Estimation of DA from July 2015 – 4% to 6% increase predicted

Estimation of DA from July 2015 – 4% to 6% increase in Dearness Allowance from July 2015 for Central Government Employees and Pensioners

Update 30.05.2015: DA from July 2015 estimated to be 119% – CPI-IW for April 2015 released – Click here to read this latest Article 

DA from July 2015Estimation of DA from July 2015 – While All India Consumer Price Index for January 2015 had moved slightly upwards by one point from 253 to 254, it got neutralised as CPI-IW decreased by one point and moved back to 253 in the month of February 2015.

This scenario is almost in line with what we discussed about impact of flat Consumer Price Index on 7th Pay Commission Pay and Allowances

Click here to read the article: Impact of flat Consumer Price Index on 7th Pay Commission Pay and Allowances

Though Dearness Allowance for Central Government Employees and Pensioners with effect from January 2015 is yet to be approved by Cabinet, with all the indices from Jan 2014 to Dec 2014 have been officially released, DA with effect from January 2015 is confirmed to be 113%.

Check this article : 6% DA hike from January 2015

Estimation of DA from July 2015:

As far as DA from July 2015 is concerned we have CPI (IW) for 8 months out of 12 months. Considering the flat and decreasing trend in Consumer Price Indices in these eight months we have attempted to estimate DA from July 2015 in Four scenarios this time by taking assumed CPI for coming 4 months. Please note that this is merely an assumption based on the trend in CPI. Actual DA from July 2015 can be confirmed only if Govt approves the same.

Twelve Consumer Price Indices required to estimate Dearness Allowance from July 2015

Month Actual AICPI-IW
Jul-2014 252
Aug-2014 253
Sep-2014 253
Oct-2014 253
Nov-2014 253
Dec- 2014 253
Jan-2015 254
Feb-2015 253
Mar-2015 254
Apr-2015 Yet to be Announced
May-2015 Yet to be Announced
Jun-2015 Yet to be Announced

Scenario I – Flat Consumer Price Indices or one or two point decrease in CPI in the Coming Months:

If we assume that Consumer Price Indices for the months from March 2015 to June 2015 would be flat or one point reduction in March 2015 and April 2015 and then flat indices for May 2015 and June 2015, Dearness Allowance from July 2015 would be 118% i.e 5% increase in DA from July 2015

DA from Jul 2015= [(252+253+253+253+253+253+254+253+252+251+251+251)-115.76]*100/115.76
= 118 % (5% increase in DA from July 2015)

Scenario II – Falling Consumer Price Indices the Coming Months:

If we expect that CPI (IW) would behave as it did in the month of February 2015 viz., One Point decrease in each of 4 months from March 2015 to June 2015, Dearness Allowance from July 2015 will be 117% ( 4% increase in DA from July 2015). Even if assume the worst case of Two Point decrease in each of these 4 months that are yet to come, we will have the same DA percentage i.e 117% ( 4% increase in DA from July 2015)

DA from Jul 2015= [(252+253+253+253+253+253+254+253+251+249+247+245)-115.76]*100/115.76
= 117 % ( 4% increase in DA from July 2015)

Scenario III – Moderate Inflationary Trend in the Coming 4 Months:

If we assume this Scenorio of moderate Inflationary Trend with its impact of atleast one point increase in CPI for months of March 2015 and April 2015 (CPI of 254 and 255 in March 2015 and April 2015 respectively), and then flat CPI of 255 for the months of May and June 2015 it would end up in estimation of 119% DA from July 2015 for CG Employees

DA from Jul 2015= [(252+253+253+253+253+253+254+253+254+255+255+255)-115.76]*100/115.76
= 119 % ( 6% increase in DA from July 2015)

Scenario IV – More Inflationary Trend in the Coming 4 Months:

We do not expect this Scenorio of more Inflationary Trend and its impact of higher Consumer Price Indices in the coming four months from March 2015 to June 2015. However, we have attempted to find out the quantum of increase in CPI which is required to obtain 120% DA from July 2015 or 7% increase in DA from July 2015, i.e at least one percent additional increase of DA more than what is achieved in Scenario III with moderate inflationary trend.

We could find that atleast two point increase in CPI for months of March 2015, April 2015, and May 2015 (CPI of 255, 257 and 259 in March 2015, April 2015 and May 2015 respectively), and then CPI of 262 for the June 2015 which is 3 point increase compared to May 2015, are required to obtain additional one point increase in DA from July 2015 (120% DA from July 2015) than DA of 119% from July 2015 estimated in Scenario III.

DA from Jul 2015= [(252+253+253+253+253+253+254+253+255+257+259+262)-115.76]*100/115.76
= 120 % ( 7% increase in DA from July 2015)

Conclusion on DA from July 2015 Estimation :

Considering the movement of CPI in the recent past, we are of the view that Scenario IV coming to reality is most unlikely.

We are of the opinion that after excluding Scenario I, the other three scenarios of Flat CPI, falling CPI and moderate inflationary trend in CPI are equally likely. So, Dearness Allowance from July 2015 for Central Government Employees and Pensioners will be ranging from 117% to 119%. In other words, increase in their DA from July 2015 is estimated to be either 4% or 5% or 6%

Readers can make use of following DA to easily estimate DA from July 2015

GConnect DA Calculator

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Press release issued by Labour Bureau, Ministry of Labour and Employment on Consumer Price Index for Industrial Workers (CPI-IW) for February 2015

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