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 Central government employees will go home with an increased pay packet from now, with the union cabinet Friday hiking the dearness allowance to 65 percent of the basic salary from the existing 58 percent with retrospective effect from Jan 1 this year.

The hike, about 7 percent from the present rates, will also be applicable to central government pensioners.

The increase in the allowances will cost the government exchequer Rs.7,474.53 crore annually, according to the decision taken at the cabinet meeting presided by Prime Minister Manmohan Singh

The increase is in accordance with the accepted formula, which is based on the recommendations of the Sixth Central Pay Commission.