New DA calculation formula as per the AI CPI-IW series with base 2016

The Dearness Allowance (DA) is a calculation on inflation and allowance paid to government employees (including public sector unit employees as public sector unit employees are also government employees) and pensioners in India.

The Dearness Allowance for the Central Government Employees is calculated based on 12 monthly average of the All India Consumer Price Index for Industrial Workers (CPI-IW). These indices are compiled and released by the Labour Bureau in the Ministry of Labour. The figures are released monthly and the index for a month is released at the end of the subsequent month. The CPI IW is based on the inflation in retail prices with reference to the prices in a base year. 

7th CPC DA calculation formula

The formula for calculating Dearness Allowance for Central Government employees as per the 7th Pay Commission report/recommendation after 1.1.2006 is :

Dearness Allowance %= {(Average of AICPI(Base year 2001=100) for the past 12 months – 115.77)/115.77}*100

Recently, the Ministry of Labour and Employment released the new series of Consumer Price Index for Industrial Worker (CPI-IW) with base year 2016. The new series of CPI-IW with base 2016 has replaced the existing series with base 2001. It gives more weightage to spending on health, education, recreation and other miscellaneous expenses while reducing the weight of food and beverages.

• The weight of spending on housing and clothing increased from 15.2% to 17%.
• The weight of miscellaneous items, like education and health, rose to 30.31% from 23.26%.
• The weight of food and beverage was reduced from 46.2% to 39% and indicates an increase in disposable income.

DA calculation formula as per CPI-IW base 2016 series 

For the DA calculation, a linking factor of 2.88 is defined for converting the new series with the base year 2016 to the new series index to the previous series on base 2001=100.

Based on this, the DA is calculation can be done with the following formula 

DA  = (A  – 261.4)*100/(261.4)

Where A = Avg of CPI-IW (base 2016=100) for the past 12 months x linking factor of 2.88