The Central government is likely to hike dearness allowance from 65 per cent to 72 percent, benefiting about 50 lakh of its employees and 30 lakh pensioners.
"The proposal to increase dearness allowance (DA) by 7 percent of the basic pay is scheduled to come up for consideration of the Union Cabinet on Friday," a source said.
The hike, once approved, will be effective from July 1, 2012, and the employees would be entitled for arrears from this date.
The government had increased DA last in March from 58 per cent to 65 percent, which was effective from January 1, 2012.
The government periodically hikes the DA, which is linked to consumer price index for industrial workers. The CPI is hovering around 10 per cent.