Deteriorating revenue position in the backdrop of the pandemic-induced economic shutdown has forced the central government to put on hold increment in dearness allowance (DA) for 48 lakh central government employees and 65 lakh pensioners till July 2021.
The Finance Ministry Thursday said it has decided that additional instalment of DA payable to central government employees and dearness relief (DR) to central government pensioners due from January 1, 2020, shall not be paid. While the increase is being held back, DA and DR at current rates will continue to be paid.
Government sources said the savings on account of freezing of these instalments of DA and DR to central government employees and pensioners would be Rs 37,530 crore in the current financial year and 2021-22.
Creates more elbow room
Given that the pandemic is straining government finances, this freeze will lead to an estimated saving of Rs 37,530 crore in the current financial year and 2021-22 — creating room for stepping up expenditure on health and welfare measures. If states follow the Centre, which they do, the savings will be Rs 82,566 crore.
“The unprecedented situation arising from the COVID-19 pandemic has placed huge additional demands on government finances. There is need for major increase in the expenditure on health as well as on welfare measures for various affected sections of society including the poor and vulnerable,” the sources said, justifying the decision.
Since states generally follow the central government on DA and DR decisions, it is expected that states may announce similar decisions. It is estimated that the savings on suspension of these instalments of DA and DR of state government employees and pensioners will be Rs 82,566 crore, the sources said. The 4 per cent DA hike for central government employees was announced last month effective from January 1, 2020.
Slowing tax and non-tax revenues have strained government finances, even as there are demands of economic stimulus to protect the economy from entering into recession. While there are doubts on aggressive stake sale plans given the slump in stock markets, net direct tax collections had contracted after 20 years in 2019-20. During 2019-20, the government faced a shortfall of Rs 1.42 lakh crore from the downward revised target at Rs 10.27 lakh crore, a decline of 9.6 per cent from previous year’s collections.
Earlier this month, the Union Cabinet had cleared a 30 per cent salary cut for all MPs, including the Prime Minister and Union Ministers, for a year. It also decided to suspend all MPLADS (Members of Parliament Local Area Development Scheme) funds — under which each elected MP gets Rs 5 crore annually for development work in his/her constituency — for two financial years starting April 1. The money from the MPLADS funds — nearly Rs 8,000 crore — will go to the Consolidated Fund of India which, the government had said, will be used in the battle against COVID-19.
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