DA from January 2017 will be 4% or 5% - Dearness Allowance Estimation

DA from January 2017 will be 4% or 5% - Dearness Allowance Estimation

DA from January 2017 will be 4% or 5% based on Consumer Price Index (Industrial Workers) from January 2016 to December 2016 - Net increase in DA with effect from January 2017 is estimated to be 2% or 3%

All India Consumer Price Index (Industrial Workers) for the month of November 2016 has been released by Ministry of Labour few days back.

What do we need for estimating DA from January 2017 ?

After implementation of 7th Pay Commission report, same inflation index i.e Consumer Price Index (Industrial Workers) with base year 2001=100, which was used for 6th Pay Commission Pay, is adopted for determining Dearness Allowance of Central Government Employees and Pensioners.
The only difference in DA calculation as far as DA from January 2016 will be, will be taking the Average of CPI-IW recorded in 2015 in the place of Average of CPI-IW recorded in 2005 which was used in 6th CPC DA calculation

Dearness Allowance payable after implementation of 7th Pay Commission

= (Avg of CPI-IW for the past 12 months - Average of CPI-IW recorded in 2015)*100/(Average of CPI-IW recorded in 2015)

In order to determine DA with effect from January 2017, based on the above formula we need Consumer Price Index for the months from January 2016 to December 2016

Now that Consumer Price Index for the months from January 2016 to November 2016 is available, we have made an attempt to estimate Dearness Allowance applicable to Central Government Employees and Pensioners with effect from 1st January 2016, by assuming the possible CPI (IW) for the month of December 2016.

Month	Actual AICPI-IW
Jan-2016	269
Feb-2016	267
Mar-2016	268
Apr-2016	271
May-2016	275
Jun-2016	277
Jul-2016	280
Aug-2016	278
Sep-2016	277
Oct-2016	278
Nov-2016	277
Dec-2016	Yet to be released

Estimation of DA from 1st January 2017:

Scenario 1 : No increase in AICPI (IW) in December 2016

AICPI (IW) for November 2016 is 277. If AICPI (IW) for December 2016 remains the same as November 2016, there will be additional 1% increase in DA from January 2017 which would make overall DA as 5%.

DA with effect from 1st January 2017	= [ (269+267+268+271+ 275+277+280+278+ 277+278+277+277)/12]-(261.4) X100/261.4
	= 5 %

Scenario 2: Decrease in AICPI (IW) in December 2016
Even if All India Consumer Price Index (Industrial Workers) decreases by 31 point and pegged at 246 in the month of December 2016, DA from January 2017 will be 4% . At the same time even for 1 point decrease in the index for December 2016 will result in lesser DA increase from January 2017 compared to Sceanrio 1 in which index is unaltered in Dec 2016.

DA with effect from 1st January 2017	= [ (269+267+268+271+ 275+277+280+278+ 277+278+277+246)/12]-(261.4) X100/261.4
	= 4 %

DA with effect from 1st January 2017	= [ (269+267+268+271+ 275+277+280+278+ 277+278+277+276)/12]-(261.4) X100/261.4
	= 4 %

Scenario 3 : Increase in AICPI (IW) in December 2016

It is very interesting to note here that, even for increase in consumer price index in the month of December up to 31 points, i.e Increase in AICPI (IW) for December 2016 to 308 points from 277 points in November 2016, DA from January 2017 will be 5% only.

DA with effect from 1st January 2017	= [ (269+267+268+271+ 275+277+280+278+277+ 278+277+308)/12]-(261.4) X100/261.4
	= 5 %

The other scenario that increase of more than 31 points in AICPI (IW) in the month of December 2016 for making DA with effect from January 2017 more than 5% is most unlikely.

Hence, it is more logical to conclude that DA from January 2017 will be either 4% or 5%.

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7th CPC DA Calculation – Important factor of AICPI (IW) BY 2001 continue or not..?

7th CPC DA Calculation – Important factor of AICPI (IW) BY 2001 continue or not..?

Dearness Allowance is one of the important issues that the Pay Commission deals with. The calculation method that was recommended by the 6th Pay Commission was radically different from the ones suggested by all the previous Pay Commissions. Dearness Allowance, which was increasing by 1 or 2% until the 5th Pay Commission suddenly shot up to the peak of double-digit numbers.

Until the 5th CPC, the Consumer Price Index Number for Industrial Workers 1982 = 100 was used for calculating dearness allowance. From the 6th Pay Commission onwards, CPI (IW) 2001=100 was used for calculating the DA.

There was another crucial change that the 6th CPC made. It recommended that the Reference Base Index be changed from 306.33. As a result, 115.76 became the new Reference Base Index from 01.01.2006 onwards.

Will the 7th CPC introduce a new CPI (IW)? Or will it bring about changes in the Reference Base Index?

This is something that everybody wants to know.

Just watch the difference between 5th and 6th CPC DA Calculation methods…

5th CPC calculation method is given below…

The extant formula for calculation of DA till 1-1-2004 was:

12 Monthly Average – 306.33
——————————————————–  x 100 = percentage increase in prices
306.33

The Fifth Pay Commission had recommended that DA should be converted into DP each time the CPI increased by 50% over the base index. The Government merged 50% of DA with the
basic pay w.e.f. 1-4-2004. The formula for calculation of DA for the period from 1-7-2004 is:

12 Monthly Average – 306.33
{  ————————————————  x 100} – 50 = percentage increase in prices
306.33

6th CPC calculation method is given below…

(12 Monthly Average) – 115.76
——————————————————–      x 100 = percentage increase in prices
115.76

 Source: http://7thpaycommissionnews.in/

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