DA Merger with Basic Pay in 7th Pay Commission

50% DA Merger with Basic Pay in 7th Pay Commission

The 7th Pay Commission and the Merger of 50% Dearness Allowance with Basic Pay

In the year 2024, it is anticipated that the Dearness Allowance (DA) will reach a significant milestone of 50%. This raises the question of what implications this will have for central government employees.

Based on the prevailing trends of the All-India Consumer Price Index (AICPIN), it is highly likely that the percentage of Dearness Allowance will surpass the 50% threshold in the upcoming installment, due from January 2024.

However, it is important to clarify that once the DA exceeds 50%, it will not automatically merge with the basic pay, contrary to certain reports circulating. The Seventh Pay Commission did not propose such a merger. In fact, it was in 2004 when the Central Government implemented the merger of 50% of the dearness allowance with the basic pay, following the recommendation of the Fifth Central Pay Commission. This had a significant impact on both employees and pensioners.

Nevertheless, the Sixth Pay Commission did not advocate for a similar merger. Instead, it introduced the concept of delinking pay revisions from a fixed 10-year cycle and tied them to the point at which DA/DR (Dearness Allowance/Dearness Relief) crosses the 50% threshold. This approach has been consistently upheld by the last three Central Pay Commissions, emphasizing that future pay revisions should occur when the DA/DR reaches or exceeds 50% of the basic pay. This serves as a measure to mitigate the adverse effects of inflation.

While the impending increase in DA may provide some relief, it is important to note that there will be a marginal increase in the Housing Rent Allowance (HRA) component. In its recommendations, the Seventh Central Pay Commission proposed a gradual increase in HRA rates to 27%, 18%, and 9% when DA crosses 50%, and further to 30%, 20%, and 10% when DA surpasses 100%. To address the current inflationary trends, the government has decided to revise these rates upwards at the 25% and 50% DA thresholds, respectively. Consequently, starting from January 2024, the HRA rates will be set at 30%, 20%, and 10% for individuals residing in X, Y, and Z type cities, respectively.

In light of these developments, employee unions have intensified their demands for the establishment of an Eighth Pay Commission. With elections on the horizon and mounting pressure on the government to implement popular measures, it is highly likely that a favorable response to this demand will materialize in the near future.

As central government employees brace themselves for the forthcoming increase in DA, all eyes remain fixed on the evolving economic landscape. Inflation continues to exert significant pressure on the household budgets of millions across the nation.