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Dearness Allowance after 1st January 2016 – 7th Pay Commission recommendations

Dearness Allowance after 1st January 2016 – 7th Pay Commission recommendations and decision of Govt – Methodology of calculating DA of Central Government Employees and Pensioners based All India Consumer Price Index (with Base 2001=100) to continue

Dearness Allowance (DA) is paid to Central Government employees to adjust the cost of living and to protect their Basic Pay from erosion in the real value on account of inflation. Prior to implementation of 7th Pay Commission report DA was based on the All India Consumer Price Index (Industrial Workers) with Base 2001=100.

As recommended by 7th Pay Commission and suggested by JCM Staff Side, Govt decided to grant DA all Central Government Employees and Pensioners on the basis of same methodology followed prior to 7th CPC recommendations viz., using All India Consumer Price Index (Industrial Workers) with Base 2001=100.

Recommendation  of  the  Seventh  Central
Pay Commission
Decision of the Government
Existing    formula    and    methodology    for
calculating Dearness Allowance to   continue
(Para 8.17.37 of the Report)
Accepted.    The    reference    base    for
calculation of Dearness Allowance after coming into force of the revised Pay structure  shall  undergo  change accordingly and will be linked to the average index as on 01.01.2016.

Since, Dearness Allowance to the extent of 125% merged with Basic Pay on implementation of 7th Pay Commission recommendations, DA from 1st January 2016 is made as zero and DA with effect from July 2016 is calculated as follows.

DA from 1st July 2016

Dearness Allowance payable with effect from 7th CPC Basic Pay = (Avg of CPI-IW for the past 12 months – Average of CPI-IW recorded in 2015)*100/(Average of CPI-IW recorded in 2015)

 

DA with effect from 1st July 2016 = [ (263+264+266+269+270+269+269+267+268+271+275+280)/12]-(261.4)X100/261.4
= 2 %

Click here for the methodology and data used to calculate Dearness Allowance from July 2016

Like wise DA from January 2017, July 2017, January 2018 have been calculated to be 4%, 5% and 7% respectively.

Expected DA from July 2018:

CPI for the months from July 2017 to March 2018 have been declared so far by Govt.

Month Actual AICPI-IW
July-2017 285
Aug-2017 285
Sep-2017 285
Oct-2017 287
Nov-2017 288
Dec-2017 286
Jan-2018 288
Feb-2018 288
Mar-2018 287
Apr-2018 To be released
May-2018 To be released
Jun-2018 To be released

Expected DA from July 2018 : Estimation : 1

A conservative estimation of keeping CPI as 287 from April 2018 to June 2018, which was recorded in the month of March 2018 gives us an increase of 2% in DA from July 2018.

DA with effect from 1st July 2016 = [ (285+285+285+287+288+286+288+288+287+287+287+287)/12]-(261.4)X100/261.4
= 9 % (increase of 2% from the present DA of 7%)

 Expected DA from July 2018 : Estimation : 2

We need at least 2 point increase in consumer price index in all the three months from April 2018 to June 2018, to get 3% increase in DA with effect from July 2018

DA with effect from 1st July 2016 = [ (285+285+285+287+288+286+288+288+287+289+291+293)/12]-(261.4)X100/261.4
= 10 % (increase of 3% from the present DA of 7%)

Considering the previous Trend in Consumer Price Index, Chances for Estimation 1 is higher than Estimation 2 as CPI should increase 2 points each in all the coming months in the case of later.

On the lower side, 1% increase in DA is possible only if 3 point decrease in consumer price index for the month from April 2018 and May 2018 followed by 4 point decrease in the month of June 2018. Decrease in CPI to such an exteent is not possible considering the inflationary trend due rise in fuel prices.

Checkout this new DA Calculator for Dearness Allowance after implementation of 7th Pay Commission report, to verify the above calculations.