The Union Cabinet on Wednesday raised the dearness allowance from 12% to 17% for central government employees “to compensate for price rise”. An increase of the same amount was announced in dearness relief for pensioners.

The hike is expected to benefit around 50 lakh central employees and 65 lakh pensioners ahead of Diwali. The government said the increase will be effective from July 1, 2019, and will cost the exchequer Rs 15,909.35 crore a year, and Rs 10,606.20 crore this year, from July 2019 to March 2020.

“This increase is in accordance with the accepted formula, which is based on the recommendations of the 7th Central Pay Commission,” the government said in a press release. “This is the highest ever 5-percentage-point increase in DA in one go by the central government,” Union minister Prakash Javadekar said while announcing the move, calling it a “Diwali gift”.

Earlier this year, the dearness allowance and relief were raised from 9% to 12% with effect from January.

Dearness allowance is an adjustment given to employees to compensate for the increase in the cost of living because of inflation. It is revised twice a year, on January 1 and July 1.

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