Call for Revision of Dearness Allowance Formula by Defence Employees' Federation

AIDEF Proposes Changes to DA Calculation Methodology

The All India Defence Employees' Federation (AIDEF) has urged the 8th Pay Commission to reconsider the formula used for calculating Dearness Allowance (DA) for central government workers and Dearness Relief (DR) for pensioners. In their second memorandum to the commission, AIDEF contended that the current method fails to accurately reflect the true cost of living experienced by both employees and retirees. They argue that the existing approach underrepresents the effects of rising prices on essential goods and services, particularly impacting lower-income families and senior citizens.

Reasons Behind AIDEF's Request for DA Formula Revision

According to the guidelines set by the 7th Central Pay Commission (CPC), the adjustments for DA and DR are tied to the 12-month average of the All-India Consumer Price Index for Industrial Workers (AICPI-IW). This allowance is updated biannually to counteract inflation's effects.

Current Formulas for DA Calculation:

For Central Government Employees: DA Percentage = [(Average of AICPI (Base Year 2001 = 100) for the last 12 months – 261.42) / 261.42] × 100

For Public Sector Employees: DA Percentage = [(Average of AICPI (Base Year 2001 = 100) for the last three months – 126.33) / 126.33] × 100

AIDEF believes that the current index does not accurately reflect household inflation, as it prioritizes expenditure categories where prices tend to be more stable. The federation stated that this limitation makes it challenging for the index to fairly represent the current inflation landscape.

Moreover, AIDEF highlighted that employees in lower salary brackets allocate a significant portion of their income to necessities such as food, healthcare, education, and housing. Pensioners, on the other hand, often face increasing costs related to medical care and caregiving, which typically rise faster than the overall Consumer Price Index (CPI).

Concerns Over CPI Basket Composition

AIDEF has also expressed concerns regarding the structure of the Consumer Price Index basket. They argue that the revised CPI basket, introduced in FY23, does not adequately reflect the significant increase in food prices and seasonal agricultural products. While the AICPI-IW remains the standard for calculating DA based on its 12-month average, the proportion of food and beverages has decreased from 45.86% in the 2012 CPI basket to 36.75% in the 2022-23 basket. AIDEF asserts that this reduced weight for food inflation, combined with a higher emphasis on stable expenditure categories, hinders the index's ability to accurately depict the inflation faced by central government employees and pensioners.

AIDEF Advocates for a Tailored Cost of Living Index

Instead of minor adjustments, AIDEF is advocating for a complete overhaul of the current inflation index. They propose the creation of an employee-specific cost-of-living index that more accurately reflects the spending habits of central government employees and pensioners. Additionally, they recommend that future fitment factors under the 8th Pay Commission should consider evolving expenditure trends and provide better recognition of healthcare and elderly care costs when revising salaries and pensions.

The 8th Pay Commission has concluded stakeholder submissions as of June 15 and is set to visit various states for discussions with employee unions and other stakeholders. Since April, the panel has held numerous meetings addressing salary revisions, fitment factors, DA, pension benefits, and the overall pay structure.

Potential DA Increase in 2026?

The push for revising the DA formula comes amid ongoing inflationary pressures. In May, India's wholesale inflation rose to 9.68%, up from 8.26% in April, driven by increases in fuel, crude oil, manufactured chemicals, and metal products. Retail inflation also saw a rise to 3.93%, with food inflation reaching 4.78%. Essential household items, including milk, vegetables, and fuel costs, continue to strain family budgets. With inflation remaining high, many employee groups believe that another DA increase could provide significant relief. Market analysts suggest that the government may consider announcing another DA hike around July or September, although no official confirmation has been made yet.