Saturday, July 30, 2011

DA @ 58% WEF 01.07.2011



Thursday, July 28, 2011

Life Certificates required to be submitted by Pensioners to PDAs – Yearly every November :Pension Payment Guidelines for PDAs - Certificates required to be submitted by Pensioners to PDAs


a. Life Certificate Yearly every November

b. Certificate of non re-marriage From widow recipient of Family Pension at the time of first payment

c. Certificate of non marriage/ remarriage Half yearly in May & November from unmarried daughter recipientor widow/widower.

d. Certificate of non-employment / re-employment Half yearly in May & November except employed Family pensioners.

2. Officers Authorised to sign Life Certificates : Life certificates issued/signed by one or other of the following authorities/persons can be accepted:-

-A serving or pensioned person exercising the powers of a Magistrate under the criminal procedure code (Act-V of 1898).

-A registrar or sub-registrar appointed under the Indian Registration Act 1908 (XVI of 1908). A Gazetted Officer.

-A Munsif.

-A police officer not below the rank of Sub-Inspector in charge of Police station.

-Master, a Departmental Sub-Post Master or an Inspector of Post Office.

-Officers of the RBI and other PSBs in respect of pensioners drawing pension from Banks.

-The head of the village Panchayat, Gram Panchayat or Head of an executive committee of a village.

-Retired Commissioned Officers of the Armed Forces in respect of pension bill form IAFA-319 of Commissioned Officers, departmental Officers and Warrant Officers.

3. Identification of Pensioners Identification of the pensioner is an important step before making payment and the PDA is personally responsible for proper identification and payment to the correct person. For the purpose of identification, the signature, photograph and other identification marks as recorded in the descriptive roll/identification documents are to be carefully verified. No payment should be made without proper identification. In the case of a new pensioner, he/she has also to produce his/her personal copy of the letter from the Pension Sanctioning Authority/Head of the Office informing about the grant of pension to him/her. In case of a commissioned officer, he has to produce the last pay certificate or in its absence, a declaration in the prescribed form.


The PDA will invariably verify the photograph of the Officer and specimen signature.


The PDA should verify the genuineness of the pensioner from the descriptive roll/joint photograph received from Heads of Offices/Record Offices.

FOR FAMILIES OF All types of pensioners

The PPO issued by Pension Sanctioning Authority indicates entitlement in respect of family pension to the widow/husband consequent on the death of the pensioner. The applicants are required to furnish application for grant of family pension in prescribed form along with death certificate of the pensioner. The PDAs should personally verify the genuineness of the rightful claimant with reference to available document before the payment is made. In case there is any doubt, the matter should immediately be taken up with Pension Sanctioning Authority for clarification. Payment of family pension should not be made unless genuineness of the rightful claimant is established beyond doubt.

Exemption from Personal Appearance : Exemption from personal appearance is permissible in the following cases:

--Pensioners desiring to draw his/her pension through authorised agent. For this the pensioner has to execute Indemnity Bond, and to submit life certificate once in a year.

--Pensioners of rank (high status) such pensioners may be privately identified by PDA and he need not be required to appear at a public office.

--Pensioners exempted by Local Govt. for personal appearance such pensioners have to produce life certificate in 6 months.

--Pensioners unable to appear in person due to bodily illness or infirmity. Such pensioners have to submit life certificates in 6 months.

--Severely wounded and infirm pensioners, subject to production of life certificate.

--Female pensioners who are not accustomed to appear in public. She has to produce life certificate and non-re-marriage certificate.

--Children owing to illness and very young children subject to production of life certificate signed by the official of the Revenue department.

--Armed forces pensioners(PBOR) re-employed in various institutions such as Railways, Mills or private firms of Standing, etc. subject to production of life certificate and authority for payment to a representative.

--Armed forces pensioners (other then those mentioned in clause(viii) above subject to production of life certificate once in six months on IAFA-409.

--Gorkha pensioners living in Nepal or a pensioner in Bhutan and is physically unable to draw pension in person, payment may be made through a PD in India or Indian Embassy, Nepal to a representative who produces the pensioner’s pension certificate &life certificate on IAFA-409.

--Armed forces Pensioners residing in Pauri Garhwal and Chamoli districts. Such pensioners will be required to make one journey with his representative to the Pension Disbursing Authority and state personally to him that he desires his pension to be paid in future through the representative. The PDA will record the identification mark of the representative who will be permitted to draw the pension on production of pensioner’s certificate and life certificate signed by either two male armed force pensioners or by a pensioned Officer.

--Pensioners drawing pension through Money order.

Sunday, July 24, 2011

Draft Petition addressed to the Prime Minister For Signature campaign.

