The Centre on Thursday cleared a 2% dearness allowance increase for salaried central government employees, The Financial Express reported. Finance Minister Arun Jaitley announced the decision, ANI reported. Central government unions had demanded a 3% allowance hike.

Around 50 lakh government staffers and 58 lakh pensioners will benefit from the hike. The allowance increase aims to offset the influence of price rise on salaries and savings.

The rate is revised every year depending on retail inflation. While the government had increased the dearness allowance by 6% to 125% of the basic pay earlier this year, it decided to merge the allowance into Central government employees’ basic bay after the implementation of the 7th Pay Commission, the English daily reported.

Confederation of Central Government Employees President KKN Kutty told PTI, “The 12-month average of Consumer Price Index for Industrial Workers from July 1, 2015 to June 30, 2016, works out to be 2.92%. Therefore the unions had pressed for 3% Dearness Allowance. We are not satisfied with this."

The 7th Central Pay Commission, headed by Justice AK Mathur, submitted a report with recommendations that will be implemented from January 1, 2017. The report suggested the removal of the pay band and the grade pay, while retaining the annual hike of 3%.