In a significant move impacting over a crore central government employees and pensioners, the Modi administration has announced a 2% increase in the Dearness Allowance (DA) and Dearness Relief (DR). The Union Cabinet, led by Prime Minister Narendra Modi, approved this revision, marking a critical economic decision aimed at mitigating inflationary pressures. This adjustment is retrospectively effective from January 1, 2025.

The DA and DR have now been increased from 53% to 55% of basic pay and pension, respectively. This decision not only affects current employees but also encompasses pensioners reliant on their fixed incomes. For instance, employees earning a basic salary of ₹18,000 per month will see a ₹360 monthly increment, adding up to ₹4,320 annually. Meanwhile, pensioners with a basic pension of ₹9,000 will find an additional ₹180 monthly, amounting to ₹2,160 per year.

This hike has financial ramifications for the government, with an estimated cost to the exchequer of ₹6,614.04 crore annually. The adjustment aligns with the ongoing practices under the 7th Pay Commission, setting a precedent before the forthcoming 8th Pay Commission, which is set to bring about further pay revisions starting in January 2026.

Interestingly, this 2% adjustment is the lowest in the past seven years, contrasting with the typically expected hikes ranging between 3% to 4%. This decision reflects a cautious approach given the current economic climate. Employees and pensioners are set to receive arrears for the period from January to March 2025, and this increase will be reflected in their April 2025 payments.

Looking ahead, the next review for the DA and DR is anticipated towards the end of 2025, covering the July-December 2025 period. As the 8th Pay Commission gears up to implement its recommendations, central government employees and pensioners are expected to carefully monitor forthcoming salary adjustments amidst varying economic conditions.