To : The Prime Minister of India,
       New Delhi

Sub: Request for Scrapping of PFRDA Bill


We submit this Petition to bring to your kind notice and through your good office to the attention of the  Hon'ble Parliamentarians of our country certain aspects of the re-introduced PFRDA bill, which will have adverse impact on the exchequer in general and on the prevailing service conditions of the Civil Servants. We pray that our submissions in this regard may please be caused to be considered earnestly and the implication of the provisions of the bill critically analyzed and examined and take decision to kindly withdraw the Bill from the Parliament.

We submit the following for your critical and objective analysis of the Bill :

1.The concept of old age security for civil servant in the form of pension has a very ancient origin dating back as early as 3rd century BC, being half of the wages on completion of 40 yrs blemishless service to the king.

2. In the last century, one of the measures taken by colonial rulers to attract talented personnel to the Royal service was introduction of pension scheme for civil servants in 1920. The Royal commission through its various recommendations improved the scheme & the 1935 Govt of India Act provided it statutory strength.

3. The land mark judgment of Supreme Court in DS Nakara&othersVs Union of India (AIR-1983-SC-130) (applicable toCentral &StateGovt employees, teachers &all stake holders of pension system)conceptualised  pension stating that pension is neither a bounty nor a grace bestowed by the sweet will of the employer, but a payment for the past services rendered. It was construed as a right step towards socio-economic justice and a concrete assurance to the effect that the employee in his old age is not left in the lurch.

4. The fifth Central Pay Commission which was set up by the GOI in 1993 to go into the wage structure and pension scheme of the Central Government employees referring to the Judgment of the Supreme Court cited, observed (Para 127.6) that " pension is the statutory, inalienable and legally enforceable right earned by the civil servant by the sweat of the brow and being so must be fixed, revised, modified and changed in the way not dissimilar to salary granted to serving employees."

5. The guiding principle adopted in determining of pay package of civil servants is to spread out the wage compensation over a long peiord of time whereby wages paid out during the work tenure is low in order to effect payment of pension on retirement. As such civil service pension is rightly termed as deferred wage. While in the organized private sector the employer is required to contribute equal share to the Provident Fund of the employees, the Government neither contributes to the Provident Fund of the civil servants nor takes any pension subscription from him.

6. In an unwarranted intervention in the Statutory defined benefit Pension system, IMF in their work paper (WP/01/125,(2001) propounded the creation of a pension fund by eliciting from the Wage earners at the earliest stage of their employment so as to fetch an annuity decent enough to sustain him at the old age. In fact it was a suggestion for a retrograde change over from the defined benefit pension scheme to a defined contributory system. While suggesting so, they have categorically stated that India does not suffer demogra-phic pressure experienced by major countries, for India's population beyond the age of 60 was about 7% in
2004ch rose to 8.6% in 2010 and is estimated at 13.7% in 2030 and 20% in 2050.

7. The New contributory pension scheme enunciated byGovt of India and adopted by most of State Govts is covered by the PRFDA bill. The bill inter alia, envisages a social security scheme for all who desire to have an annuity at his old age which is voluntary and not mandatory. However, in the case of Civil Servants, who are recruited to Govt service after the prescribed cut -off date ( 1.1.2004 in GOI service) the scheme is mandatory in as much as the employee is bound to subscribe 10% of his emoluments to the Pension Fund
and the Govt. being the employer would contributes equal amount. No employee is entitled to opt out of the scheme.

8. Despite the inability to bring in a valid enactment, the Central and all State Govts other than those of West Bengal, Kerala and Tripura through illegal executive orders decided to impose contributory pension system arbitrarily onCentral and State Govt employees .While the Govt. of India notification excluded the personnel in the armed forces and para-military establishments, the Governments of the Left ruled States of W.Bengal,
Kerala and Tripura consciously continued with the existing defined benefit pension system.

9. The PRFDA Bill stipulates that there will not be any explicit or implicit assurance of the benefit except market based guarantee. The subscriber is thus exposed to the following risks at the exit.

a) If there is a major market shock, the subscriber to the New Pension scheme may end with no ability to purchase an annuity.
b) Since annuity is and cannot be cost indexed, the real worth of the annuity might fall depending upon the inflationary pressure on the economy.
c) As per the scheme, the subscriber is to make the choice of investment portfolio. The Civil Servant being mostly uninformed in finance and investment related matters, he might end up in making wrong choices which would eventually rob him of the old age pension.
d) The subscriber is perforce to contribute to the charges of the investment managers, whose priority often is as to how much profit they could make through investment of the huge corpus of pension fund in the volatile share market .

10. The pension fund created by the employees' subscription and the employers' contribution which directly flows from the exchequer ( which is nothing but tax revenue of the Govt.) is made available for the stock market operations which is not only unethical but also blatant diversion of public fund for private profit, both Foreign and Indian capitalists.

