$$ What is Dearness Allowance?
-Dearness Allowance is cost of living adjustment allowance which the government pays to the employees of the public sector as well as pensioners of the same. DA component of the salary is applicable to both employees in India and Bangladesh.
-Dearness Allowance can be basically understood as a component of salary which is some fixed percentage of the basic salary, aimed at hedging the impact of inflation. Since, DA is directly related to the cost of living, the DA component is different for different employees based on their location. This means DA is different for employees in the urban sector, semi-urban sector or the rural sector.
-Calculation of Dearness Allowance:
After the Second World War, DA component was introduced by the government. After 2006, the formula for calculating dearness allowance has changed and currently DA is calculated as follows,
## For Central Government employees:
Dearness Allowance % = ((Average of AICPI (Base Year 2001=100) for the past 12 months -115.76)/115.76)*100
##For Central public sector employees:
Dearness Allowance % = ((Average of AICPI (Base Year 2001=100) for the past 3 months -126.33)/126.33)*100
Where, AICPI stands for All-India Consumer Price Index.
- From the year 1996, DA has been included to compensate for price rise or inflation in a particular financial year and hence it is revised twice every year, once in January and then in July.
$$ What is Industrial Dearness Allowance?
Industrial dearness allowance or IDA is the allowance applicable to employees of the public sector enterprises. Recently, the government of the India has increased IDA by 5% for this sector. This decision is set to benefit all board level executives, officers and employees of central PSUs.
IDA for government sector enterprises is revised quarterly based on the movement of the Consumer Price Index (CPI) in order to compensate for the rising inflation in the country.
$$ Variable Dearness Allowance:
VAD or Variable dearness allowance is the allowance that comes as a result of revision every six months for central government employees. The changed new figure that is received as a result of taking into consideration the increase or decrease in the Consumer Price Index, CPI, is termed as Variable dearness allowance. Based on this figure, the DA of employees is revised and rolled out.
There are three components that make up VAD.
-First is the consumer price index,
-second, the base index and
-third is the variable DA amount fixed by the government of India.
The third component remains fixed until the government revises the minimum wages. Same way, base index also remains fixed for a particular period. Only the CPI or Consumer Price Index changes every month and affects the overall value of the variable dearness allowance.