Dearness Allowance (DA) for central government employees and pensioners is calculated using data from the All India Consumer Price Index for Industrial Workers (AICPI-IW)'s 12-month average, as prescribed by the 7th Central Pay Commission (CPC). According to reports from Mint, the formula differs for different employee categories: for central government employees, DA percentage = [(Average of AICPI (Base Year 2001 = 100) for the last 12 months – 261.42) / 261.42] x 100, while for public sector employees, DA percentage = [(Average of AICPI (Base Year 2001 = 100) for the last three months – 126.33) / 126.33] x 100. The index measures retail inflation by tracking fluctuations in prices of goods and services consumed by industrial workers.
The 2% DA hike announced in April 2026 took DA from 58% to 60% of basic salary, effective from 1 January 2026. As reported by Mint, the Indian Banks' Association (IBA) announced revised DA and DR for workmen and officer employees across levels for May, June and July 2026, while the Indian Railways also announced a 2% DA and DR hike for its personnel. Multiple state governments have since increased DA and DR to close gaps with central government payments.
Over 1 crore workers benefit from DA hikes, comprising nearly 50 lakh central government employees and close to 65 lakh central government pensioners, including defence and railway personnel and retirees. According to Mint, DA is reviewed twice a year with new announcements usually made annually in March and October, with rollouts in July and January. Employees were expecting a second hike this year, with hopes for a 3-4% DA increase based on data trends, though the final revision depends on latest AICPI-IW data and Centre approval.
The All India Defence Employees' Federation (AIDEF) has sought changes to the current DA calculation method in a memorandum to the 8th CPC panel. As reported by Mint, AIDEF argues that the current formula does not adequately reflect actual cost of living, noting that while food and beverage account for only 36.75% of the AICPI index, healthcare, housing, transport, communication and digital services have received greater weightage. The federation proposes creating an employee-specific cost-of-living index that gives due weight to changes in expenditure and better recognises elderly care expenses.
With Diwali in November 2026, beneficiaries could expect a second DA hike announcement in the second half of the year, following precedent from the last two years when Labour and Employment Minister Ashwini Vaishnaw announced 3% DA hikes in October 2025 and 2024 ahead of Diwali festive seasons. According to Mint, the final revision will depend on latest AICPI-IW data and Centre approval, with employees hoping for a Diwali gift sometime in October or November.
