What is the connection between the 7th Pay Commission and Dearness Allowance?

Multiplication Factor expected to play a crucial role in calculating new revised basic pay for Central Government employees in 7th Central Pay Commission.”

With 16 months having passed since constituting the 7th Central Pay Commission, speculations are running wild among Central Government employees as to the changes that await them. Multiplication factor is one of the main reasons for the intense guesswork.

A middle-aged employee of the Central Government is likely to get an increment of Rs. 500 to 600 once every six months, due to increase of additional Dearness Allowance. In the current scenario, the amount is barely enough to meet unexpected auto-rickshaw expenses for a trip or two to work. But, it is not 
the DA that the employees are eagerly waiting for.

The total percentage of Dearness Allowance plays a very important role in calculating the New Basic Pay as per the 7th Pay Commission. The revised basic pay is expected to come into effect from January 1, 2016.

Dearness Allowance, which is currently at 113%, is expected to rise by two additional installments (01.07.2015 and 01.01.2016), let’s assume that these will add up to 10%. Then the total increase could become 123% by January 1, 2016.

Multiplication Fitment Formula is going to be based on the Dearness Allowance percentage on 01.01.2016.

The 6th Pay Commission recommended that the Multiplication Factor be fixed at 1.74 in its report and also recommended that the 40% from the maximum Pay Band of pre revised scale took an average and granted it as Grade Pay.

When CG Employees Federations pointed out the flaw in the calculation of the Multiplication Factor, it was increased to 1.86 by Central Government.

If the same method is applied to calculate the Multiplication Factor now, it could be as high as 2.23. In other words, let us assume the Basic Pay, as of 01.01.2016, as 100%. If you add Basic Pay and Dearness Allowance, 100% + 123% = 223%. This number is being taken for calculations as 2.23.

If the Dearness Allowance for the two additional installments adds up to more or less than the expected 10%, it would affect the Multiplication Factor number. This is the reason giving more importance for Dearness Allowance.

Let’s understand the importance of multiplication factor in pay fixation with an example.

At the time of 6th CPC pay fixation, the last drawn basic pay under 5th CPC was multiplied by 1.86 and rounded off. The 6th CPC was also recommended that a new entity named Grade Pay was created and a sum total of this was the new Basic Pay.

For example,
Pay fixation for a basic pay of Rs.3500(S5 :3050-75-3950-80-4590)

Basic Pay x Multiplication factor(3500 x 1.86) : 6510
Corresponding Grade Pay : 1900

Basic Pay : 8410 (6510 + 1900)

5th CPC basic pay = 3500
6th CPC basic pay = 8410(Multiplication factor 1.86=6510 + Corresponding Grade Pay=1900)