11. In the case of Civil Servants recruited after the cut-off date, the new scheme replaces the existing much better "defined benefit" pension scheme. In the process, the Government has created two classes of civil servants viz. the one with a defined benefit pension scheme and the other with the contributory pension scheme in which the employee is to part with 10% of his emoluments to become entitled for an old age social security subject to the vagaries of share market permits. Since in both the cases, the pay, allowances, perks, and other benefits, privileges, duties and responsibilities are the same it amounts to wanton discrimination of one against another which is not sustainable in law, rather violative of the existing constitutional provisions.

12. The wage structure presently designed for those who are recruited prior to the cut- off date and after is on the same premise and is depressed to enable the Govt. to meet the pension liability in future. By imposing the new contributory pension scheme on the employees who are recruited after the cut off date the Govt. not only denies the statutory defined pension benefit to them but also compel them to contribute for earning an undefined annuity, which must be characterized as highly discriminatory.

13. Those who are covered by the contributory pension scheme will become entitled for an annuity, a portion of the accumulated contribution is able to purchase, basing upon the accretion to the fund from investment. There is, however,no guaranteed minimum amount of pension for those who are covered by the new scheme, whereas the civil servants covered by the existing scheme do get a defined and guaranteed minimum pension and on his death his family members (wife, widowed and unmarred daughters and unemployed sons below the age of 25) become entitled for family pension. The discrimination factor is thus compounded.

14. The PFRDA Bill when enacted, it is rightly feared, will empower the Government to alter or even deny the present employees and pensioners the statutory defined pension benefit as has been done in the case of those who are appointed after the cut-off date.

15. It is stated that the prime objective of introduction of the contributory pension scheme is to substantially reduce the outflow on account of pension liability. The major pension liability of Government is accounted for by Armed Defence personnel. They are however excluded from the purview of the contributory pension scheme. The personnel in the Para Military forces are also excluded from the ambit of the new Scheme. While doing so, (no doubt to attract the people to serve in the armed forces for security of the Nation) the Govt. is bound to meet the pension liability from the consolidated fund of India. The argument advanced by the Govt. to cover the Civil Servants in the ambit of the new Pension scheme has been found to be unsus-tainable by the study commissioned by the 6th CPC. Shri S. Chidambaram, Actuary, in his report, (Annex to "A study of Terminal benefit of Central Government employees by Dt. K. Gayatri, Centre for Economic Studies and policy, Institute for Social and Economic change, Nagarbhavi, Bangalore) has pointed out that the Government liability on account of contributory pension scheme would in effect increase for a period spanning for the next 34 years from the existing Rs. 14,284 Cr. To Rs. 57,088 Cr. ( 2004-2038) and is likely to taper off only from 2038 onwards. The exchequer is bound to have an increased outflow for the next 34 years and will be called upon to bear the actual pension liability of defence personnel and personnel of para military forces, besides making the contribution to the Pension fund of the Civil Servants recruited after the cut off date. The specious plea that the exchequer is bound to gain due to the contributory pension scheme is therefore not borne from facts.

16. Of the present pension liability of the Govt. of India, which in 2004-05 was 0.51% of the GDP, 0.26% is accounted for by the Defence( which is 50% of the total pension liability.) The study report of the Centre for Economic Studies has concluded that the pension liability as a percentage to GDP which is just 0.5% presently is likely to decline given the growth rate of Indian economy.

17. Since most of the State Governments have chosen to switch over to "contributory pension scheme" , in fairness(from Study conducted by the Centre for Economic Studies and policy) it can be concluded that the pension liability of all the State Governments are bound to increase to three times of what it is today by 2038.

18. The first version of the PFRDA Bill was placed before the Parliament by the NDA Government in 2003. The 6th CPC set up the Committee to go into the financial implication on account of the increasing number of pensioners and suggest alternative funding methodology in 2006. The said Committee came to inescapable conclusion( 2007report) that "the existing systems of pension are increasingly becoming complicated after the introduction of New Pension scheme" and warned that "caution has to be exercised in initiating any further reforms" In the light of the conclusion of the said study report which revealed the fact of serious escalation in the pension payment outflow, the rationale of the re-introduction of the PFRDA bill in 2011 covering the civil servants is incomprehensible. Undoubtedly, the Bill when enacted into law will through the existing pensioners to a financially insecure future and the existing workers to the vagaries of the stock market. We, therefore, earnestly pray to your good-self to bring back all the civil servants including teachers irresespective of the date of entry into Government service as also those irregularly appointed within the ambit of the existing statutory defined pension benefit scheme.

We may, in fine, quoting the concluding paragraph (Page 76 of the report of Centre for Economic Studies and Policy – Institute for Social and Economic Change) of the Committee set up by 6th CPC, "Mainly given
the fact that the future liability although may be large in terms of absolute size is not likely to last very long and does not constitute an alarmingly big share of the GDP which is also on the decline. It appears that pursuing the existing 'Pay as you go' to meet the liability will be an ideal solution, appeal you, for the detailed reasons adduced in the foregoing paragraphs, that the new pension scheme enshrined in the PFRDA Bill may be withdrawn from the Parliament both in the interest of the Civil Servants and the exchequer.

