8th Pay Commission Update: Govt Rules Out DA‑Basic Pay Merger For Now

The formation of the 8th Central Pay Commission (8th CPC) in November–December 2025 raised hopes among central government employees and pensioners for a possible merger of Dearness Allowance (DA) with basic pay — a move long advocated as a way to mitigate inflationary pressure. However, in its first formal response, the government has firmly ruled out any such merger for the time being, causing disappointment and concern among many.

What the Government Has Clarified

During the Winter Session of Parliament, the Ministry of Finance confirmed that the 8th CPC has been formally constituted via Gazette notification dated 3 November 2025. The commission is now tasked with reviewing pay, allowances, benefits, pensions, and related matters for central government employees.

On the critical question of whether DA would be merged with basic pay, the Ministry’s written reply underlined that “no proposal… is under consideration at present”. Thus, until further notice, DA will remain a separate allowance, subject to periodic revisions based on inflation indices.

Why Many Expected a DA–Basic Pay Merger

Over the years, DA has often soared past 50 percent of basic pay — crossing this threshold historically triggered a merger under previous pay structures. Employee unions and pensioner groups viewed this as a logical juncture for integration.

A merger would have expanded the base salary, influencing housing allowances, pension calculations, and retirement benefits — offering employees a more stable, inflation‑resistant income structure.

Given the current inflationary trend and rising cost of living, many employee bodies had hoped the 8th CPC would deliver such relief as an interim measure.

Why the Government Is Hesitant

The government’s reluctance rests on fiscal prudence: merging DA with basic pay would raise recurring liabilities — including pensions, allowances linked to basic pay, and long-term commitments. Maintaining DA as a separate allowance gives more flexibility, allowing periodic adjustments without permanently inflating the base pay burden.

Moreover, the current Terms of Reference (ToR) for 8th CPC do not include an explicit mandate for DA–basic pay merger — indicating that this issue may be revisited only if specially included in future ToR revisions.

Concerns of Employees and Pensioners

The decision has triggered frustration among employee unions and pensioner groups for various reasons,

• Pensioners feel overlooked: Unlike past commissions, the ToR for the 8th CPC does not explicitly address pension revision — raising fears that retirees may be sidelined in the final recommendations.
• Rising inflation for lower‑grade staff: For those reliant on DA as a significant portion of income, continued inflation may erode real earnings over time.
• Uncertainty about interim relief: Some unions had hoped for an immediate DA–basic pay merger or interim relief, but the government’s response rules out such a step — at least for now.

Calls for nationwide protests and demands for amended ToR have already begun surfacing from several employee bodies.

What Happens Next

The 8th CPC will proceed with its detailed review of pay structures, allowances, pensions, gratuity, and other benefits. It is expected to submit recommendations within 18 months.

Employee and pensioner groups are likely to intensify lobbying for inclusion of DA‑merger and pension revision in the final report or as an interim relief.

Until any structural change is implemented, the current system — where DA is revised periodically based on inflation indices (CPI-IW/AICPI-IW) — will remain intact.