"The average rate of retail inflation for industrial workers from July 1, 2013 to June 30, 2014 works out to be 7.25 percent. Thus the Central government will hike dearness allowance for it employees by 7 percent," an official said.

He said the Finance Ministry will now put a Cabinet proposal for approval of 7 percent DA hike from July 1 this year as the revised Consumer Price Index-Industrial Workers data for June was released by Labour Ministry on Saturday.

With increase in DA, the pensioners will also gain as the benefit provided to them as dearness relief will be hiked to 107 percent of basic pay.

The previous UPA government had increased DA to 100 percent from 90 percent with effect from January 1, 2014, on February 28 on the basis of agreed formula for revision of the allowance.

However, the central government employees' union is not very enthused by the 7 percent hike in the dearness allowance as their long pending demand of merger of DA with basic pay has not been given heed by 7th Pay Commission and the government.

"The erosion of value of wages is unbearable at 50 percent dearness allowance. Now it will be 107 percent. It is high time to merge DA with basic pay to provide relief to employees," Confederation of Central Government Employees' President K K N Kutty told PTI.

"We had summited our memorandum in this regard to 7th Pay Commission. They forwarded it to Central Government. We have apprised about the issue to the newly elected NDA government. But no decision has been taken so far," he said.

With merger of DA with basic pay, the salary and allowances paid in proportion of basic pay are increased. As per earlier practise DA was merged with basic pay once it breached 50 percent mark. But 6th Pay Commission has disallowed that.

PTI