With regards,

Faithfully, yours,

State : ………………….
dATE :      JULY,2011

Wednesday, July 20, 2011

Project ‘SANGAM’ for Defence Pensioners Launched - Ministry of Defence

Controller General of Defence Accounts (CGDA) Shri Nand Kishore recently launched a software project ‘SANGAM’ for defence pensioners in a function at its headquarters at Delhi Cantonment. Speaking on this occasion, Controller General of Defence Accounts mentioned that the project ‘SANGAM’ will provide useful Management Information System (MIS) to the financial planners in the Ministry of Defence. Project ‘SANGAM’ is a software which will facilitate issuance of corrigendum pension payment orders. This will address the demand from the ex-servicemen for issue of individual corrigendum pension payment order consequent to implementation of recommendations of Sixth Central Pay Commission (6th CPC).

This software project is one step forward from the project ‘SUVIGYA’ which was launched in October last year on the occasion of Defence Account Department Day and is very popular among defence pensioners. The pension payment orders to be issued using ‘SANGAM’ software will be a special corrigendum pension payment system which will contain all the basic details of original pension payment order. It will also have details of family pension, disability pension and any other type of pension available to a pensioner. The new corrigendum pension payment order is unique in the sense that it gives new ID to each pensioner which will be helpful in readily accessing all data relating to a pensioner.

There are about 18 lakh defence pensioners who will be benefitted with the launch of project ‘SANGAM’ in the long run. It will also help in grievance redressal of pensioners with regard to the correctness of payment of pension. The software has been developed in house by a team of officers from IT wing of Controller General of Defence Accounts, headed by Shri Murli Krishnan, Sr ACGDA (IT).

(Source: PIB)

Sunday, July 17, 2011

Pension Payment to central/ State Govt. Pensioners by agency Banks-Delay

Reserve Bank of India is receiving several complaints from the pensioners alleging inordinate delay in disbursing the revised pension and arrears. Position was reviewed by RBI and our Customer Service Department has issued instructions to the agency banks as under :

i) Pension paying banks should compensate the pensioner for the delay if any in crediting the pension/ arrears thereof by paying compensation at Bank Rate plus 2% penal interest for the delay after the due date automatically without waiting for any claim from them. This is applicable to all delayed pension payments made since October 1, 2008.

ii) System of attending to customer service including pension payments may be reviewed.

iii) The branch continues to be a point of referral for the pensioner lest he/she feel disenfranchised.

iv) all branches having pension accounts should guide and assist the pensioners in all their dealing with the bank.

v) suitable arrangements are made to place the arithmetic and otherdetails about the pension calculations on web, to be made available to the pensioners through the net or at the branches at periodic interval as may be necessary and sufficient advertisement is made about such arrangements

(Ref.Do.No.CSD.CO/ 8793/13.01.001/2009-10 dated April 09, 2010)
Video on 30-minutes-one-rank-one-pension.


Dearness Allowance is compensatory part of wages. In India, DA is being paid since the Second World War. During the War, DA became payable at various rates. It became payable as a result of different costs of living in different cities not known to each other. Originally, it was the textile industry in Bombay which introduced DA scheme firstly under the bipartite settlement and subsequently they took the shape of arbitration, adjudication and finally, after knocking at the doors of industrial courts, got into awards, which is how in India DA scheme started.
In other parts of the world too DA was paid depending upon the rise in the cost of consumer goods prices. Within 5-10 years, the system of DA became a common system throughout the world but the basic principles remained the same. In most parts of the world, though not everywhere, common platform DA became payable though not on the same rates.

Ultimately, the question of DA became a subject-matter of the Supreme Court. The court initially laid down general principles for fixation of DA grant and the link with cost of living index. Slowly and gradually, Supreme Court gave effect to DA in terms of rise in the cost of living, higher prices and higher cost of living. This gave rise in the whole country for Consumer Price Index which is linked with rise in index in different cities in the country. Bombay was found to be the most expensive city in the country and sometimes even in the world. It moves from time to time and so the atmosphere with it. At different times, each sphere had different price level which is recorded regularly on price index. Each price index is differently numbered and differently marked in each state. In our country, this price index as Bombay Price Index, Delhi Price Index, Kolkata Price Index, Ahmedabad Price Index etc., and prices of each number in each city are differently made and known. This is preliminary of DA.

