The Union finance ministry has put on hold the increase in dearness allowance (DA) for almost 48 lakh central government employees and dearness relief (DR) for its 65 lakh pensioners till July next year — a move that will help it save Rs 37,530 crore over an 18-month period.

The amount is expected to be used to fund rising healthcare costs and social welfare measures at a time the Modi government is battling the withering effects of the coronavirus crisis.

Last month, the government had announced a 4 percentage point increase in allowances for employees and pensioners from 17 per cent of basic pay or pension to 21 per cent with effect from January, which was estimated to cost Rs 27,100 crore in the current fiscal. That payout will not go ahead now.

States generally move in lockstep with the Centre on DA payouts and are expected to follow suit. They will collectively save another Rs 82,500 crore.

Thus, the combined savings of the Centre and the states are estimated at Rs 1.20 lakh crore.

The Centre and the state governments usually announce an increase in dearness allowance on salaries and dearness relief on pensions twice a year based on the prevailing rate of inflation on top of one annual increment.

Sources said the rates would be restored prospectively after July 2021 but this could well depend on how badly the economy is hit by the Covid-19 crisis.

The IMF had recently projected that India’s growth this year would tumble to 1.9 per cent from the 5.8 per cent forecast in January.

The government will not pay any arrears for the period between January 1, 2020, and June 30, 2021. However, the DA and the DR will continue to be paid at current rates.