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Cabinet considers one-year DA freeze

P Vaidyanathan Iyer

The Centre is considering a proposal to impose a one-year freeze on the dearness allowance of all its employees and retirees.

The proposal, moved by the finance ministry, was considered by the Union Cabinet in its meeting in the last week of September. However, the Cabinet did not take a final decision.

Senior government sources, however, told Business Standard the Cabinet was in favour of a move that would exert moral pressue on the states to follow the Centre's example.

The proposal is expected to be taken up by the Cabinet again after the prime minister returns from his Europe tour.

Senior government sources told Business Standard the Centre could save up to Rs 750 crore (Rs 7.5 billion) from the DA freeze.

They said the move was intended to put pressure on state chief ministers to take a similar step.

The prime minister, scheduled to confer with state chief ministers on October 18 in New Delhi, will also exhort them to follow the Centre's example of fiscal prudence.

If the states follow suit, the cumulative savings can be up to Rs 2,500 crore (Rs 25 billion).

The DA hike for central government employees comes in two instalments, the first one in January and the next in July.

While for January, the Centre had announced a 4 per cent increase in DA, the hike was expected to be 3 per cent for the second half of the current calendar year beginning July.

According to government sources, with little tax buoyancy and inherent inflexibility in non-Plan expenditure, a DA freeze or a cut in establishment costs was perhaps the last option the Centre could resort to.

Interest payments had to be made and the transfer to states was inevitable.

Subsidies, another substantial component of non-Plan expenditure, were expected to increase with the recent hike in minimum support prices.

Sources further said the move might be projected as a symbolic gesture by the Centre to assist drought relief operations.

A one percentage point increase in DA cost the government about Rs 250 crore (Rs 25 billion), they pointed out.

If the savings could be diverted for drought relief, it could find political acceptance too, they added.

The Centre's pay bill for the current fiscal year is budgeted at Rs 17,861 crore (Rs 178.61 billion). The total allowances, excluding travel, are estimated at Rs 12,460 crore (Rs 124.60 billion).

For government employees, a freeze in DA during the festive Diwali season will, however, come as a blow.

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