Less than 2% hike in July? Big blow for central govt employees!

DA Hike July Update- The central government last month increased dearness allowance (DA) and dearness relief (DR) by 2% for about 1.2 crore central employees and pensioners, increasing the total DA to 55%. This increase was the lowest in the last 78 months. Now due to further decline in inflation rate in the first quarter of 2025, there are indications that central employees may get DA increase of less than 2% or zero percent in the period July-December 2025.

This will be another blow to lakhs of employees and pensioners who were expecting a good hike in the second half of this year. Technically, this will be the last DA revision under the 7th Pay Commission, which is completing its 10-year term on December 31, 2025.

What is DA?

Dearness Allowance is a type of salary adjustment that the government gives to its employees and pensioners to compensate for rising inflation. It is revised twice a year, once for January-June and second time for July-December.

DA is calculated on the basis of All India Consumer Price Index for Industrial Workers (AICPI-IW) to ensure that the real income of employees is not affected by inflation.

What does AICPI-IW data say?

The AICPI-IW registered a decline in the first two months of 2025. The index stood at 143.2 in January, which fell to 142.8 in February.

Year-on-year inflation rate declined to 2.59% in February 2025, while it was 4.90% in February 2024.

Moreover, retail inflation (CPI) declined to 3.34% in March, the lowest in the last five years.

If this decline continues in the coming months, the DA increase by July 2025 could be less than 2% or even zero.

How is DA calculated?

The new AICPI-IW with base year 2016 is being used from September 2020 under the 7th Pay Commission.

DA Formula

DA = [(CPI-IW average of last 12 months x 2.88) – 261.4] x 100 / 261.4.

Here 261.4 is the base index which is decided by the 7th Pay Commission.

If the AICPI-IW figures do not improve in the coming months, the DA hike of July 2025 will not only be extremely low but will also impact the salaries of employees and the monthly income of pensioners. This is a matter of concern, as for pensioners, DA is a major part of their total monthly pension.