The Union Cabinet has approved 2 percent hike in dearness allowance for 50 lakh central government employees and 58 lakh pensioners ahead of Diwali to be effective from July 1, 2016.
Dearness allowance and dearness relief is provided to employees and pensioners to neutralise the impact of price rise on their earnings.
Earlier this year the government hiked Dearness Allowance by 6 percent to 125 percent of the basic pay.
The DA was later merged into the basic pay following implementation of 7th Pay Commission award.
The central government employee unions want that the DA should be increased by 3 percent and not 2 percent which is being considered by the centre.
As per the agreed formula, government increases DA on the basis of 12-month average of the retail inflation and does not consider the price rise rate beyond decimal point for deciding the rate of dearness allowance.