New Delhi: The method used to calculate Dearness Allowance (DA) for Central government employees and Dearness Relief (DR) for pensioners could undergo significant changes if the 8th Pay Commission accepts a proposal submitted by the All India Defence Employees’ Federation (AIDEF). In its second memorandum to the commission, AIDEF has called for a complete overhaul of the existing inflation measurement system, arguing that it no longer reflects the actual cost of living faced by employees and pensioners.

The federation has maintained that the current Dearness Allowance formula under the 7th Central Pay Commission understates inflation, particularly for lower-income households and retired employees who spend a larger share of their income on essential goods and healthcare.

The proposal forms part of the stakeholder submissions received by the 8th Pay Commission, which is now preparing for consultations with employee unions and representative organisations across the country.

Why AIDEF wants the DA formula changed

Under the recommendations of the 7th Central Pay Commission, Dearness Allowance and Dearness Relief are revised twice every year based on the 12-month average of the All-India Consumer Price Index for Industrial Workers (AICPI-IW).

The current formula for Central government employees is:

DA (%) = [(12-month average of AICPI-IW – 261.42) ÷ 261.42] × 100

For public sector employees, the calculation is based on the three-month average of the AICPI-IW.

According to AIDEF, the existing methodology no longer captures the real inflation experienced by employees because it assigns greater weight to expenditure categories where prices remain relatively stable, while giving comparatively lower importance to rapidly rising essential expenses.

The federation argues that this results in a lower estimate of inflation than what many families actually experience.

Concerns over Consumer Price Index weightage

AIDEF has also questioned the composition of the revised Consumer Price Index (CPI) basket introduced in the 2022-23 financial year.

According to the federation, the weight assigned to food and beverages in the CPI basket has been reduced from 45.86 per cent in the 2012 basket to 36.75 per cent in the revised 2022-23 basket.

The organisation contends that food inflation continues to account for a significant share of household expenditure, particularly among employees in lower pay levels.

It argues that reducing the weight assigned to food prices while increasing the weight of relatively stable expenditure categories prevents the index from accurately reflecting the actual rise in living costs.

AIDEF has also pointed out that pensioners face increasing expenditure on medicines, healthcare and caregiving, areas where inflation has often remained higher than the overall Consumer Price Index.

Proposal for an employee-specific inflation index

Rather than making small adjustments to the existing formula, AIDEF has recommended creating a dedicated cost-of-living index specifically for Central government employees and pensioners.

The proposed index would better reflect current spending patterns and account for the growing share of household expenditure on food, healthcare, education, housing and elderly care.

The federation has also urged the 8th Pay Commission to consider these changing expenditure patterns while determining the fitment factor for salary and pension revisions.

According to AIDEF, a revised inflation index would ensure that future Dearness Allowance increases more accurately compensate employees and pensioners for rising living costs.

8th Pay Commission begins stakeholder consultations

The 8th Pay Commission concluded the submission of memorandums from stakeholder organisations on June 15.

The commission is now scheduled to visit various states to hold consultations with employee unions, pensioner associations and other representative bodies before finalising its recommendations.

Since April, the panel has conducted multiple discussions covering salary revision, fitment factor, Dearness Allowance, pension benefits and the overall pay structure for Central government employees.

The recommendations of the commission are expected to shape the salary and pension framework for lakhs of employees and pensioners over the coming years.

Will employees get another DA hike in 2026?

The demand for revising the DA calculation comes amid continuing inflationary pressures.

Recent market data has shown increases in both wholesale and retail inflation, with rising prices of fuel, petroleum products, manufactured goods and essential food items placing additional pressure on household budgets.

Items such as milk, vegetables, tomatoes, ginger, petrol, diesel and CNG have continued to become more expensive in recent months.

Several employee organisations believe another DA revision could provide relief if inflation remains elevated.

Although media reports suggest that the Centre may announce another Dearness Allowance hike around July or September, the government has not made any official announcement regarding the next revision.

For now, AIDEF’s proposal remains one of several recommendations under consideration by the 8th Pay Commission, and any changes to the DA formula will depend on the commission’s final recommendations and the government’s approval.

Excerpt: AIDEF has urged the 8th Pay Commission to replace the existing DA formula, saying it no longer reflects the actual inflation faced by employees and pensioners.

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