The words dearness allowance primarily suggests and refers to the allowance paid to employees in order to enable them

to face the increasing dearness of essential commodities. The system of DA for employees began during second World War when the government sanctioned a scheme of grain allowance to the lowest paid employees. gradually many other classes of employees in organized and partly unorganized sector began to receive DA as a means to protect, to some extent, the real income of wage earners and salaried employees from the effect of price rises.

The expectation was that over the time, if prices go back to the earlier level, the DA can be reduced or withdrawn. But this normally did not happen, and prices generally showed a tendency to continue to rise. In India, section 3 of the Minimum Wages Act refers to it as Cost of Living Allowance. This forms a variable component of the wage packet since the rate of allowances increases more than once every year where as the basic pay scale rate is revised after relatively longer spells of time, synchronizing with fresh wage settlement, pay commission award, etc.

DA is meant for neutralizing the rise in cost of living. It is an entitlement for the worker and cannot be reduced except in the case of decline in the prices. There shall be no discrimination in DA formula for people drawing similar wages within an organization. The direct linkage between pay scales and DA is also not to be missed.

The existing scheme of determination and sanction of DA usually have three parameters. i.e. the index factor, the time factor and points factor. The first parameter i.e. index is usually the All India Consumer Price Index (AICPI) Number for Industrial Workers (Base 1960 = 100 AICPI). This is compiled and published by the Labor Bureau, Shimla.

The second parameter is the manner in which the variation in the index selected is used. The scheme of DA should be directly related to the rise in the index selected. The allowance may go up with the revision in the index based on the average for a selected period to offset the temporary fluctuation in the index. The third parameter relates to the point factor. A dose of DA is related to certain prescribed increase in the number of the index points.

Applicable to the employees of the central Government, the index used is the AICPI. As per the recommendation of the Sixth Pay Commission (2008), the CDA is fixed as follows: 1. Basic DA: with effect from 01-01-2006, DA is granted to compensate the price increase above 536 points (Basic year 1982 = 100) [115.76 points( Base year 2001 = 100)], to which revised pay scale relate. This will be payable twice a year, payable from 1st January and 1st July.

2.

Rate of DA:
Date from which payable 01-01-2006 01-07-2006 01-01-2007 01-07-2007 01-01-2008 01-07-2008 01-01-2009 % of Basic Pay + NPA NIL 2% 6% 9% 12% 16% 22%

This is in vague in over two thirds of the central public sector and a large number of private sector organizations. The index used is the AICPI DA is sanctioned at the flat rate, irrespective of pay range, once every quarter. From 1April 1984 till the end of 1986, DA was being sanctioned at the rate of Rs. 1.65 per every point (subsequently raised to Rs. 1.90 per every point with effect from 1 January 1987.

In Bharat Heavy Electricals Limited (BHEL), a public sector undertaking which was taken to illustrate and work out the rate of neutralization, the minimum pay was Rs. 810.50 and the AICPI has 492 on April 1984 (810.50 divided by 492 = Rs. 1.65) The IDA neutralizes fully the price rise in the case of unionized staff drawing pay up to Rs. 810.

The index used is AICPI. DA is sanctioned every quarter. The rate of neutralization is different from CDA and IDA and depending upon basic pay range. This provides for a higher neutralization at senior levels than that of under IDA.

In certain industries, particularly in Chemical and Pharmaceutical industries in the Bombay region, DA is paid on the basis of double linkages. 100% for the first slab of basic pay of Rs.100. Additional 50% for the next Rs.100/- 25% more for every slab of the next Rs.100 or part thereof. A person with basic pay of Rs.400 will get Rs.800 as DA (200%) and the one with a basic pay of Rs.600 will get Rs.1500 (250%)as DA