The Cabinet today approved a 6 per cent hike in the dearness allowance (DA) to Central Government employees and pensioners from January 1, 2009.

The decision will benefit millions of government employees in the Railways, Armed Forces, Central Board of School Education and other departments. The decision will benefit 41 lakh government employees and another 38 lakh pensioners.

However, the DA increase to employees will cost the exchequer an additional Rs 6,000 crore.

Confirming the development, P Chidambaram, Union Home Minister said that the combined burden of the increased DA to employees and the retired will be Rs 6,020 crore from January 2009 to February 2010.

The decision to hike the DA was taken at a meeting of the Cabinet chaired by External affairs Minister Pranab Mukherjee.

“This will benefit the Central Government employees and pensioners to get higher amount of DA”, an official spokesperson told reporters after the meeting.

The rate of DA from January this year, would now go up from 16 per cent to 22 per cent for all Central Government employees and pensioners, besides family pensioners of the Central Government.

Experts believe that the decision to approve the hike in DA rates is important because elections are round the corner and Election Commission is likely to issue notification shortly.

In other decisions, the Cabinet cleared Rs 8,160 crore for upgrading roads in Naxal-affected areas. It also allowed states to let their fiscal deficit go up to 3.5% as compared to 3% earlier.