The issue of DA has gone much ahead and now it is paid according to the standard of each city in the country. With passing of time and cost of living going up, working class life became more and more miserable as a result of which every wage fixing authority had to view its point to the phenomenon and fortunately in our country the Govt which is the biggest and model employer had to take cognizance of this fact and went on appointing pay commissions one after another after a lapse of five to 7 years and each pay commission gave thorough consideration to the problem of Dearness Allowance. Each pay commission not only increased dearness allowance of the Central Government employees and gave higher and higher benefits under the improved schemes. On the chapter on Dearness Allowance (DA), the fourth pay commission for the Central Government employees said that the “Dearness allowance which is being paid at present is in the nature of a compensatory payment to employees for erosion in the real value of their salaries resulting from price rise.

The allowance has been in existence for about four decades and now covers almost all employees in the organised sector. Accordingly, it has emerged as an important area of pay admin having financial, economic and administrative implications. Over the years, there have been many changes in the policy for payment of dearness allowance, particularly with regard to coverage of employees, percentage of neutralisation for different categories, periodicity of payment, etc. The rates of dearness allowance provided a neutralisation of about 95 per cent on the lowest pay and the neutralisation percentage went on declining for higher pay levels so that m respect of the employees drawing pay between Rs.1600/- and 2250/- per month it worked out to about 30 per cent or less. The Commission also recommended that on the price level rising above the 12-monthly average of 272 (1960=100), government should review the position and decide whether the dearness allowance scheme should be extended further or the pay scales should be revised.

Govt decided on 3 occasions to treat part of dearness allowance as dearness pay for certain purposes more particularly to provide relief in the matter of death-cum-retirement benefits to retiring employees.
The state governments also compensate their employees for price rise in the form of DA, which is granted by them more or less on the same pattern as followed by the central government, since the pay scales of state government employees are linked to different index levels, the actual rates of dearness allowance paid by them are different from those payable to central government employees.“We are also of the view that the compensation should provide full neutralisation of price rise to employees drawing basic pay upto Rs.3500/-, 75 per cent to those getting basic pay between Rs.3501/- and 6000/- and 65 per cent to those getting basic pay above Rs.6000/-subject to marginal adjustments. This compensation may continue to be shown as a distinct element of remuneration. “We have recommended that compen-sation for price rise should be sanctioned twice a year. This would ensure that there would be no uncertainty in the minds of government employees in regard to the periodicity of grant of compensation. We realise that there may be situations when government may not find it possible to sanction the compensation for price rise according to the scheme recommended by us. We are of the view that in such situations, the restraint, if any, should apply to the entire organised sector including central government employees.”

Fifth Pay Commission also said Dearness Allowance (DA) is a compensatory payment to the employees for the erosion in the real value of their salaries, resulting from price increase. While the First and Second CPC’s suggested payment of DA at flat rates for employees in different pay scales for different levels of Consumer Price Index (CPI): the 3rd and 4th CPC’s while linking DA to both the CPI and pay- scales, recommended DA as a percentage of the basic pay. While DA was made payable automatically by the first CPC once a specific level of Consumer Price Index was attained, the 2nd CPC did not favour automatic sliding scale adjustments and recommended that the Government should review the position and consider the case for an increase in DA, each time the index increased by 10 points.This they felt was necessary as allowing an automatic increase, each time prices rise, without going into the reasons for price rise, would tend to fuel inflation because of a wage-price spiral. Price increase, fuelled by a fall in production levels or due to hike in indirect taxes should not merit compensation. The absence of a precise scheme of DA revision, however, resulted in a situation where two high-powered bodies had to be appointed in the intervening period between the 2nd and the 3rd CPC for the payment of DA because of the continuing upward trend of prices.

As a result, the 3rd CPC partially reversed the recommendations of the 2nd CPC by making DA payment automatic each time the CPI rose by 8 points over the index of 200, up to the level of 272. DA until the 2nd CPC had been imagined to be a temporary expedient and was intended to deal with the phenomenon of a temporary rise in prices. It was precisely for these reasons that the pay structure then had to have three separate components: basic pay, dearness pay and dearness allowance. While basic and dearness pay represented the irreversible components, DA represented the component which could be reversed in the case of a price fall. “We have received several demands on Dearness Allowance. These range from uniform neutralization at all levels, to an alternative Consumer Price Index and the use of a monthly. 3-monthly or 6-monthlv average instead of a 12- monthly average of CPI. The merger of DA with basic pay when it comes to be 25% of the basic, pay and the exemption of DA from tax are some other demands. “It has been strongly urged that a uniform neutralisation of DA at 100% should be given to employees at all levels. We see merit in this demand.

The erosion in the real value of salary at the highest level, has been the most severe, beginning from 1949 followed by other Group A officers down the line. In contrast, a comparison of the index of real earnings for the peon between 1949 and 1996 shows that the peon was more than fully neutralized for inflation and was in real terms paid 53% more than his salary in 1949. The Secretary on the other hand was not even paid full neutralization for inflation and consequently his real salary has eroded to the extent of 72% as compared to the position in 1949. “Accordingly we, recommend that inflation neutralization be made uniform @ 100% at all levels.”So far as the newspaper industry is concerned, it normally followed the patterns of Central Pay commissions from time to time. Scheme of DA in the newspaper industry is as per recommendations of the wage boards. During the last four wage boards, dearness allowance in newspaper industry was paid as follows.

