The Centre on Wednesday increased dearness allowance and dearness relief to four per cent from existing two per cent effective January 1, 2017, benefiting 48.85 lakh employees and 55.51 lakh pensioners.

"The Union Cabinet chaired by Prime Minister Narendra Modi has approved the release of an additional instalment of dearness allowance to central government employees and dearness relief to pensioner with effect from January 1, 2017," an official statement said.

The dearness allowance/dearness relief has been increased by 2 per cent over the existing rate of 2 per cent of the basic pay/pension to compensate for price rise and it is in accordance with the accepted formula based on the recommendation of 7th Pay Commission, the statement said.

This increase in dearness allowance/dearness relief (DA/DR) will benefit 48.85 lakh central government employees and 55.51 lakh pensioners, it said.

The statement said that the combined impact on the exchequer on account of both dearness allowance and dearness relief would be Rs. 5,857.28 crore per annum and Rs. 6,833.50 crore in the Financial Year 2017-18 (for a period of 14 months from January 2017 to February 2018).

The hike in the DA/DR is as per the agreed methodology of taking an average of Consumer Price Index-Industrial Workers for the past 12 months.

The Confederation of Central Government Employees had termed it as a meagre hike in view of the actual rise in the cost of living index saying the CPI-IW was far from reality.

The union had also said that there was a lot of variation in the rates of price rise of commodities by Ministry of Agriculture and CPI-IW.

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