The Union Cabinet On Thursday approved a hefty 6 percentage point increase in the cost of living allowance, earlier called Dearness Allowance, from 16 to 22 per cent of basic pay. The new rates will be effective for 14 months from January 1 this year to February 2010, and the Centre will take a hit of Rs 6,020 crore.
Home Minister P Chidambaram told reporters after the Cabinet meeting, the second this week, that Rs 4,100 crore will be on account of dearness relief to government employees and the remaining Rs 1,920 crore will be given to pensioners,
The additional allowance will cover 8.3 million central government employees and pensioners. The payout will begin from March 1 this year. At present, there are 4.5 million central government employees, including defence and para military forces, and over 3.8 million pensioners.
Thursday's announcements come just two days after Finance Minister Pranab Mukherjee announced a two percentage point cut in excise duty and service tax that will cost the exchequer Rs 29,100 crore. In addition, a previous four percentage point cut in excise duty was also extended beyond March 31, 2009.