The dearness allowance (DA) for central government employees and pensioners was last increased by only 2%, the lowest hike in about 78 months. After the latest DA hike for the January-June 2025 cycle, the key allowance currently stands at 55%.
DA – a type of cost-of-living adjustment allowance provided to government employees and pensioners to offset the inflationary impact – is revised twice a year, for the January to June cycle and the July to December cycle. The central government usually announces one hike in March and the second in October/November every year.
After a disappointing 2% DA hike for the January-June cycle, over 1.2 crore central government employees and pensioners expect a higher raise in the key allowance for the July-December cycle, which will be the last scheduled dearness allowance hike under the 7th Pay Commission. The 7th pay panel will complete its term on December 31, 2025 and give way to the implementation of the 8th Pay Commission. However, keeping in view the current progress, it is very unlikely that the 8th Pay Commission recommendations will be implemented from January 2026 as earlier expected.
CPI-IW data of March 2025 raised hopes for higher DA hike in next July review
The March 2025 data of the All India Consumer Price Index for Industrial Workers (CPI-IW) released by the Labor Bureau under the Ministry of Labor has raised hopes. In March, the CPI-IW index increased by 0.2 points to 143.0. Although it is slightly lower than January’s 143.2, it is a positive sign as far as the DA hike is concerned as before this there was a continuous decline in inflation numbers based on AICPI-IW after November 2024 and continued until February 2025.
The year-on-year inflation rate in March stood at 2.95%, which is slightly higher than February. The special thing was that the inflation of food items remained under control, due to which a slight increase in the overall CPI-IW was recorded.
How is DA hike calculated taking CPI-IW figure?
According to the recommendations of the 7th Pay Commission, the DA / DR hike is calculated by taking the average of 12 months of CPI-IW. Recently, DA was increased to 55% effective January 2025. Now, all eyes are on the CPI-IW figures regarding the possible increase in July 2025.
How much can DA increase in July 2025?
Based on the average till March 2025, the estimated DA has reached 57.06%. If the CPI-IW figure remains stable or go slightly up in April, May, and June 2025, then this average can go up to 57.86%. Usually, the DA hike percentage is rounded up to the next whole number.
That is if the average is above 57.50%, then DA can increase to 58%. If it remains below 57.50%, then DA can remain at 57% only. This means that a 2% or 3% increase in DA is considered certain in July 2025.
According to the Seventh Pay Commission, DA is calculated using this formula:
DA (%) = [(CPI-IW average of last 12 months) – 261.42] ÷ 261.42 × 100
Here 261.42 is the base value of the index. This formula determines DA based on the monthly average of CPI-IW.
Now, the AICPI-IW data for the next three months holds the key. The CPI-IW data for April, May and June 2025 are yet to come, and their average will determine the final DA in July. The June data will come by the end of July or early August. Once the data for the 12 months up to June 2025 is available, the government will announce the new DA and DR to be implemented from July 2025.
Although the increase in CPI-IW so far has been marginal, it is a positive sign after a continuous decline. If the inflation figures remain stable or slightly better in the next few months, then central employees and pensioners may get a DA hike of 2% to 3% in July 2025.