The Finance Ministry has announced a mild increase in DA and this does not seem to have pleased all personnel of the central government as some expected 2% more DA from the government.
The new hike in payouts from the 7th Pay Commission regime comes as inflation worries grow and government staff raise demands for deeper fiscal relief.
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How to think of the current DA adjustment
Dearness Allowance or DA, which is linked with inflation or the consumer price index (CPI), is revised twice a year, in January and July.
The new announcement is an increase, but it is not the level of increase millions of central government employees throughout the country have hoped for.
“The new DA increase is in line with the current economic situation and fiscal limitations,” a senior Finance Ministry official said on condition of anonymity.
“Although we know employees would have wanted more, the move falls in line with the formula-driven on the All India Consumer Price Index for Industrial Workers (AICPI-IW).
DA is calculated exactly based on the average AICPI-IW for the last 12 months. Final figures reveal that the measure is increasing slightly, resulting in a rise of less than 2% over the marker that many workers were expecting based on current market expectations and inflation data.
Affect on Various Pay Levels
The minor increment of DA will impact around 48 lakh central government employees and 69 lakh pensioners across the country.
The actual financial impact can differ from one employee to another due to basic pay and level in the government hierarchy.
For example, workers in the lower pay strata could expect to take home at least Rs. 900-1,500 a month more and those in higher categories would get Rs. 2,500-5,000 a month.
Pensioners (of pre-2016 retirees) are happy with the decision; proportionate changes will be made according to their pension structure.
Rajiv Sharma, a Section Officer in the Ministry of Home Affairs for the last 15 years, said, “Every little bit helps but with the manner in which prices of essential goods are soaring only, we were expecting something slightly substantial.”
The spread between escalating living costs and the increase in pay just keeps getting wider.”
Background on DA Revise
To understand this development, we can compare the change in DAs over the last few years.
After the 7th Pay Commission took effect in 2016, DA has been revised a few times, not always at the regular intervals that the employees would have liked.
DA hike was halted for 18 months due to the coronavirus pandemic as part of fiscal prudence by the government.
As conceptually defensible as this is from a macro-economic position it imposed extreme financial hardship on the public sector work force, especially those in the lower and middle ranges of pay.
With the resumption of DA revisions in July, 2021, there was an accumulated revision which brought some relaxation.
And later revisions have been less sweeping, as the government treads more carefully in managing the post-pandemic economy.
ACT Union Members Worry The ACT’s union members are fearful.
Several central government employees’ organisations have voiced their disappointment with the announcement.
The issue will be raised in the next consultative meeting of the National Council of JCM (Joint Consultative Machinery), a joint decision making body for all the government employees and their staff.
“We accept that the government is facing financial crisis but it has to understand that the central government employees are the backbone of the right from Parliament to municipality and from district to village panchayats, across the nation,” said Shiv Gopal Mishra, General Secretary, convenor of steering committee of the National Joint Council of the Action (NJCA), India’s top central government employees.
“There need to be more than just notes about adequate pay being financial and in the form of thanks and recognition for sacrifice and duty.”
A couple of the associations have already said that the difference between DA revisions and actual inflation rates is continuously eroding the real income of government employees, especially those residing in cities where the cost of living has increased several notches over the past years.
Possible Economic Justification for the Move
Economists have presented different viewpoints on the government’s move to maintain a small-DA hike.
Others cite larger fiscal issues confronting the nation, such as managing a fiscal deficit while spending on development projects and social welfare programmes.
Dr. Meenakshi Raghavan, an economist who focuses on public finance at a top economic research institute, said, “The government has to walk a tightrope — how much to comply with employee expectation and how much to follow fiscal discipline.
“Even small DA increases under the prevailing economic circumstances are cumulatively very substantial as the government employs a very large number of employees,” the ministry said.
According to the estimates of the Finance Ministry, even this small hike in the DA would mean an expenditure of Rs. This graph illustrates the large budget effect even very small percentage changes in government worker permittance can cause.
Consequences for Future Updates
Naturally, this small adjustment has raised the question whether there will be DA amendments in the future.
The next scheduled revision is due in July, and employees are keeping a close eye on economic indicators that could sway that determination.
The increasing trends in the AICPI-IW means that July revision could provide more relief if the inflation maintains its present trend.
But experts warn that various dynamics — from the global economy to domestic fiscal imperatives to unpredicted economic obstacles — could shape the government’s strategy.
Government workers should keep their expectations in check, financial planner Vikram Nair said. “While DA revisions are crucial, it is just one part of holistic financial planning.
The importance of diversified savings and investment options cannot be understated when it comes to aiding public employees in funding their retirement.”
Broader Economic Context
This trade AD decision is in the context of India’s complex economic picture.
Even though the nation has demonstrated remarkable recovery from the covid-19 outbreak, there are hurdles ahead in containing prices, creating jobs and maintaining economic momentum.
Consumer Price Index (CPI) based retail inflation has been witnessing a varying trend in past months. Food inflation in particular, has been worrisome for households in different income categories.
For civil servants -particularly at the lower and middle paid grades – these inflation trends have very direct consequences for household budgets and personal financial planning.
The Bank of India has been using several monetary-policy tools to rein in inflation and inspire economic expansion.
While the macro interventions were appropriate to stabilise the economy, the one-size-fits-all response has mixed outcome with different segments of the society, also for government salaried employees who come under the slab of below OMR500.
Other Relief Proposals in Play
There is minor DA modification and alternative options to give financial support to the central government staffers were also being framed as per the sources in the government.
These involve changes in some allowances, tax deductions meant only for salaried class citizens and better health insurance plans.
“The government acknowledges the problems of its staff and is exploring many avenues in the form of a multi stayered strategy to address the issues,” a senior official of the Department of Expenditure said.
“DA is only a part of the whole compensation package; the increase (DA) is being rationalised in line with the various other developments.”
Some of those measures, if enacted, could also (or instead) provide more bespoke relief based on needs and circumstances rather than across-the-board percentage increase that DA adjustments are.
Why DA is not enough: Structural Reforms are a must
Employee welfare analysts add that not only will DA revisions at regular intervals be inadequate, it is now time for structural change in how government employee price is perceived and executed.
“The 7th Pay Commission was a major leap, but with nearly a decade having passed since the recommendations were implemented, it is time we revisited some elements of the model,” said Dr Anand Prakash, who has conducted studies on public administration frameworks in several countries.
“A lot of countries have been more towards performance-related payment mechanisms that respond to economic shocks more quickly.
That is built into this structure with more frequent but smaller increases that are pegged much more closely to inflation and not waiting for ruched aemia before you get dimensional intermittent small performance links to add on top the base this time and region specific weightings that better recognise the cost of living impact in different parts of England.
Balancing Expectations with Realities
The public service compensation conversation also continues to unfold as casualties of the recent development are central government employees who take home share of the plunder.
Trade-off among the well-being of the workers, fiscal prudence and sustainable governance is thin.
To lakhs of central government employees, who are the administrative backbone of the country, each DA revision is also financial arithmetic, but more so a recognition of their work and contribution.
Perhaps this revision may not have lived up to expectations, but it represents a process of discussion between the government and its employees on what are the right wages in a shifting economy.
As India transitions into a developed economy by 2047, the position and welfare of its government employees will be pivotal to ensuring good governance and efficient service to the masses.
The discussions prompted by this modest adjustment in the DA are likely to lead to more thorough reforms in how public servants are paid and valued, hopefully some time in the future.
