Cabinet Approves Extra Compensation To Central Govt Employees, Raise On Gratuity Cap

The Cabinet on Tuesday, September 12, gave its approval for two worker-friendly proposals that aim to increase compensations to employees in the private and public sector. The proposals will be introduced in Parliament soon for discussion and passing.

1) Gratuity cap raised

The Union Cabinet on Tuesday, September 12, gave its approval for the introduction of the Payment of Gratuity (Amendment) Bill, 2017 in Parliament (press release).

Gratuity is a benefit received by an employee for services rendered to an organisation. For companies covered under the Gratuity Act, this benefit is paid when an employee completes five or more years of service with the employer. An employee gets gratuity when he/she resigns, retires or is laid off (more).

The Payment of Gratuity (Amendment) Bill, 2017 seeks to double tax-free gratuity for formal sector employees to Rs 20 lakh from the current cap of Rs 10 lakh.

The Amendment will increase the maximum limit of gratuity of employees (in the private sector and in Public Sector Undertakings/Autonomous Organisations under government who are not covered under CCS (Pension) Rules) at par with central government employees.

The government’s statement said: “The Payment of Gratuity Act, 1972 applies to establishments employing 10 or more persons. The main purpose for enacting this Act is to provide social security to workmen after retirement, whether retirement is a result of the rules of superannuation, or physical disablement or impairment of vital part of the body. Therefore, the Payment of Gratuity Act, 1972 is an important social security legislation to wage earning population in industries, factories and establishments … considering the inflation and wage increase even in case of employees engaged in private sector, the government is of the view that the entitlement of gratuity should be revised for employees who are covered under the Payment of Gratuity Act, 1972.”

2) Dearness Allowance hiked

The Cabinet also approved the release of additional 1% Dearness Allowance (DA) for central government employees. This is expected to provide relief to 11 million central government employees and pensioners.

The DA is a cost of living adjustment allowance paid to government employees, public sector employees and pensioners. It is calculated as a percentage of a citizen’s basic salary; its aim is to mitigate the impact of inflation on people (calculator).

Economy in doldrums, boost desperately needed

Analysts hope that the hike in dearness allowance and gratuity, once implemented, may boost consumption in the economy.

“Since there is less investment, recovery in Indian economy will be consumption-led this year. And decisions like this will support the consumption story, although mildly,” Crisil Ltd chief economist DK Joshi told Livemint.

In concerning news, India’s quarterly GDP growth has reached its lowest point since March 2014, with growth slackening to 5.7% for the April-June (Q1) quarter.

Growth was 6.1% in the previous quarter.

This number, released by the Central Statistics Offer (CSO), was considerably lower than even the most modest predictions by economists and think tanks, most of whom predicted a growth rate of around 6.6%.

It also marked the fifth consecutive quarter where India’s economic growth has slowed. Early analyses say the continuing slow growth is due to the effects of demonetisation (overview of RBI report), GST and the lack of job creation.