Allowance Adjustments: Can We Combine a 3% Annual Increment with Inflation Rates?

To revise the allowances, can we use the formula of an annual increment of 3% along with the inflation rate?

Variable Dearness Allowance and Cost of Living Indices

Keeping the remuneration of employees abreast of the prevailing price level is achieved by introducing the component of Variable Dearness Allowance (V.D.A) linked to any one of the Cost of Living Indices (CLI) in the salary or wage structure. This is normally done independent of the annual or periodical increment granted to employees as per individual practice. This ensures uniformity in remuneration hikes simply related to the raise in the points of the CLI. A prominent example in this regard is the V.D.A pattern adopted by the governments in the fixation of wages under the Minimum Wages Act, 1948.

Alternatively, we may also resort to converting the hike in the points of CLI as a percentage of the Basic Pay of the employees for the purpose of V.D.A revision, so as to effect the hike proportionate to the wage scales. An example in this regard is the D.A pattern followed by the Central and State Governments for their various departments.

Thanks, Sir Umakanthan.

Winter clothing allowance is given once a year at 500/-. It was last revised in 2014. Now, for 2018, I want to revise it. My calculation formula is as follows:
Year: 500 + 500 * inflation rate of 2015 @ 5.88% = 529
529 + 3% of 529 = 545

Step 2:
545 + 545 * inflation rate of 2016 @ ...