7th Pay Commission Dearness Allowance Calculation

One of the most crucial issues faced by the Central Pay Commission is dearness allowance. The method for calculation that was suggested by the previous Central Pay Commission had several differences in comparison with the suggestions made between the 1st and 5th Central Pay Commissions. Until the 5th Central Pay Commission, dearness allowance used to rise by 1-2%, but off late the increments have been in excess of 10%. Dearness allowance until the 5th Central Pay Commission was calculated by the All India Consumer Price Index Number for Industrial Workers 1982 = 100. However, the All India Consumer Price Index Number for Industrial Workers 2001 = 100 came into use from the 6th Central Pay Commission.

One of the most important changes made by the 6th Central Pay Commission was the change in Reference Base Index from 306.33, due to which the new Reference Base Index is now 115.76. The changes came into effect from January 1, 2006.

Employees of the Central Government receive dearness allowance so that the cost of living is adjusted while their basic pay is safeguarded against erosion in the real value which usually happens due to inflation. Currently, dearness allowance is calculated on the basis of the All India Consumer Price Index for Industrial Workers.

7th Central Pay Commission Review and Suggestions

The National Statistical Commission was suggested by the 6th Central Pay Commission to check if it was possible to undertake a survey with employees of the Central Government as respondents. The initiative was suggested as it would open the door to formulating a separate index. There have been no such changes, however, and the Commission has suggested that the use of the current formula be continued considering how well it has worked over the past few years.

The prices have been taken into consideration from the Labour Bureau, Shimla, and are used to calculate the All India Consumer Price Index for Industrial Workers and also to compute dearness allowance. At the moment, the prices used are from July 2014 to June 2015 and dearness allowance is calculated at 119% from July 1, 2015.