Pubali Started The Discussion:
Hello! Could anyone please tell me the basic difference between DA (Dearness Allowance)/IDA and VDA (Variable Dearness Allowance)?How is it calculated?
YOU SEE THE COST OF LIVING IS NOT STATIC AND CONTINUE TO INCREASE OR EVEN DECREASE DEPENDING UPON THE INFLATIONERY TRENDS IN AN ECONOMY. THE PAY STRUCTURE IS DEVISED SO ASTO TAKE INTO CONSIDERATION THE EFFECT OF SUCH INCREASE OR DECREASE IN COST OF LIVING. THE PAY IS DIVIDED INTO BASIC PAY AND DEARNESS PAY. THE BASIC PAY WILL INCREASE AS PER THE SLABES PROVIDED FOR THAT. THE DEARNESS ALLOWANCE WHETHER CALLED IDA/VDA WILL INCREASE OR DECREASE AS PER PRICE INDEX. THE PRICE INDEX MAY BE ALL INDEX PRICE INDEX FOR INDUSTRIAL WORKERS OR SUCH OTHER INDEX AS MAY BE ADOPTED FOR THE PURPOSE OF CALCULATION. IN CASE OF INDUSTRIAL WORKERS THE ALL INDIA PRICE INDEX IS NORMALLY ADOPTED. THUS WHEN THE PRICE INDEX GOES UP THE DEARNESS PORTION OF SALARY GOES UP AND VICE VERSA.
Variable Deaness Allowance is a part of Dearness Allowance.
Dearness Allowances generally is divided in to FDA ( Fixed Dearness Allowance ) and VDA ( Variable Dearness allowance) in private Sectors and in government organisations , the DA is directly linked to Cost of living index.
In Case of FDA & VDA present in a salary structure , it is calculated as under ( hereagain , the DA Points w.r.t to a Cost of living index base- you can get this in Chamber of commerce and other forums);
Total DA points say 100
FDA freezed for 70 Points @ Rs. x.
( This freezing of points and FDA amout will vary from one orgainisation to another depending on the no.of settlements made / no.of years the org. exists.)
VDA calculated for balance 30 points at a rate agreed/ arrived at.
I WILL LIKE TO THROUGH SOME MORE LIGHT ON THE ASPECT BETWEEN FIXED DA AND VARIABLE D A. SUPPOSE THE PRICE INDEX FOR INDUSTRIAL WORKERS AS ON 30.09.2006 IS 1000. NOW THE INCREASE OR DECREASE IN PRICE INDEX DURING THE COMING PERIOD SHALL BE A FEW POINTS MORE OR LESS THAN 1000 IN THE NEAR FUTURE. THE PRICE INDEX IS NOT GOING TO COME DOWN SAY BELOW 600 POINTS. THIS IS VERY MUCH CERTAIN BASED ON PAST EXPERIENCE. THUS AT THE TIME OF MAKING NEGOTIATIONS WITH THE WORKERS THE MANAGEMENT MAY SAFELY AGREE THAT WORKERS WILL GET A CERTAIN SUM AS FIXED DEARNESS ALLOWANCESO AS TO NEUTRALISE COST OF LIVING UP TO 600 POINTS. THIS WILL MEAN THAT WORKERS WILL NOW GET VARIABLE DA IN ADDITION TO FIXED DA, BEYOND 600 POINTS AT THE AGREED RATE. TECHNICALLY THERE IS NO DIFFERENCE BETWEEN FIXED DA AND VARIABLE DA. BOTH ARE TAKEN INTO CONSIDERTION FOR THE PURPOSE OF CALCULATION OF RETIREMENT OR TERMINAL BENEFITS VIZ LEAVE ENCASHMENT, GRATUITY ETC
Considering the living cost and all, Wage Revision is being done once in five years or ten years. But inflation will go up day by day and subsequently the money value will come down. To compensate this we have to wait till the next Wage Revision, which is not practical. That is why the DA is introduced.
The devaluation of money can be assessed through Whole Sale Price Index, All India Cosumer Price Index etc. The difference between these two is that, price variation of all commodities are taken into account for Whole Sale Price Index.
But for AICPI there are some differences/ limitations.
1. There is a particular Consumer viz. Industrial Worker.
2. Some specified goods & services are defined, called "basket of goods".
3. Along with the price variation of commodities, its consumable quantity will also be considered.
4. All over India 78 Centres are selected to take average
Based on All India Consumer Price, Industrial DA being paid; variable in quarters commencing from January, April, July & October. I.e. for January the AICPI will be the average of previous September, October & November. Similarly for April it will be December, January & February, for July it will be March, April & May and for October it will be June, July & August respectively.
When the money devaluation is fully compensated it is called as full DA neutralisation. The formula for full DA neutralisation = (Total points - Base points)/ Base points (in percentage). The AICPI is introduced in India in 1960 and revised in 1982 & 2001. AICPI of 2001 x 4.63, we get AICPI of 1982 and AICPI of 1982 x 4.93, we get AICPI of 1960. For DA calculation AICPI of 1960 is accepted as the base.
Now in India mainly two term's wage settlements are in exist; Wage Settlements of 1.1.1997 & 1.1.2007. The base point in 1.1.1997 is 1708 & in 1.1.2007 is 2884.
I shall quote one example,i.e. calculation of AICPI for July '10. This is equalent to average of previous March, April & May; which recorded as 170, 170 & 172 (Base year 2001). Multiply with 4.63 and round, we get 787,787 & 796 (Base year 1982). Multiply with 4.93 and round, we get 3880,3880 & 3924 (Base year 1960). Find average of these 3 and round, we get 3895.
DA for 1.1.97 scale. Total points - 3895, Base points - 1708, Total - Base = 2187. % is 2187/1708 x 100 = 128.0 ( Correct to one decimal).
DA for 1.1.2007 scale. Total points - 3895, Base points - 2884, Total - Base = 1011. % is 1011/2884 x 100 = 35.1 ( Correct to one decimal).
I shall insert Excel sheet for IDA calculation w.e.f 1.10.2008. You may extent the rows further (as necessary) and just enter the 3 indexes towards the year 2001 in green colour columns. The results will appear in yellow and red is used for static informations.
ITI Employees' Association,
ITI Limited, PALAKKAD - 678 623,
+91 9447 467 667
AICPI (base 2001) can be had from the following site.
Labour Statistics Page 2
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