The Government of India pays a certain amount to all public sector employees, and pensioners towards "cost of living adjustments" and this is called Dearness Allowance (DA). Both employees in India and Bangladesh are eligible for this DA component. Dearness allowance is a component of salary, and is counted as a fixed percentage of the person’s basic salary. It is launched with the intention to hedge the impact of inflation. DA component differs for different employees depending on their location. Thus, DA is different for employees based in semi-urban sector, rural sector to the urban sector.
So what is dearness allowance features? Let us find out more details about it below.
Dearness Allowance was introduced after the Second World War. The formula for calculating DA is revamped since 2006 and is as follows:
Dearness Allowance % = ((Average of AICPI which is All India Consumer Price Index (Base Year 2001=100) for the past 12 months -115.76)/115.76)*100
Dearness Allowance % = ((Average of AICPI which is All India Consumer Price Index (Base Year 2001=100) for the past 3 months -126.33)/126.33)*100
Industrial dearness allowance or IDA is applicable to employees of the public sector enterprises. The IDA has recently been increased by 5% to benefit every board employees, officers, and executives of the central PSUs (Public sector employees).
In order to compensate for the rising inflation rate IDA is revised quarterly based on the movement of the Consumer Price Index (CPI).
VAD or Variable dearness allowance is for Central Government Employees and is revised every six months. This is based on the increase or decrease in the consumer price index, this is termed as VAD and the Dearness allowance is revised based on this.
Just as the pension of the public sector employees is revised whenever a new salary structure takes shape, similarly Dearness allowance when increased, the pension for the retired public sector employees is also increased. This applies to both family and regular pension.
In early 2018, the Union Cabinet Delhi increased DA for 11 million pensioners and employees from 5 percent to 7 percent. This was applicable from January 1, 2018. The additional instalment on dearness allowance is for Dearness Relief to pensioners and Central Government employees. The increase was with intention to compensate for price rice. The increase is in accordance with recommendations of the 7th Pay Commission.
Pay commission in India revaluated the employees’ salary in the public sector taking for various salary components, including the Dearness Allowance. Pay commissions account all the factors, which are essential to calculate salary of employees in public sector and after reviewing these factors, chances and multiplication factor also come under the purview of the pay commission.
Dearness allowance is calculated on specific percentage of a person’s basic salary. It is then added to basic salary with components such as House Rent Allowance (HRA) to make the complete the total salary of employees in the government sector. House Rent Allowance is a component in the salary of an employee to meet the expenses for renting of accommodation for residential purpose. This allowance is for employees of both public and private sector, whereas Dearness allowance is specifically for employees of the public sector.