh pensioners.
The government also approved the terms of reference of the 7th Pay Commission, a move which would pave the way for merger of 50 per cent DA with the basic pay.
According to an official, now the Commission can suggest the merger in its interim report. The 50 per cent DA merger with basic pay will roughly increase the gross salaries of central government employees by around 30 per cent.
"The Union Cabinet today approved the proposal to release an additional instalment of DA and dearness relief (DR) to pensioners with effect from January 1, 2014, in cash, but not before the disbursement of the salary for the month of March 2014 at the rate of 10 per cent increase over the existing rate of 90 per cent," said an official statement.
Central government employees as well as pensioners are entitled for DA/DR at the rate of 100 per cent of the basic with effect from January 1, 2014, it said.
The increase is in accordance with the accepted formula based on the recommendations of the 6th Central Pay Commission.
The government has estimated that the combined impact on exchequer on account of both DA and DR would be Rs 11,074.80 crore per annum. For a period of 14 months, from January 2014 to February 2015, the impact will be Rs 12,920.60 crore in the next financial year, 2014-15. (March salary gets paid in April, the first month of the new fiscal).
This increase in the dearness allowance by the UPA-2 government comes ahead of the imposition of the model code of conduct by the Election Commission.
The code is likely to come into force within a week or so with the announcement of the schedule for the forthcoming general elections.
It is the second double digit DA hike in a row. The government had announced a hike of 10 per cent taking it up to 90 per cent in September last year, effective from July 1, 2013.