How freezing Dearness Allowance hike can boost Indian government's Covid-19 war chest

A beneficiary receives financial aid in her old age pension account in Murshidabad on April 23 (Photo Credits: PTI) In a massive move to mobilise resources, the government of India on Thursday put hikes in Dearness Allowance on hold. States are likely to follow suit and the move could save the Union government a sum of over 1 lakh crore. The government on April 23 announced its decision to put on hold the hike in dearness allowance for the year, until January 2021. Dearness allowance is received by the government employees and pensioners to compensate for rising inflation. Dearness Allowance makes for a large chunk of central and state government's expenditure on salaries. This fiscal year, the government was expected to spend Rs1,74,300 crore on pensions -which was 4.6 per cent higher than the revised estimate of 2018-19. Reduction in salary expenditure that has grown disproportionately in comparison with inflation has been one of the key recommendations of economists who suggest that it could help make room to battle the Covid-19 outbreak and stimulate the economy. Estimates suggest that the deferment could free up about Rs 1 lakh crore in addition to savings from the oil price crash. While a weaker rupee offsets some of those gains, lower oil prices also cool off inflation.