The Cabinet on Friday cleared a 10% hike in dearness allowance for government staff and dearness relief for pensioners, a move that would cost the exchequer an extra R7,253.10 crore this year at a time when the government is struggling to rein in the fiscal deficit.
The DA has been raised from 80% to 90% of the basic salary effective July. Announcing the hike, finance minister P Chidambaram said the combined impact on the exchequer on account of both DA and DR would be of the order of R10,879.60 crore per annum and R7,253.10 crore for the 8 months period between July 2013 and February 2014.
The increase in DA is in accordance with the accepted formula based on the recommendations of the 6th Central Pay Commission. The DA is linked to consumer price index, which has been rising by 10-12% year-on-year between January and July.
Though the DA hikes are an annual feature, the extra spending is likely to affect fiscal health, especially when the government wants to cut non-plan expenditure by 10% to adhere to the fiscal deficit target of 4.8% of GDP in 2013-14. The finance ministry recently announced a string of steps to cut wasteful expenditures such as hosting conferences in 5-star hotels or foreign trips by government staff.