On April 23, the Union government decided to freeze the Dearness Allowance (DA) and Dearness Relief (DR) – paid as compensation for inflation- hike to 48 lakh central government employees and 65 lakh pensioners, for the period from January 1, 2020, to July 1, 2021. The freezing of DA and DR for 1.13 crore Union government employees and pensioners will save 37,530 crore rupees in the financial year 2020-21 and 2021-22, and this money would be diverted to medical equipment and resources in the fight against Coronavirus.
It must be clarified here that the government has not cut or hed back the whole DA or DR, only the 4 percent hike, approved by the Modi government in March this year, is to be frozen. Congress is trying to peddle the misconception that the government has frozen all Dearness Allowance amount which, obviously, is not true. Only the additional installments of the hiked amount would not be paid.
“It has been decided that the additional installment of DA payable to central government employees and DR to central government pensioners due from 1st January 2020 shall not be paid. The additional installments of DA and DR due from 1st July 2020 and 1st January 2021 shall also not be paid,” said the Ministry of Finance.
“As and when the decision to release the future installment of DA and DR due from 1st July 2021 is taken by the government, the rates of DA and DR as effective from 1st January 2020, 1st July 2020 and 1st January 2021 will be restored prospectively and will be subsumed in the cumulative revised rate effective from 1st July 2021,” reads the government order.
Modi government has increased DA and DR for central government exponentially in the last few years, in order to boost expenditure. In October 2019, the government increased the Dearness Allowance from 12 percent to 17 percent for the 1.13 crore employees, and in March this year, the government increased the allowance from 12 percent to 21 percent. Therefore, in a period of less than one year, DA for the employees was increased from 12 percent to 21 percent, and this money goes to government employees from poor taxpayer’s money.
As the states mostly follow the central government on matters like paying Dearness Allowance, the majority of the states might freeze the installments. This would save 82,566 crore rupees for the government to spend on emergency health facilities.
The government is going to face a huge shortfall in revenue as the tax collection is going to touch an all-time low due to the Coronavirus pandemic. In fact, the government has to spend the extra money and give support packages to various industries and boost consumer expenditure. Therefore austerity measures for reducible expenditure are necessary.
Previously the government announced that all MPs would take 30 percent salary cut and MPLADS (Members of Parliament Local Area Development Scheme) fund was suspended for the next two financial years, starting from April 2020.
Given the fact inflation is expected to remain strikingly low for at least the next one year as the people have little spending capacity due to salary cut and low income from businesses, freezing Dearness Allowance makes a lot of sense, as it is awarded to cushion inflation impact on employees income.
But the Congress party instantly started playing petty politics around the issue, and even former PM Manmohan Singh, who, if in the economic advisory council would have suggested the same as this is the most logical step at this time, criticized the government’s move.
“We should be on the side of people whose dearness allowance is being cut. I sincerely believe it is not necessary at this stage to impose hardships on government servants and also on the armed forces people,” said the former Prime Minister in a video message put out on Congress’ Twitter handle.
After his video message, Twitterati came out to show him the mirror on how the previous Congress governments forced the employees to deposit money in the government funds and he was Economic Advisor to the government at that time.
There were 2 schemes in 1963 and 1974 and these were applicable to ALL tax payers including govt servants. There was a compulsory deposit scheme under which a part of the salary was withheld and deposited in a fund with a lock-in period of 3 or 5 years.
Salary and not DA! (1/n) https://t.co/SXcfUhIkeP pic.twitter.com/TN6BoeqEPh
— Vikas Pandey (@MODIfiedVikas) April 25, 2020
The austerity measures taken by the government are necessary to divert resources to create critical medical infrastructure for the fight against Coronavirus, and any petty politics around the issue would only harm the Congress party in the long run.