Financial Apartheid

TPS

Rationalisation of Payment of Dearness Allowance/Relief to Government Employees and Pensioners

 

Current DA/DR being paid to employees and pensioners is pegged at 17% of the basic pay/pension. After the implementation of VIIth Pay Commission pay scales each percentage increase in DA/DR costs the exchequer about INR 3,600 crore. Thus, as on date the nation absorbs an amount of INR 61,200 Crore per annum on account of DA/DR payment. Due to COVID-19 pandemic the Government took one of the most important fiscal decision to freeze DA/DR at 17%. DA/DR increase, if any, will be reviewed in July 2021. This decision resulted in immediate saving of nearly INR 14,000 Crore.  In addition non-payment of DA/DR due on 1st July, 2020 and 1st January, 2021 will result in saving of another INR 26,000 Crore, totaling net saving of nearly INR 40,000 Crore, which can be gainfully utilized to fight COVID-19 outbreak and related effects.

Broadly speaking DA/DR is paid to employees/pensioners to absorb the marginal increase in prices of commodities/services etc for basic sustenance of all citizens, which implies that the price increase effects every citizen in an identical manner.

Current policy of DA/DR increase was implemented after IVth Pay Commission. It replaced the earlier policy of formation of a review committee to assess the increase in prices of commodities and basic services and recommend the change in DA/DR rates. Even then the change of DA/DR rates was based on percentage points. After IVth Pay Commission in 1986, rate of DA/DR was mandatorily revised twice a year on 1st January and 1st July.

This methodology of calculating DA/DR has two basic flaws and is an example of poor fiscal management for two reasons:-

  • DA/DR rise as a percentage of basic salary/pension results in disproportionately higher increase of salary/pension for those employees, who are getting higher salary/pension. No rationale is available as to why DA/DR payment is/was calculated on percentage basis, thereby creating a huge disparity in actual amount of ‘numerical’ increase in net salary/pension.
  • DA/DR payment twice a year actually results in increase of net salary for serving employees THREE TIMES a year, once on account of annual increase in BASIC PAY and twice on account of increase in DA. For pensioners the rise in overall pension has been TWICE a year on account of increase in DR.

DA/DR is defined as:-

In layman terms, dearness allowance is defined as the cost of living adjustment allowance which the government offers to public sector employees, as well as pensioners. Dearness Allowance is a component of the salary which is applicable to employees. DA/DR increase is dependent on a single parameter called All India Consumer Price Index (AICPIN). AICPIN is calculated by taking into account various basic parameters for sustenance. These are:-

  • Food Group. Food group comprises of cereals, pulses, oils and fats, milk products, meat, fish, eggs, condiments, spices, fruits and vegetables and other food products viz tobacco and intoxicants.
  • Fuel
  • Electricity
  • Housing
  • Clothing, Bedding
  • Medical Care
  • Education
  • Recreation and Amusement
  • Transport
  • Communication
  • Personal Care

Each of the above parameters is given an index value. It is elementary to deduce that increase in prices of few or all items listed above result in identical financial burden on a Secretary level officer as well as a peon. To illustrate; if the price of pulses has risen by Rs 10/- per Kg, it will effect everyone buying the pulses. Confining the discussion to government employees and pensioners only, the net effect of price increase of one or all of the above imposes identical financial burden on everyone depending on the quantity purchased or services availed.

Which brings into focus the biggest flaw in the existing system of awarding DA/DR increase as the ‘percentage’ of ‘BASIC PAY/PENSION’. To elaborate:-

  • An employee, whose basic salary/pension is Rs 10,000/- per month will receive DA increase of Rs 100/- only for every percent rise in DA.
  • However, an employee, whose basic salary/pension is Rs 1,00.000/- per month will receive DA increase of Rs 1,000/- for every percent rise in DA.
  • The method of calculating DA increase as a percentage of basic salary/pension is, therefore flawed. It implies that a person earning higher salary gets disproportionately higher increase in actual terms (Rs 1,000/- as against Rs 100/-).
  • Increase in the cost of items/services effects equally. For instance food needs (quantum of food consumed) of a family of four (two adults and two children) belonging to a peon, whose basic salary is Rs 10,000/- and that of a Secretary to Government of India earning Rs 1,00,000/- would be nearly same for sustenance.
  • Why then the secretary earning ten times the salary is rewarded with ten times increase in DA?

The existing system of calculating DA as percentage of one’s salary/pension needs to be discontinued.

All employees/pensioners must get identical DA irrespective of their basic pay/pension. System of calculating DA/DR increase as a ‘percentage’ of basic pay/pension must be given a decent burial. Actual ‘NUMERICAL’ increase in DA/DR can be arrived at by simply calculating the amount due to the employee/pensioner receiving the lowest basic pay/pension. For instance if the lowest basic salary/pension as on date is Rs 10,000/- and AICPIN figures suggest that increase in prices of commodities/services is 17%, then DA/DR increase of INR RS 1,700/- be given to all employees/pensioners.

The magnitude of actual disparity as on date can be seen if we consider the DA due to Cabinet Secretary (Basic Pay INR 2,50,000/-) and a Level 1 employee (a peon) at the time of joining (Basic Pay INR 18,000/-). At the current rate of DA (17%) Cabinet Secretary receives INR 42,500/- as DA, whereas the peon receives a mere INR 3,060/-.

Should the conscience of senior functionaries of Govt of India, who advise, rather decide the issues such as methodology for calculating DA/DR as percentage of their salary/pension, allow such disparity wherein the Cabinet Secretary receives FOURTEEN TIMES more DA than a level 1 employee? Surely DA/DR is not meant for purchasing luxury items by the senior functionaries.

Following is recommended:-

  • Current methodology of calculating DA/DR as a percentage of Basic Salary/Pension must be discontinued.
  • With effect from 01.06.2020 all government employees/pensioners be paid uniform rate of DA/DR of INR 3,060/- (17% of INR 18,000/-).
  • Latest value of AICPIN as on 30.06.2020 should be used to arrive at the new figure of DA/DR.
  • New rate of DA/DR be implemented wef 01.07.2020.
  • DA/DR should not be taxable.

DA/DR increase is meant to absorb the increase in cost of items for basic sustenance and not for buying luxury items. Suggested method of payment of DA/DR to employees/pensioners would, almost certainly, reduce the total annual outgo from the current burden of INR 61,200 Crore by at least 50% i.e. by nearly INR 30,000 Crore.

Gp Capt TP Srivastava

6th May, 2020

9818926254

 

 

 

 

 

Published by TPS

Born in a legal practitioner’s family of repute in 1950, I chose to serve the finest institution of any nation, The Military. Over three decades with the IAF, I spent nearly quarter century sitting in the close confines of magnificent flying machines viz MiG-21 and MiG-29, a different world altogether. I have had the opportunity to walk the corridors of power and witness profligate governance by the politicians and bureaucrats alike with military leadership not lagging too far behind. I have traveled extensively across Middle East, South East Asia, most of Europe, China and the USA. I have authored a book titled “Profligate Governance--- Implications for National Security” dealing with national and international affairs, specific military affairs, geo-strategic scenario etc. In the twilight of my life my interest revolves around improving standards of Primary Education in the country. Whatever I save from my pension goes towards establishing libraries for children in village schools.

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