In a bonanza to its employees ahead of the ensuing Lok Sabha elections, the government on Friday decided to merge 50 per cent of dearness allowance with the basic pay, a step that may cost the exchequer Rs 4330 crore (Rs 43.2 billion) till the end of 2004-05.
The decision to merge DA was taken by the Union Cabinet at its meeting on Friday morning on the basis of recommendations of the Fifth Pay Commission.
Finance Minister Jaswant Singh had announced the proposal in his Interim Budget earlier this month.
The Cabinet is also believed to have considered a proposal for an additional 2 per cent DA to central government employees and commensurate dearness pay to retired employees that may cost another Rs 850 crore (Rs 8.5 billion) till March 2005.
The merger of DA is expected to cost the exchequer Rs 4151 crore (Rs 41.51 billion) annually while hiking of DA will entail an annual burden of Rs 730 crore (Rs 7.3 billion), the sources said.
Of the total burden on the DA increase, if effected, the benefits for retired employees would involve a sum of Rs 204 crore (Rs 2.4 billion) per annum while it would be Rs 238 crore (Rs 2.38 billion) till the end of the next financial year taking into account the remaining period of the current fiscal 2003-04, sources said.