CABINET CLEARS DA HIKE OF 1%

NEW DELHI: The Union government raised the dearness allowance for central government employees and pensioners by 1% on Tuesday, and approved a bill to raise the ceiling of tax-free gratuity from ₹10 lakh to ₹20 lakh for private sector employees.

The increase in dearness allowance and dearness relief to 5% from 4% will benefit around 49.26 lakh central government employees and 61.17 lakh pensioners, Union minister Ravi Shankar Prasad said.

Fatter pay cheques could help increase spending in an economy that is seen to be still reeling from the effects of last year’s note ban, though experts said the impact is likely to be mild. The economy growth rate in the last quarter plummeted to 5.7% from the corresponding period a year before. The hike, which will be given on salaries from July 1, 2017, was part of several decisions taken by the Union cabinet that met for the first time since Prime Minister Narendra Modi’s team was rejigged. It creates an additional annual burden of ₹3,068.26 crore per annum on the exchequer, but for this year, it will cost ₹2,045.50 crore since it is applicable only from July.

“The increase in DA will only mildly support the economy,” said DK Joshi, chief economist at financial analysis firm Crisil.

In a statement, the government said Tuesday’s decisions — particularly the one on the gratuity bill — were made after considering the increase in inflation and wages. “The government is of the view that the entitlement of gratuity should be revised for employees who are covered under the Payment of Gratuity Act, 1972, which is an important social security legislation to wage earning population in industries, factories and establishments”.