More on Dearness Allowance and DA from January 2022

The Government has clarified that is not considering any changes to the government employee salary scales and this will not be good news for central government staff who were expecting a hike in their salary, especially the lower rung of the workforce. However, there is good news awaiting them. The DA from January 2022 will see a hike of 3%. This is almost confirmed news. The hike in the DA is not decided by the government. It is based on the All India Consumer Price Index for Industrial Workers (CPI-IW) which is released by the Labour Bureau, Ministry of Labour & Employment, Government of India. The Labour Bureau publishes the CPI-IW index every month. The government will only approve the DA payment. The January 2022 hike is likely to be approved by March-end or April beginning. 

The CPI-IW is primarily used to determine dearness allowance (DA) paid to central/state government employees and workers in the industrial sectors, as well as to measure inflation in retail prices and to fix and revise minimum wages in scheduled employments.

The index represents the price rise on the cost of living of the common man. It is determined on the basis of retail prices of a select list of items, services and other expenses, which is referred to as the basket. Every item is given a weightage for calculating the index. The CPI calculates the price difference between commodities and services such as food, medical care, education, electronics, and so on. with reference to a base year. The list of items in the basket and the weightage are revised by the Labour Bureau to represent the actual consumption of the target population. Whatever the priorities were 20 years ago will not be the same now for the targeted segment. For example, Black and White TVs were on the list sone 20 years ago. Now hardly there will be anyone using this one, forget about buying. For this reason, the government replaces the series with a new one to include the current consumption. 

Currently, the Labour Bureau publishes the data with the base year 2016. This was introduced in September 2020 and replaced the then-existing series with base 2001. Earlier, the series was also revised from 1944 to 1949; 1949 to 1960; 1960 to 1982 and 1982 to 2001. The new series with the base year 2016 covers the latest consumption pattern of the target population. It will now be more comparable at the international level. It will help in the measurements of macroeconomic indicators of the Indian economy. According to the International Labour Organization (ILO), Index Review Committee (IRC), and National Statistical Commission (NSC), the base year of price index numbers should be revised at frequent intervals of no more than 10 years to reflect changes in consumer consumption patterns.

The new series gives more weightage to spending on health, education, recreation and other miscellaneous expenses while reducing the weightage of food and beverages. The weightage of food and beverage was reduced due to the fact that the disposable income has increased and people are spending more on entertainment, education etc. The size of the basket has also been increased in the new series to 463 compared to 392 items in the 2001 series.  

The Dearness Allowance for Central Government Employees is calculated using the 12-month average of the CPI-IW index. The indices given in the table below will be used for determining the Dearness Allowance from January 2022. Even though two more figures are required, it can be told that the D.A. from January will be 34%. For the calculation refer to the link below. The figure from August 2021 will be used to calculate the DA from July next year. As only three indices are available, it is too early to comment on the Expected DA from July 2022.

Read: DA calculation as per the AI CPI-IW series with base 2016