Centre puts DA hike for government employees on hold

The government has put on hold increase in dearness allowance for its employees because of the strain on its finances due to coronavirus. The union cabinet will take up a proposal to put a hold on any further increase for the current year. The union cabinet had approved an increase of 4% to DA in March to 21%. A government source told ET that the increase has been put on hold.

What is dearness allowance?

• The government provides dearness allowance to its employees ie DA so that they can meet the expenses of increasing daily living.
• The ever-increasing price of inflation starts reducing the purchasing power of money.

Examples

• Suppose the annual inflation rate is five percent, then the thing which is 100 rupees in the first year, it will be 105 rupees next year.
• The salary of the employee is 100 rupees, but even if the salary remains the same for the second year, then he will not be able to buy that item (Rs. 105). DA does the same to bridge the gap.

DA calculation

• The government uses the All India Consumer Price Index based inflation rate to calculate DA. The DA is revised every two years to have a larger impact.

Benefit

• Reduction in DA and DR of Central Government employees and pensioners will save about Rs 37,530 crore in the current financial year and financial year 2021-22.
• Through this, the government will be helped to increase spending on health and welfare measures.
• According to analysts, if the state governments also follow the central government measures, then a total savings of Rs 82,566 crore can be done through this medium.

How does the economy affect?

• Government employees get DA’s money. However, it depends on how they use the money. They keep it in a savings account or spend it.
• This additional amount they spend, then it has a positive effect on the demand of weakening consumption, but they save this entire amount in savings account, then it helps the economy and funds in the banking system Increases.

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