Dearness allowance through successive Central Pay Commissions The Sixth Central Pay Commission (CPC) has devoted fourth chapter of the report to the subject of Dearness Allowance (DA) payable to government servants. The sanction of Dearness Allowance is at present based on calculated six monthly increase in the All India Consumer Price Index (Industrial Workers) (AICPI-IW) with base year 1982=100.

At the time when the scales granted by Fifth CPC came into existence (1st Jan.1996) this index stood at 306.03. Fifth CPC started with calculation of DA @ 0%, from 1st Jan.1996. In April 2004 the rate at which DA was admissible had crossed the figure of 50% and therefore based on recommendations of the Fifth CPC 50% DA was merged in the basic pay. This addition to basic pay was known as Dearness Pay.

Thereafter every increase in DA was calculated on (Basic Pay + Dearness Pay). It has been observed that since after the merger of dearness pay with basic pay the base for calculation of increase in AICPI was not changed the neutralization in cost of living was presently being done at a rate higher than 100%.
The Pay Commission has pointed out that the present method of calculation for increase in cost of living takes into account the price rise in a group of identified commodities. It has compared the relative merits of “chain based” and “fixed base” methods of calculation of estimated growth in cost of living.
The AICPI as stated above is based on the increase in cost of a basket of identified commodities. In the fixed base method the calculations are based on the assumption that consumer would adjust his consumption needs in relation to increase or decrease in prices of the constituent commodities.

The chain based method takes into account the possibilities of change in consumption pattern due to availability of wider range of consumption goods and the improvement in the quality thereof due to economic growth. The latter methodology has been considered to be more relevant in today’s economic scenario. However the basic data for the pattern of consumption in respect of several essential commodities would have to be compiled through a detailed all India survey if this methodology is to be adopted .The previous Pay Commissions had different views on this matter. The Fourth CPC favoured evolution of a separate index for calculation of cost of living for the government servants. The Fifth CPC however felt that such index would also suffer from imbalances since consumption patterns of various categories of employees would be different.

The Sixth CPC has suggested a sample survey through National Statistical Commission for evolving an index based on consumption pattern of government employees. Till this exercise is completed the present methodology of calculating the increase in cost of living and calculation of DA would continue.

Views of earlier Pay Commissions

Successive Pay Commissions have made changes to the DA formula, suggesting their own methodology for determining the quantum and frequency.  Fifth CPC recommendations
The Fifth Central Pay Commission recommended uniform neutralization of DA at 100% to employees at all levels; conversion of DA into Dearness Pay each time the CPI increases by 50% over the base index with Dearness Pay counting for all purposes including retirement benefits; and Dearness Allowance including Dearness Pay being paid net of tax. The Commission did not favour the option of employing separate indices for each category of employee because of the sheer impracticality of the task and, therefore, recommended using the 12 monthly average of All India CPI (IW) with base 1982 for calculating DA. The Government of India presently calculates the level of inflation for purposes of grant of dearness allowance to Central Government Employees on the basis of the All India Consumer Price index Number for Industrial Workers (1982=100) (AICPI). The twelve monthly average of the AICPI (1982 base) as on 1st January and 1st July of each year is used for calculating the Dearness Allowance (DA). Increase in DA is calculated with reference to the AICPI (IW) average (base 1982=100), as on 1st January 1996 of 306.33. The compensation for price rise is admissible twice a year i.e. on 1st January and 1st July of each year. Only the whole number component of the percentage increase in prices is adopted for estimation of DA. The Government merged 50% of the DA with basic pay w.e.f. 1.4.04 and the dearness allowance continued to be calculated with reference to the AICPI (IW) average as on 1st January 1996 of 306.33 without changing the base consequent to the merger.Accordingly, DA at following rates was sanctioned by the Government from 1.7.04 till 1.7.07:-

As a consequence, salaries of Government employees are being neutralized more than 100%.Demands made In the demands made before the Commission, it has been suggested that the existing DA formula continue with the following modifications:-

• Instead of revising the DA once in six months, it should be revised once in three months.

• The principle laid down by the 5th CPC for merger of 50% of DA with the Pay as DP should be modified to 25% to remove distortions in the pay structures.

• DA should be paid net of taxes on the same line as recommended by the 5th CPC to make the concept of 100% neutralization somewhat meaningful.

