Freezing of Dearness Allowance: Legal angle

Reading time 8-10 minutes.

Keeping in mind the gauging over-presence of the COVID -19 pandemic around us, economies across the world are having a not so merry time. They are at the brink of taking a colossal nose-dive. Spectating this sudden change around us, several governments across the world have been taking prompt actions to safeguard their respective State’s well-being. The Government of India is no different. It has accelerated its decision-making abilities concerned with finding fitting solutions to the chaos around. Recently, the Indian government decided to freeze the Dearness Allowance (DA) of public servants and pensioners. But like any other decision of a democratic country, this one was also subject to public scrutiny. It attracted unequivocal criticism and dissent. Thus, following the steps of dissent, N. Pradeep Sharma filed a petition in the Delhi High Court challenging the Centre’s decision that freezes the DA of its employees and pensioners.

What is dearness allowance?

To understand both sides (of the government and the employees), we must first be able to have a profound understanding of the concept of dearness allowance.

The dearness allowance or DA is an amount given by the government to its employees, public sector employees, and pensioners. It is an added component to the basic pay of such employees. Its calculation is based on the basic salary. The main reason for its introduction was to protect the interests of government employees. It helps them swerve the impact that inflation may have on people.

The importance of dearness allowance: Though the government takes many steps from time to time to control the rate of inflation to mitigate its effects of inflation, it is not a complete success all the time. Thus, it becomes the government’s duty to guard its employees against the adverse effects brought upon by inflation. DA is a method that allows the government to fulfill its duty towards its employees. The government compensates its employees for the perpetual rise in the cost of living by raising the DA as well. In this way, irrespective of the economic situation, the government looks after its own. It endows this allowance as an economic shield to protect its employees and pensioners.

How is the dearness allowance calculated: Since the effect of inflation is different for different places, the DA also varies from employee to employee. This difference in DA comes as a result of the difference in basic pay and the location of the job of the employees. Its announcement comes twice every year – in January (for the period of January to June) and July (for the period of July to December).

The Indian government changed the formula to calculate the dearness allowance in 2006 by the Government. At present, the calculation of DA is as per the following formulas:

  • For the employees of Central Government:

Percentage of DA = ((Average of the All India Consumer Price Index (Base year 2001=100) for the last 12 months-115.76)/115.76))*100

  • For Central Public Sector Employees:

Percentage of DA = ((Average of the All India Consumer Price Index (Base year 2001=100) for the last 3 months-126.33)/126.33)*100

Why is it frozen?

In March this year, the Central Government announced a 4 percent increase besides the existing rate of 17 percent of the basic pay or pension. This hike in DA aimed to benefit about 48.34 lakh Central Government employees and 65.26 lakh pensioners. But in the wake of the ongoing pandemic, the Centre decided to withhold this hike that is now connoted as the “freeze”. The additional installments of DA due from January 2020 will not be paid along with the subsequent two installments due from July 20020 and January 2021 respectively. However, the DA will be still paid at the current rate of 17%.

The government decided to freeze the 4 % DA hike due from January 1, 2020 followed by the hike due from July 1, 2020, and January 1, 2021. The principal reason for this decision is to save a colossal amount of money for the government. It is being said that the Centre would save about Rs. 25,000 crore in FY 21 while the states would save about Rs. 55,000 crore if they also follow suit. This step will not only help reduce the financial stress on the Central Government but it can also be directed towards COVID-19 relief and measures. Moreover, it can also be invested in other welfare schemes to protect the most vulnerable sections of society during this on-going crisis. Thus, this decision was an analyzed shift of priority on behalf of the government. It marks the reasoned need to balance the needs aptly.

Arguments made in the plea

The preliminary point of contention in the plea against the government’s decision in the Delhi High Court which took shape in the form of a Public Interest Litigation was that the freeze in DA violated the Constitution as well as other legislations. The petitioner presented the following arguments before the Court:

Under the Constitution:

  • Depriving any employee of the compensation for the swelling inflation except in the case of a financial emergency is a violation of Article 360 of the Constitution of India.
  • The freezing of DA of all or any class of persons serving in connection with the affairs of a State violates Article 21 of the Constitution of India. The right to life is essential for our existence. It takes within its ambit all those aspects of life which make a man’s life meaningful, complete, and worth living. It is a settled proposition that shelving of salary even for a day, amounts to denial and that the right to receive salary cannot be left to an uncertain date or an uncertain event at the whims and fancies of the Government.
  • The right to receive salary is a property and comes within the ambit of Article 300A of the Constitution of India. Thus, it can be deprived only by authority of law. Here, the term ‘law’ means an Act of Parliament or an Act of Legislature or a Rule having a statutory character.
  • The right to receive salary with perks, every month is a statutory right. It flows from the Service Rules as well as Article 309 of the Constitution of India.

