7th Pay Commission – Impact of Flat CPI (IW) Aug 2014 to Dec 2014

7th Pay Commission Pay – Impact of Flat CPI (IW) Aug 2014 to Dec 2014

7CPCNeedless to say, news and developments on 7th Pay Commission are foremost things that draw the attention of Central Government Employees and Pensioners nowadays.

As the commission’s regular time frame for submission of report is getting completed in less than 11 months, employees and pensioners hope for either implementation of Revised 7th Pay Commission Pay and Pension in time or grant of DA merged pay with interim relief from 1st January 2016.

Both of these exercises would require a percentage of Dearness Allowance to be merged with pay. So Quantum of DA as on 1st January 2016 gains much significance here.

As of now, Central Government and Railway employees and Defence personnel are in receipt of DA of 107% from July 2014. With all the indices from Jan 2014 to Dec 2014 have been officially released, DA with effect from January 2015 is confirmed to be 113%.

Check this article : 6% DA hike from January 2015

Though increase in DA of 6% from January 2015 appear normal at par with increase in DA previously, additional DA this time was possible only due to higher Consumer Price Indices from Jan 2014 to July 2014.

The index from August 2014 to December 2014 is totally flat and remained at 253 for 5 months thanks to economical factors such as lesser oil prices, good monsoon etc.

As, period from July 2014 to Dec 2014 form the 1st half of the chain of CPI needed to calculate DA from July 2015, this no inflation scenario would definitely impact quantum of DA from July 2015. For example, if CPI (IW) is flat at 253 for two more months (Jan 2015 and Feb 2015) and one or two point increase in the next 4 months (Mar, Apr, May and Jun 2015) would result in DA increase of only 5% from July 2015

DA from Jul 2015 [(252 + 253 + 253 + 253 + 253 +253 +253 + 253 + 254 + 255 + 255 + 255) -115.76]*100/115.76
= 118 % (DA increase of 5% from July 2015)

As far as DA from January 2016 is concerned, the cost of living indices from January 2015 to December 2015 will be the deciding factors. On account of various economical factors such as reduced interest rates etc., CPI (IW) may either be heading south or remain flat during this period, but it is too early to predict those factors now. Any way, it is sure that Consumer Price Index from January 2015 to December 2015 may not experience any steep upward movement. In that case, we can safely assume one point increase in CPI (IW) in alternative months from July 2015 to Dec 2015. This assumption provides increase in DA of only 2% from January 2016, which is worked out as follows

DA from January 2016 [(253 + 253 +254 +255 + 255 + 255 + 256 + 256 + 257 + 257 + 258 + 258) -115.76]*100/115.76
= 120 % (DA increase of 2% from July 2015

Source: gconnect

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