Dearness allowance of government employees increased in Tamil Nadu

Tamil Nadu Chief Minister C. Joseph Vijay on Saturday, October 31, 2026, announced an increase in the dearness allowance (DA) for the state's government employees and teachers. Following this decision, the dearness allowance for state employees has now increased from 60% to 63%. According to a report by The Hindu, the state government has taken this decision following a similar hike made for central government employees.

According to a press release issued by the state government, the dearness allowance for central government employees was increased from 60% to 63% starting July 2026. Now, this revised dearness allowance for Tamil Nadu government employees and teachers will also be implemented retrospectively from July 2026. This hike will directly benefit a total of 16 lakh government employees, teachers, pensioners, and family pensioners in the state. Due to this increase, the government will incur an additional expenditure of ₹1,858 crore annually. The government press release also stated, "This increase will enable them to celebrate Diwali with joy."

On the other hand, The Economic Times has provided detailed information regarding inflation figures and future projections. The increase in dearness allowance is based on retail inflation. The Labour Bureau has released the retail inflation figures for September 2026. Retail inflation tracked by the All India Consumer Price Index – Industrial Workers (AICPI-IW) stood at 155.4 in the month of September, which is 1 point higher than August's figure of 154.5. Following this September inflation data, the current running dearness allowance rate has reached 65%.

The average retail inflation of the last 12 months is considered for the calculation of dearness allowance. The Labour Bureau releases the previous month's inflation data at the end of the subsequent month. For example, April's data is released at the end of May. To determine the current dearness allowance rate, the average inflation from October 2025 to September 2026 must be looked at. These 12-month figures of AICPI-IW are as follows: 147.7 in October-25, 148.2 in November-25, 148.2 in December-25, 148.6 in January-26, 148.5 in February-26, 149.1 in March-26, 149.9 in April-26, 150.8 in May-26, 151.9 in June-26, 153.2 in July-26, 154.5 in August-26, and 155.5 in September-26. Thus, the 12-month average has been 150.5.

In the process of calculating dearness allowance, the 2016 base value is multiplied by a factor of 2.88 to link it with the 2001 base value. This 2.88 factor is determined to equate the latest base year of 2016 with 2001. Labour Bureau data shows that for August 2020, the CPI-IW value under the old base (2001=100) was 33.8 and under the new base (2016=100) it was 117.4, hence this factor is calculated as 338 ÷ 117.4 = 2.88. The formula for the dearness allowance percentage is: [{12-month AICPI-IW average (Base Year 2001) – 261.42} / 261.42 x 100]. Calculation of DA% after September inflation data: [(150.5 X 2.88) – 261.42] / 261.42 X 100 = 65.81%, which is taken as 65%. The government does not calculate dearness allowance in decimals, so 65.81% is effectively considered as 65% DA, while the remaining 0.81% is adjusted in the next DA cycle.

Now the question arises whether the dearness allowance for January 2027 could increase to 68%. This will depend on the average inflation during the period from October to December 2026. The Economic Times has outlined three possible scenarios for the next three months. In the first scenario, if inflation declines: Although the possibility of inflation declining is low due to rising fuel costs, domestic market volatility, and geopolitical factors, if we assume it goes back to the levels of August (154.5), July (153.2), and June (151.9) for October, November, and December, the estimated DA for January 2027 could be 67.23%, i.e., 67%.

In the second scenario, if inflation increases: If inflation continues to rise at the same pace as it did in the last 3 months and we assume inflation for October, November, and December to be 156.8, 158.1, and 159.1, the estimated DA for January could reach up to 68.56%, i.e., 68%. In the third scenario, if inflation remains the same: If the retail inflation for October, November, and December remains the same as September, the estimated DA for January will be 67.78%, i.e., 67%. Thus, if inflation increases, central government employees may get 68% DA for January 2027, but if it declines or remains similar to September, the estimated DA could be 67%. However, these are only estimates and the final decision regarding the DA hike will rest with the Ministry of Finance.