Central govt employees may get less than 2% DA hike in the next revision – know the reason

The central government last month announced a 2% hike in dearness allowance (DA) and dearness relief (DR) to 55% for around 1.2 crore central employees and pensioners.

This 2% DA raise was the lowest in the last 78 months. But now, a further drop in inflation in the first three months of this calendar year, 2025, suggests that central employees might see a DA hike of less than 2% or even zero.

This will further disappoint crores of central government employees and pensioners who are looking for a decent hike in their dearness allowance in the July-December 2025 cycle. Technically, this will be the last DA revision in the 7th Pay Commission, which will complete its 10-year term on December 31 this year.

In this write-up, we will further discuss the reasons behind the possible cut in DA, its method of calculation, and its effect on government employees and pensioners. But before that, let’s understand the meaning of DA.

What is dearness allowance (DA)?

Dearness allowance is a type of cost-of-living adjustment allowance provided to central and state government employees and pensioners to offset the impact of rising inflation. DA is revised twice a year-for the January and June cycle and the July to December cycle. The first hike of the year is usually announced in March, and the second is announced in October/November every year.

DA is based on the All India Consumer Price Index (AICPI-IW) and helps maintain the real income of employees.

(Source: Labour Ministry)

The All India Consumer Price Index (AICPI-IW) data for the first two months of 2025 saw a decline, which may lower the DA hike for July-December 2025. The AICPI-IW is a key metric for calculating the DA hike of employees. So now that we have the AICPI-IW data for the first two months of this year and if the falling trend continues for another 4 months, this would ensure that central employees and retirees might have to settle for less than a 2% DA hike or even a zero percent raise.

AICPI-IW is the index based on which the increase in dearness allowance is decided. The Labor Bureau, under the Ministry of Labor and Employment, in its last month’s data showed that AICPI-IW fell by 0.4 points to 142.8 in February 2025, while it was 143.2 in January 2025.

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

It is now expected that AICPI-IW might further drop in March and April, keeping in view the overall inflationary situation in the country.

The retail inflation based on the Consumer Price Index (CPI) fell to a five-year low of 3.34% in March this year. It was 3.61% in February.

DA Calculator: How does the 7th Pay Commission formula work?

The DA hike was earlier calculated based on the AICPI with the base year 2001. It was later replaced with a new AICPI with the base year 2016 to calculate the DA from September 2020.

DA = (Avg of CPI-IW (base 2016=100) for the past 12 months x 2.88 — 261.4)*100/(261.4))

Where AICPI is the average Consumer Price Index for the last 12 months.

261.4 is the base index set by the 7th Pay Commission.

Summing up…

If the index figures do not improve, the next DA revision in July 2025 will not only be very low, but it will also impact the salaries of employees. This is also a matter of concern for pensioners, as DA forms a large part of their monthly allowance.