Under other legislations:

  • Since the Disaster Management Act, 2005 is in force at present, it does not empower the government in any manner to defer or deny the salary of its employees during the times of a disaster.
  • The notification by the Central Government dated 23.04.2020 and the one by Delhi Government dated 24.04.2020 is an abuse of the power conferred upon the governments respectively by section 62 of the Disaster Management Act, 2005.

Apart from statutory violations, the plea also pointed out that this decision of freezing DA affects about 50 lakh Central Government employees and 61 lakh pensioners. As for the employees based in Delhi, the petitioner argued that there was a recent hike in the prices of petrol, diesel, liquor, and other essential commodities. He pleaded that this hike bears a direct impact on the common man especially the pensioners. The petitioner further contended that the present financial crisis if any can be dealt with the reserve amount of about Rs. 3,800 crore is available in the PM National Relief Fund. The plea also suggested that within a week of the announcement of the PM CARES Fund, the donations crossed over Rs. 6,500 crores.

The petitioner finally pleaded that the dearness allowance is essential particularly at the time of such an ongoing crisis for government employees and pensioners including frontline health workers.

Critical analysis

While analyzing the situation at hand, both sides of the scale must be impartially weighed. The plea in the Delhi High Court has been discussed above in detail. The government retorted to the criticism against its decision by saying that this step was only temporary and at the end of the day it will help elevate the fiscal space. It was also pointed out that this was not a first-time occurrence. After the wars in 1962 and 1971, the government passed the Compulsory Deposit Scheme. This scheme required all taxpayers, including government employees to deposit up to 18% of their salaries in a fund for 3 to 5 years.

The core of this issue at hand and the way it is handled will have a paramount impact on the economic distribution in the forthcoming days. It is being argued that this move by the government need not be the immediate resort. Refuting the previous statement, while the critics agree that frontline health workers and police officers need financial protection at this point, they also believe that the presence or absence of an additional installment of DA is not going to make a big difference. About economic hardships a very interesting piece of the statistic was used for rebuttal: Even the least paid employee of the government earns more than 85 percent Indians. The forfeiture of an additional Rs. 1,500 monthly on an average does not qualify as a hardship especially when a large section of society is staring at zero income.

While such assertions are doing rounds, we also cannot look over the robust contention that this hike-freeze will cause friction between the Government and its employees. It also becomes noteworthy that while the government wants some economic activities to open up, without consumption economy cannot revive. This is because consumption will take a toll since in times of crisis some people have either lost their source of income or are facing pay cuts. Thus, low consumption will negate any attempt to revive the economy.

This significantly stands in the light of the International Labor Organization’s recent report which said the current crisis has the potential to push 400 million Indians deeper into poverty. Hence, this sudden decision to freeze the hike in DA would have a cascading impact on many people’s lives. Moreover, there has been a wave of dissent that criticizes the government for taking people’s money when there is ample in the government’s funds.

Conclusion

The opinions, propositions, suggestions, astute dissent, critical acclaim, and neutral views of several people across the country hold varied positions. These viewpoints range from that of a layman to that of prominent economists, financial advisors, and politicians. We need other suggestive measures that would be of great aid if put into shape during these testing times. It should also be noted that the government has already imposed caps on spending by some Ministries and Departments.

But apart from this and many more such initiatives, slicing public sector salaries cannot be the sole form of resource mobilization. This must also be carried forward to the private sectors especially to the highest paying jobs like that of the CEO. It is the need of the hour to think anew about shrewdly designed wealth tax, inheritance tax, urban vacant land tax, and capital gains tax among others. These are the best of times to get rid of unproductive subsidies and to rethink the various fiscal aspects. Hence, this is a vital opportunity for us to recalibrate our priorities. We must choose wisely and expediently.

Author: M. Karnikka from Tamilnadu Dr. Ambedkar law university, School of Excellence in Law, Chennai.

Editor: Shalu Bhati  from Campus Law Centre, Faculty of Law, University of Delhi.

Leave a Reply