Keeping in mind the global slowdown, the government on Thursday decided to relax the fiscal gap target of states to 3.5 percent.

Talking to reporters Union Home Minister P. Chidambaram said, "In view of the slowdown and pressure on resources, this gap was first relaxed to 3.5 percent for the present year, 2008-2009. But the slowdown is likely to continue next year. So, the gap has been relaxed to 3.5 percent also for 2009-10."

Finance Minister Pranab Mukherjee had earlier announced that a move to raise the ceiling on states' fiscal deficits to 3.5 percent of their state gross domestic product should be extended into the new fiscal year 2009-10.

The dearness allowance (DA) for the Central government employees was also increased by six percent.

The DA was hiked to 22 percent from the present 16 percent, a decision that will benefit five million employees and 3.8 million pensioners.

"The rate of Dearness Allowance and Dearness Relief from January 1, 2009 will be 22 percent. The existing rate is 16 percent. According to the last revision, there will be an increase of six percent over the existing rate," Chidambaram said.

The move is estimated to cost the Indian government around 60.20 billion rupees. (ANI)