The Centre on Wednesday increased dearness allowance and dearness relief for more than 1.16 crore government employees and pensioners by 3%. With the latest hike, the allowance has been raised to 34%.

The rate will come into effect from January 1.

Dearness allowance is paid by the government to its employees to compensate for the increase in the cost of living due to inflation. It is revised twice a year, on January 1 and July 1. Dearness relief is the same allowance given to central government pensioners.

This hike will benefit about 47.68 lakh central government employees and 68.62 lakh pensioners. The decision is expected to cost Rs 9,544.50 crore per year.

In October, the government had increased the dearness allowance and dearness relief from 28% to 31%. It had also resumed payment of dearness allowance and dearness relief after putting three installments on hold in April 2020 due to the coronavirus pandemic.