Dearness allowance for lakhs of central government employees and pensioners is likely to be hiked by 2 per cent, government sources told.

The proposed hike is expected to come up for the approval of the Union Cabinet soon.

It will benefit 50 lakh government employees and 61 lakh pensioners of the central government and will come into effect from 1 January 2018.

Dearness allowance and dearness relief are provided to employees and pensioners to neutralise the impact of inflation on their earnings.

The existing dearness allowance – paid as proportion of the basic pay of central government employees or pension – is 5%.

According to the government, the increase in dearness allowance is made in accordance with the formula based on the recommendations of the 7th Central Pay Commission.