Another bonanza for govt staff: DA up at 45%

Ahead of the festive season, the central government on Thursday raised dearness allowance by 10 percentage points to 45 per cent of basic pay, benefiting about 88 lakh (8.8 million) employees and pensioners.

The decision to provide higher DA to employees will cost the exchequer an additional Rs 9,303.2 crore (Rs 93.03 billion) per annum, an official spokesperson said after a meeting of the Union Cabinet, where it was decided to raise the allowance.

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The new DA will be paid to central government employees and pensioners with effect from July 1, 2010, and the burden during the current fiscal has been estimated at Rs 6,202.1 crore (Rs 62.02 billion).

"Increase in DA is in accordance with the formula based on the recommendations of the Sixth Pay Commission," the spokesperson added.

The existing rate of DA, which is paid as percentage of basic pay to compensate employees for the rising cost of living, is 35 per cent. Inflation stood at 8.5 per cent in August, while food inflation is hovering above 15 per cent, according to the new Wholesale Price Index indices.

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The increase in DA comes ahead of the Dussehra and Diwali festivals in October and November, respectively.

The decision will benefit about 50 lakh (5 million) central government employees and about 38 lakh pensioners.

This hike in DA comes a day after the Provident Fund Trustees decided to give a higher interest rate of 9.5 per cent for 2010-11 on their retirement savings.

The steep one percentage points increase has taken the interest on PF deposits of 4.71 crore (47 million) organised sector workers to a five-year high from the current level of 8.5 per cent.

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The decision to raise the interest rate was taken by the Central Board of Trustees, the highest policy making body of the Employees Provident Fund Organisation, sources said.

Although the decision to provide 9.5 per cent interest rate would result in a deficit of about Rs 1,600 crore (Rs 16 billion), the same would be made good by a surplus of Rs 1,731 crore (Rs 17.31 billion) in the interest suspense account of the EPFO.

The recommendation of the CBT, headed by Labour Minister Mallikarjun Kharge, will be forwarded to the finance ministry.

The finance ministry, which notifies the provident fund interest rate, usually accepts the recommendation of the CBT.