Mayor Marion Barry proposed yesterday increasing welfare payments by 5 percent beginning April 1 and an additional 4 percent Oct. 1 in fiscal 1987, but said he was opposed to provisions in a bill before the City Council that would provide annual cost-of-living increases for recipients.

Barry said uncertainty in the budgeting process, fueled by the Gramm-Rudman-Hollings bill recently passed by Congress, has convinced him it would be "particularly unwise" for the District of Columbia to introduce such automatic increases in its general public assistance and Aid to Families with Dependent Children programs.

Advocates of a cost-of-living increase, proposed last July in a bill sponsored by council member John Wilson (D-Ward 2), contend that District funding for public assistance lags behind at least 25 states and that substantial increases are needed to bring the city back into line.

"We think it is real important that there be a cost-of-living adjustment," said Cheryl Fish, director of the Coalition on Financial Accountability. "If Barry is concerned the city won't always be able to afford it, the legislation can be repealed when it becomes unaffordable."

Fish said the city has increased public assistance only twice since 1979, including a 9 percent raise in fiscal 1985. That raise brought D.C.'s monthly AFDC payment to a family of three up to $327.

City Administrator Thomas Downs said that the Barry administration preferred to remain flexible on welfare payment levels after fiscal 1987 so that shifts of funding to more productive poverty programs could be made. Downs, citing studies linking welfare dependency to a cycle of poverty, said D.C. would look at providing better job placement and training programs in future.

"Just automatically putting those [welfare cost-of-living] dollars in without considering how best those dollars might be used is a disservice to the clients," he said.

The mayor and City Council members have been negotiating the welfare increase since mid-December, two months after hearings on the Wilson bill were held by the council's Human Services Committee, headed by council member Polly Shackleton (D-Ward 3).

The Wilson bill called for annual cost-of-living increases tied to the Consumer Price Index. Barry, acting before Gramm-Rudman-Hollings was passed in Congress, countered with an offer of a 5 percent increase April 1, 4 percent on Oct. 1 and 2 percent annually after that, but Wilson "didn't buy that," according to a Wilson spokesman.

Then last week, the mayor wrote a letter to Shackleton ruling out the automatic increase altogether and proposing instead the 5 percent and subsequent 4 percent increases. Parts of the letter were made public yesterday by the mayor.

Shackleton said yesterday she would support emergency legislation required to provide an increase by April 1, but said she would seek an initial raise of 7 percent, rather than 5 percent. Wilson said he would support "whatever our two distinguished leaders, Mr. Barry and Mrs. Shackleton, wish."

Barry aide Dwight Cropp said the mayor was "flexible" on the amounts of the increase in April and Oct. 1, but wants to assess the future impact of the Gramm-Rudman-Hollings law.