The 8th Pay Commission is yet to submit its recommendations, but employee unions have already begun raising concerns over issues that they believe need attention.
The All India Defence Employees' Federation (AIDEF) has urged the commission to review the current formula used for calculating Dearness Allowance (DA) and Dearness Relief (DR).
The federation argued the current system may not reflect the actual cost of living and inflation faced by government employees and pensioners, as per a report in Mint.
The rollout of salary revisions under the 8th Pay Commission may not happen anytime soon, with employees having to wait until 2027 or beyond for recommendations on the fitment factor and revised pay structure.
Why Is AIDEF Seeking A Review?
At present, DA and DR are calculated using the 12-month average of the All India Consumer Price Index for Industrial Workers (AICPI-IW). The index is used to compensate central government employees and pensioners for inflation and rising living expenses.
However, the current methodology may not fully capture the actual inflation experienced by employees and pensioners, particularly those in lower-income groups.
Concerns Over The Current Inflation Index
In its supplementary memorandum submitted to the 8th Pay Commission, AIDEF said the revised Consumer Price Index (CPI) basket introduced in 2022-23 may not adequately reflect increases in food prices and seasonal agricultural products.
The federation pointed out that the weight assigned to food and beverages in the CPI basket has declined over the years, while categories such as housing, healthcare, transport, communication and digital services have received a greater share.
Key Things To Note
- Inflation index used for DA calculation: AICPI-IW
- Current basis of calculation: 12-month average of AICPI-IW
- Food and beverage weight in 2012 CPI basket: 45.86%
- Food and beverage weight in 2022-23 CPI basket: 36.75%
- AIDEF's concern: The index does not adequately reflect rising food costs, as food and beverage items now carry a lower weightage
Impact On Employees And Pensioners
According to the federation, lower-paid employees and pensioners spend a larger portion of their income on necessities such as food, medicines, healthcare, education and house rent. As a result, their actual cost of living may rise faster than what is reflected in the current inflation index.
The AIDEF also noted that pensioners often face higher spending on medical treatment, health insurance, medicines and caregiving services. If these costs increase at a faster pace than overall inflation, periodic DR revisions may not be sufficient to protect their purchasing power.
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What Has AIDEF Proposed?
As a solution, the federation has suggested the creation of a separate employee-focused cost-of-living index. The AIDEF believes such an index should better reflect changes in spending patterns and take into account expenses such as elderly care while determining future pay and pension revisions under the 8th Pay Commission.
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