Determining the level of inflation methodology While considering the issue of the quantum of DA admissible, the Commission considered at length the procedure for estimation of inflation. Presently, inflation as determined by the AICPI (IW), is estimated using the Laspeyere’s Fixed base methodology. The inflation index 6using this methodology captures the cost of buying a basket of goods (fixed in the base year) at current prices relative to the cost of buying the same basket of goods at base year prices. Economic theory postulates that, generally, if the price of a commodity rises vis-à-vis other goods, the consumer adjusts his consumption basket to buy less of the goods the prices of which have increased relatively and more of those goods the prices of which have fallen relatively. This envisaged shift in consumption pattern should be considered for calculating inflation. A ‘chainbase index’ captures the inflation taking into account the changes in quantities purchased consequent upon changes in the relative prices. Moreover, it also considers new products in the consumers’ basket as well as quality of the existing products improving every year. Therefore, inflation captured using ‘Chain-base’ technique would generally tend to be lower than the ‘Laspeyre’s price index’. [Under certain circumstances, however, the chain-base index could be higher than the Laspeyer’s index, i.e. if there is an increase in the price of basic items, which are necessities, having low substitutability and which form a sizeable chunk of the consumption basket. The increase in prices of such goods would result in less than proportionate reduction in quantity, thereby translating into higher expenditure in value terms. Therefore, the weightage (calculated in terms of percentage value of total consumption expenditure) attributed to these items in the construction of the composite price index would increase. This would result in the chain base price index being higher than the price index estimated using the fixed base technique.

Analysis India is on the growth path. Growth leads to wider choice with enlarged availability of substitutes. Such availability of substitutes would impact the price-demand relationship. Given this backdrop, the feasibility of developing chain base index was explored by the Commission. It was observed from the Reports of the National Sample Survey Organization on Consumer Expenditure Survey, that while expenditure data in value terms was generated through the survey, its breakup in terms of quantity and price was available only for a few items under food, clothing, bedding, etc. Data on durables consumed poses a problem as consumption of individual items is very infrequent and reporting irregular. This issue gets compounded when aggregation is attempted at the All India level.

Recommendation on chain base index:- The feasibility of developing a Chain based index is depen-dent on the availability of time series data on both prices and the corresponding quantities demanded of each item. While there is merit in developing a chain based index for capturing inflation, this would be feasible only if the Consumer Expenditure Survey generates time series data, on both quantity consumed as well as value of expenditure for fairly large list of items in the consumption basket providing the possibility of substitution over short time span. The Govt may explore this possibility. In the meantime,  Govt should keep revising base year in the existing fixed base index method as frequently as feasible.

Use of AICPI (IW) for estimation of DA:- Presently, estimation of DA for Central Govt Employees is based on the movements in the AICPI (IW) (1982=100). The Fourth Central Pay Commission, while considering the issue of suitability of the AICPI, opined that the Government should examine whether a more suitable index could be prepared for Government employees taking into account their consumption pattern and other relevant factors. This recommendation was based on the view that the AICPI does not truly represent the consumption pattern of all central Government employees. On the other hand, the Fifth Central Pay Commission took the view that consumption patterns of Group A,B,C,D employees within Government are 7bound to be different due to different income levels and hence a suitable index based on consumption pattern for Government employees as recommended by the Fourth Central Pay Commission is likely to suffer from the same set of problems which the AICPI(IW) suffers.

The Fifth Central Pay Commission opined that even though the option of employing separate indices for each category of employees did exist, it was devoid of merit because of the sheer impracticality of the task as well as needless suspicion such an arrangement was likely to arouse between various groups. Therefore, they recommended that the AICPI (IW) should continue to be the index used for calculating DA for Government employees.

The Fifth Central Pay Commission, observed that for the purpose of estimation of AICPI (IW) by Labour Bureau, the coverage of ‘Industrial Workers’ extended to 70 selected centres in seven sectors namely Factories, Mines, Plantations, Railways, Public Motor Transport Undertakings , Electricity Generation and Distribution Establishments, and Ports and Docks. A Working Class family was defined as one where one of the members worked as a manual worker in any of the seven sectors and which derived one half or more of its income through manual work defined on the basis of classification of occupations and jobs involving sufficient physical labour but at the same time not requiring much of educational background in the field of general, scientific, technical and other areas.

The Fifth Central Pay Commission also observed that in the Family Living Survey, which is the basis for estimation of the AICPI (IW), the design of the monthly family income classes is open ended, ranging from ‘less than Rs.750’ to ‘Rs.5000 and above’. The Working Class family Income and Expenditure Survey (1999-2000) for Delhi points to the fact that 53% of the families fall in the income class ‘less than Rs.5000 per month’, which is less than the minimum earning of a Government employee in Delhi. This implies that a composite price index generated from this survey may not adequately represent the price index for Government employees. This is because consumption pattern of the Govt employees vis-à-vis the ‘Working Class Family’ sample selected in the Family Living Survey would be considerably different. Recommendation The Govt of India has set up the NSC to serve as a nodal and empowered body for all statistical activities of the country; to evolve, monitor and enforce statistical priorities and standards and to ensure statistical coordination among different agencies involved. The Commission is mandated to evolve standard statistical concepts, definitions, classification and methodologies in different areas of statistics and lay down national quality standards on those statistics. The Commission is of the view that the National Statistical Commission may be asked to explore the possibility of a specific survey covering Govt employees exclusively, so as to construct a consumption basket representative of Govt employees and formulate a separate index. Meanwhile, Govt may continue to use the AICPI (IW) for estimating the DA, subject to the modifications proposed in the subsequent paras.

