New Delhi: As the 8th Pay Commission gets underway, the demand to change the Dearness Allowance (DA) calculation formula and a hike in DA has once again taken center stage. The All India Trade Union Congress (AITUC) and other employee bodies have urged the government to review the DA calculation formula and make reforms in DA calculations in view of higher inflation and a higher cost of living.
DA is a critical component of salary and pension for central government employees and pensioners. The government typically announces DA hikes twice a year, once in March for the January-June period and again in September/October for the July-December period based on inflation data. However, unions argue that the current method no longer reflects the real cost of living in today’s economy.
Why is change in DA formula demanded?
AITUC and other employee bodies are of the view that the present system of salary calculation underestimates actual household expenses. They have argued that living expenses have grown multiple times over the years but the formula to calculate DA has been the same.
Employees are demanding a hike in DA and pensions to fight high inflation by protecting their purchasing power and preventing their real income from declining as the cost of living increases. Employees are requesting interim relief in the form of a DA hike as they wait for the implementation of the 8th Pay Commission.
The 7th Pay Commission calculated basic salaries on the basis of the three family units. The AITUC has requested the 8th CPC to increase the family unit count to five by including parents.
The employee unions have said that modern living expenses like internet, healthcare and education have risen and demanded their inclusion in the 8th CPC.
What is current DA and how much is demanded?
DA is calculated using the All India Consumer Price Index for Industrial Workers (AICPI-IW). At present, central government employees are getting 58 percent DA. Employees are expecting that the DA would rise by around 2 percent which would move it from 58 percent to approximately 60 percent. The basic pay for a Level 1 employee is Rs 18,000. If DA rises by 2 percent, the salary will be Rs 28,800.
Demand to merge DA with basic pay
Many employee organizations have demanded that dearness allowance or dearness relief should be merged into basic salary. Employees claim to be significantly affected by inflation and that the DA and DR granted do not align with real-time retail inflation. The merger will increase the basic salary, HRA, TA and other allowances. There will also be a direct benefit in pension and gratuity.
What is Aykroyd formula to calculate minimum wage?
The 7th Pay Commission calculated minimum pay based on 3 consumption units which covered the employee, spouse and two children. This calculation was based on Dr. Wallace Aykroyd’s formula which determines living wages based on nutritional requirements (2,700 calories per adult), clothing requirements (72 yards per year) and housing costs. The idea was to determine how much money a family needs to sustain a basic and dignified standard of living.
Employee unions argue that this structure is not relevant in the present times. They are demanding expansion of the family unit to adjust to the cost of living which has risen sharply. Unions argue that the present model does not reflect real household structures. Unions say that inflation-adjusted calculations demand structural correction and not just increments. They say that rather than merely making regular adjustments, the 8th CPC must ensure a significant increase in base pay.
Increase in minimum basic pay and DA
The minimum basic pay under the 7th Pay Commission is presently Rs 18,000. If the base pay rises significantly then the entire salary matrix moves higher. Since DA is calculated as a percentage of basic pay, a higher base means higher DA payouts. Pensioners will benefit because the pension is calculated as 50 percent of the last drawn basic pay and DR rises along with DA.
Unions are pushing for a fitment factor of 3.25 or higher citing higher consumption units and inflation. There is also a demand to increase the annual increment rate from the current 3 percent to 7 percent to ensure meaningful financial progression. Unions are also demanding the total restoration of the Old Pension Scheme by scrapping NPS and UPS.
When will the DA hike be announced?
Based on the past trends of DA hike announcements in March, employees are expecting that the government may soon announce the DA raise for 2026. It is to be noted that the 8th Pay Commission is expected to come into effect from January 1, 2026 but as of now formal constitution and detailed framework are still awaited. Until recommendations from the 8th Pay Commission are implemented, DA revisions will continue under the existing formula.
If the DA hike is announced in March, the salary or pension will not be reflected in the March salary because of delays in payroll preparation. The hike is usually paid later as arrears. Irrespective of when the government announces it, the DA hike will be applicable from January 1, 2026.
