The government on Friday approved a proposal to hike dearness allowance to 90 per cent from existing 80 per cent, a move that would benefit about 50 lakh central government employees and 30 lakh pensioners.

"The Union Cabinet approved the proposal to increase dearness allowance to 90 per cent at its meeting here. The hike would be effective from July 1, this year," a source said.

According to the source, the increase in DA to 90 per cent would result in additional annual expenditure of Rs 10,879 crore (Rs 108.79 billion). There would be additional burden of Rs 6,297 crore (Rs 62.97 billion) on exchequer during 2013-14 on account of this hike in DA.

This is a double digit hike in DA after about three years. It was last in September, 2010, that the government had announced a hike of 10 per cent to be given with effect from July 1, 2010.

DA was hiked to 80 per cent from 72 per cent in April, 2013, effective from January 1, this year.

As per the practice, the government uses CPI-IW data for past 12 months to arrive at a number for the purpose of any DA hike.

The retail inflation for industrial workers between July, 2012 and June 2013 was used to compute the increase in DA.