The Union Cabinet has approved a 2% hike in Dearness Allowance (DA) for central employees and Dearness Relief (DR) for pensioners, raising the rates from 53% to 55% of the basic pay or pension.
The DA/DR increase will apply retroactively from January 1, 2025 and the employees and pensioners will receive arrears for the months of January, February and March paid along with their April 2025 salary/pension. This increase in both DA and DR rates would cost Rs 6,614.04 crore per annum to the exchequer.
Speaking to the press after the Cabinet meeting held on March 28, 2025, Ashwini Vaishnaw, Ministry of Electronics and Information Technology and Ministry of Information and Broadcasting, stated, “The Cabinet has approved the release of an additional instalment of Dearness Allowance to Central Government employees and Dearness Relief to pensioners w.e.f. 01.01.2025 representing an increase of 2% over the existing rate of 53% of the Basic Pay/Pension, to compensate against price rise”.
The decision will benefit approximately 48.6 lakh central government employees and 66.5 lakh pensioners.
Dearness Allowance (DA) is a percentage of basic salary given to the active government employees while the Dearness Relief (DR) refers to the percentage of basic pension given to the pensioners.
The Indian government revises DA and DR twice a year to help its employees and pensioners to keep pace with inflation. The government uses the Consumer Price Index for Industrial Workers (CPI-IW) to calculate the appropriate DA/DR rates. CPI-IW measures inflation and is a key indicator of the cost of living for the industrial workers in India.
The DA and DR rates were last increased by 3% in October 2024 and 4% in March 2024. The last time the central government increased DA/DR rates by 2% or less was in July 2016. The DA/DR hike announced in July 2021 was the highest in recent years, jumping from 17% to 28% after incorporating the frozen hikes from January 2020 to June 2021 due to the COVID-19 crisis.
The decision to raise DA/DR rates by 2% from January 1, 2025 comes amid discussions on the 8th Pay Commission. The central government proposed the 8th Pay Commission in January 2025, aiming for its implementation from January 1, 2026, with the objective of revising salary structures, allowances, and pensions for central government employees and pensioners to keep pace with rising prices. The recommendations for the 8th Pay Commission have not been finalised yet. Some clarity is expected on 8th Pay Commission from a meeting of the Standing Committee of the National Council of Joint Consultative Machinery (NC-JCM) scheduled to be held on April 23, 2025.