Revision of Base of AICPI (IW) for calculation of DA:- The Fifth CPC had adopted the AICPI (IW) using the 1982 series for estimation of DA. The Govt has developed a new series with base 2001, with effect from January 2006. It ispossible to generate the back data series with base 2001, with the help of the stipulated linking factor of 4.63. The 2001 series has an extended coverage of 78 centers compared to the 70 centers in the 1982 series. The weightage emerging from the series with 2001 base, being recent, is more representative of the current consumption basket. The Commission, therefore, recommends that the AICPI (IW) with base 2001 may, henceforth, be used for the purpose of calculating DA till it gets revised. As mentioned earlier, the base year should be revised as frequently as feasible. The Commission also looked into the weightages assigned 8to various components of consumption and the manner in which the Labour Bureau conducts the survey. The examination has revealed a direct correlation in the movement of the price index for housing and the movement of the HRA rates of Government employees. If a representative sample is used for construction of the price index for housing, there should not be such a direct correlation keeping in view the fact that for industrial workers, the escalation in rental should not be so steep for various obvious reasons. Since housing has a large weightage in AICPI (IW), there is a possibility of substantial distortion in DA calculations.

The Commission recommends that the Govt take expeditious steps to rectify these noticed distortions in the construction of the current AICPI (IW) series. The National Statistical Commission may also take these factors into consideration while evolving a separate index for Govt employees.


Sunday, July 3, 2011

Expected DA from July 2011 is almost confirmed…

Nearly 7% percent increase is expected to be available for all central government employees from 1.7.2011, the existing rate of dearness allowance is 51%. The total DA may change to 58% (51% + 7% = 58%).

AICPIN for the month of May – 2011(Labour Bureau, Government of India - Press Release)

Consumer Price Index Numbers for Industrial Workers on Base 2001=100 CPI(IW) Base 2001=100 Monthly Index Letter – MAY 2011

APRIL 2011 – 186

MAY 2011 – 187

1. All India Consumer Price Index Number for Industrial Workers (CPI-IW) on base 2001=100 for the month of May, 2011 increased by 1 point and stood at 187 (one hundred & eighty seven) .

2. During May, 2011, the index recorded increase of 8 points in Ludhiana centre, 6 points in Nasik centre, 5 points each in Giridih, Mundakkayam and Sholapur centres, 4 points in 3 centres, 3 points in 4 centres, 2 points in 14 centres and 1 point in 18 centres. The index decreased by 4 points in Rangapara Tezpur centre, 3 points in Ghaziabad centre, 2 points in Guwahati centre, 1 point in 10 centres, while in the remaining 21 centres the index remained stationary.

3. The maximum increase of 8 points in Ludhiana centre is mainly on account of increase in the prices of Arhar Dal, Masur Dal, Mustard Oil, Vanaspati Ghee, Milk, Chillies Dry, Electricity Charges, Toilet Soap, Washing Soap, etc. The increase of 6 points in Nasik centre is due to increase in the prices of Wheat, Bajra, Chillies Dry, Vegetable & Fruit items, Petrol, etc. The increase of 5 points in Giridih, Mundakkayam and Sholapur centres is due to increase in the prices of Rice, Jowar, Vegetable & Fruit items, Tea (Readymade), Firewood, Soft Coke, Hair Oil, Washing Soap, etc. The decrease of 4 points in Rangapara Tezpur centre is the outcome of decrease in the prices of Wheat Atta, Fish Fresh, Turmeric Powder, Garlic, Vegetable & Fruit items, Pan Leaf, etc. The decrease of 3 points in Ghaziabad centre is due to decrease in the prices of Wheat Atta, Onion, Vegetable & Fruit items, etc. The decrease of 2 points in Guwahati centre is due to decrease in the prices of Wheat Atta, Vegetable & Fruit items, Pan Leaf, etc.

4. The indices in respect of the six major centres are as follows :

1. Ahmedabad – 180
2. Bangalore – 192
3. Chennai – 166
4. Delhi – 172
5. Kolkata – 181
6. Mumbai – 186

5. The All-India (General) point to point rate of inflation for the month of May, 2011 is 8.72% as compared to 9.41% in April, 2011. Inflation based on Food Index is 7.61% in May, 2011 as compared to 8.24% in April, 2011.

6. The CPI-IW for June, 2011 will be released on the last working day of the next month, i.e. 29th July, 2011.

(Source - CGS Staff news)