The government has said the move to freeze dearness allowance (DA) was temporary and intended to increase the limited fiscal space available to support vulnerable groups and small and medium enterprises and the informal sector.

Countering the criticism from former Prime Minister Manmohan Singh, the government showed that extreme steps were not unprecedented in the times of crisis.

Twice, after the wars in 1962 and 1971, the government passed the Compulsory Deposit Scheme, which mandated all taxpayers, including government employees to deposit up to 18% of their salaries in a fund for 3-5 years.

Considering these were times of high inflation, Sanjeev Sanyal, principal economic advisor, said the move amounted to expropriation, in a tweet on Saturday.

In contrast, Sanyal said, the temporary freezing of DA at a time of low inflation merely provides fiscal leeway to support vulnerable sections of the economy that urgently need help.

Earlier in the day, Singh came out against the government’s decision to freeze the hike in DA and dearness relief (DR) for central government employees and pensioners.

“We should be on the side of people whose dearness allowance is being cut.I sincerely believe it is not necessary at this stage to impose hardships on government servants and also on the armed forces people,” Singh said.

On April 23, the finance ministry announced that the hike in DA and DR that was effective from January 1, will be frozen along with the additional installments of DA and DR due in July 2020 and January 2021 as well.

The government had taken the decision in view of the crisis arising out of Covid-19, it said in the notification. It clarified that DA and DR would continue to be paid at current rates of 17% of basic pay or pension.

The notification further stated that the hiked rates from January 2020 onward would be applied prospectively as and when the government decided to resume the additional installments of DA and DR due from July 2021.

DA and DR is paid to central government employees and pensioners as a percentage of their basic pay and pension to adjust the cost of living like inflation and to protect their earnings from erosion in the real terms. It is revised twice a year from January 1 and July 1 based on Consumer Price Index.

On March 13, the cabinet had decided to hike the DA and DR by 4% retrospectively from January 1, bringing the effective rate to 21%. The move, in accordance with the 7th Central Pay Commission, would benefit 48 lakh employees and 65 lakh pensioners, the government said.

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