NEW DELHI: The Indian government on Thursday hiked inflation-adjusted pay and allowances for 11.7 million employees and pensioners by 4%, a move that is likely to cost the exchequer 128.69 billion Indian rupees ($1.56 billion) annually, a minister said.

The increases to the ‘dearness allowance’, part of monthly wages and pensions, provides a cushion against rises in the cost of living. They will be backdated to Jan. 1, 2024, trade minister Piyush Goyal said.

The decision to hike the allowances comes weeks ahead of national elections being announced where Prime Minister Narendra Modi is bidding for a rare third term in office. The federal and state governments generally announce twice-a-year adjustments in inflation-linked wages on top of an annual increment.