Central government employees and pensioners should temper expectations as the 8th Pay Commission phase approaches. Updated inflation numbers point to a likely 2% increase in Dearness Allowance (DA) and Dearness Relief (DR), pushing the entitlement to about 60% of basic pay for the first half of 2026.
Expected to be cleared by the Union Cabinet in the run-up to Holi in March 2026, the revision will become the first DA hike since the 7th Pay Commission came to an end on Dec. 31, 2025. While such revisions are customary, the timing lends this one particular importance.
According to the Labour Bureau's December 2025 CPI-IW data, the index showed no movement, remaining at 148.2 points. This has effectively locked in the dearness allowance computation for January 2026.
Data from the second half of 2025 points to a slow but consistent upward movement in the 12-month average CPI-IW. The index rose from 146.5 in July to 148.2 by November and December, with the corresponding DA rate inching up from 58.53% to 60.34% over the period.
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Applying the 7th Central Pay Commission formula places the 12-month average at 60.34%. In line with convention, the government is expected to round this down to 60%, setting DA and DR at that level from Jan. 1, 2026.
This leaves little room for speculation over the size of the increase.
A dearness allowance increase of just 2% is a rarity, last recorded in July 2018 and again in January 2025. The revision goes beyond a standard inflation-linked update, as it arrives at a critical juncture between two pay commission regimes.
With the 7th Pay Commission concluding its decade-long term on Dec. 31, 2025, the January 2026 DA increase becomes the first to fall outside its formal ambit, signalling a transition ahead of the 8th Commission's recommendations.
Employee unease is largely focused on the fitment factor: the multiplier applied to revise basic pay and pensions when a new pay commission comes into force. Conventionally, the dearness allowance prevailing at the time is folded into basic pay and then reset.
The quantum of this merger plays a key role in determining the fitment factor. With DA likely to stand at 60% in January 2026 and increase only gradually thereafter, the base available for merger under the 8th Pay Commission could be limited, keeping the minimum fitment factor close to 1.60, as per analysts.
Over time, slower DA growth now could mean more modest permanent pay revisions later.
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