The hike will be effective from July 1, 2012, and the employees would be entitled for arrears from this date.
The hike in the DA from 65 per cent to 72 per cent will cost the exchequer Rs 4,939 crore for the remaining part of the current financial year.
The annual burden on account of the DA increase has been estimated at Rs 7,408 crore, says an official release.
The decision, which was approved by the Union Cabinet, will benefit about 50 lakh employees and 30 lakh pensioners of the central government.
The increase in DA is in accordance with the accepted formula which is based on the recommendations of the 6th Central Pay Commission, the release added.
The relief comes in the backdrop of government increasing the diesel price by Rs 5 per litre and retail inflation crossing the double-digit mark.
The government had increased DA last in March this year from 58 per cent to 65 per cent, which was effective from January 1, 2012.
The government periodically hikes the DA, which is linked to consumer price index for industrial workers. The all-India Consumer Price Index for June, 2012 worked out to be 199.58, which constituted an increase of 72.40 per cent over the base index of 115.76 (as on January 1, 2006).
The consumer price index (CPI), based on movement in retail prices, soared to 10.03 per cent in August, from 9.86 per cent in July.
As regards the financial implications, the annual burden on exchequer would be Rs 4,338 crore on account of increase in DA for employees and Rs 3,070 crore towards pensioners.
The burden during the remaining part of the current fiscal has been estimated at Rs 2,892 crore on account of additional payment to employees and Rs 2,046 crore to pensioners.
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