The Union Cabinet on Saturday approved a two-percentage-point increase in dearness allowance (DA) for central government employees and dearness allowance (DR) for pensioners, taking both to 60% of basic pay and pension, respectively. The decision, taken at a meeting chaired by Prime Minister Narendra Modi, will be effective from January 2026 and is expected to benefit around 12.2 million people, including 5.4 million employees and 6.8 million retirees. This adjustment, based on inflation trends, will increase annual government spending by $6,791.24 crores.
Union Information and Broadcasting Minister Ashwini Vaishnaw said the rise follows the standard formula linked to movements in the Consumer Price Index for Industrial Workers (CPI-IW), the benchmark used to adjust salaries and pensions for inflation. DA and DR were previously set at 58% of basic pay.
The Union government reviews the DA and DR twice a year – in January and July – to offset the impact of price hikes. The cost allowance applies to active employees, while the cost allowance is paid to retirees. Any increase in the designated account directly boosts wages earned and provides a cushion against inflation.
An official statement said: “This increase comes in accordance with the accepted formula based on the recommendations of the Seventh Central Wages Committee.” The review comes with a slight delay, as such increases are usually announced by March.
The government has also initiated reviews and further processes of the Eighth Pay Commission, which will recommend the next review of salaries, pensions and allowances. The deadline for submitting proposals is April 30. The committee, which was formed in November 2025, was given 18 months to finalize its recommendations.
The Seventh Pay Commission, implemented in 2016, set the minimum basic wage at $18,000 per month and maximum $2.5 lakh. The Eighth Pay Commission will review these pay scales based on the so-called setting factor, which is essentially a formula based on a numerical multiplier. The raise in the wage scale comes at a time of increasing concerns about wages. Recent weeks have seen labor unrest in private industrial hubs in Noida and Gurugram over wages and working conditions, underscoring broader concerns in the labor market even as the government moves to reduce its workforce.
