Diwali bonanza: Cabinet hikes Dearness Allowance by 3 pc with over Rs 10,000 crore allocation

New Delhi, October 28 (IANS): In a relief for millions amid the ongoing festive season, the Cabinet, chaired by Prime Minister Narendra Modi, on Wednesday approved to release an additional instalment of Dearness Allowance (DA) to Central Government employees and Dearness Relief (DR) to pensioners.

The combined impact on the exchequer on account of increase in both Dearness Allowance and Dearness Relief would be Rs 10,016.10 crore per annum.

This will benefit about 48.54 lakh Central Government employees and 68.71 lakh pensioners, according to a Cabinet statement.

The decision will come into effect from July 1, 2026, representing an increase of 3 per cent over the existing rates of 60 per cent of the Basic Pay/Pension, to compensate against price rise.

The Cabinet said that the increase is in accordance with the accepted formula, which is based on the recommendations of the 7th Central Pay Commission.

Meanwhile, the eighth Central Pay Commission is holding consultations on pay and pension-related matters. The discussions are expected to focus on pay conditions and submissions from all stakeholders.

The eighth Central Pay Commission is led by former Supreme Court Justice Ranjana Prakash Desai while its members include Pankaj Jain, a former IAS officer serving as Member-Secretary, and Pulak Ghosh, a tenured Professor of Finance and a member of the Economic Advisory Council to the Prime Minister.

The feedback gathered during these consultations will form part of the inputs considered while framing its recommendations. The commission's work could have a bearing on the financial interests of more than one crore employees and pensioners.

This population includes around 50 lakh Central government employees and about 65 lakh pensioners, covering defence and railway personnel as well as retirees. Employee representatives are seeking a higher fitment factor, which would raise the base used to calculate salaries under the next pay revision.

Unions are also calling for changes to the Dearness Allowance (DA) framework, including more frequent revisions and a possible merger with basic pay after a specified threshold is reached.