Wikipedia defines Dearness Allowance (DA) as a cost of living adjustment allowance paid to Government Employees, Public Sector Employees and Pensioners in India, Bangladesh and Pakistan.
Dearness Allowance is linked to Consumer Price index. After the Second World War DA was known as Dearness Food Allowance. This concept of DA was introduced by Textile Industry in India. This DA is mainly given to beat inflation. This DA is based on location , hence it varies.
Da is calculated as % of basic pay in respect of Employees and % of basic pension in respect of Pensioners.
DA is calculated based on AICPI
For Central Government Employees
DA% =( Average of AICPI ( Base year 2001=100) for the past 12 months – 115.76/115.76)*100
For Central PSU
DA% =( Average of AICPI (Base year of 2001 =100) for the past 3 months-126.33/126.33)*100
Economic Times defines CPI as comprehensive measure used for estimation of price changes in a basket of Goods and services such as transportation ,food and medical care representative of consumption expenditure in an economy. It gives an idea of inflation. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.
CPI increase is calculated by adding together a sampling of product prices of a previous year. The add together current prices of same products . Divide the total of current prices by old prices, then multiply the result by 100. subtract 100 to find the percentage change in CPI.
For AICPI you are requested to verify this site http://cyberjournalist.org.in/majithia/aicpi_2001.php
ALL INDIA AVERAGE CONSUMER PRICE INDEX (Base 2001=100) for industrial workers
Note: The index numbers with base 1982=100 can be obtained by multiplying the above values with the link factor of 4.63.
DA with effect from 1.1.19 =(288+288+287+288+289+291+301+301+301+302+302+302)/12=269.91-261.4=8.51*100=851/261.4=3.2approx equals 3%
This is the highest DA after 1.1.2016 For more details see the site specified above.
Now do you understand how our DA is calculated if you have any more information you can add up in my comments.
Your attention is also invited to this you tube video https://www.youtube.com/watch?v=FWAozb5bBHM