20 Oct

Regional Connectivity Scheme (UDAN)

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Contents

• Some challenges of India’s Domestic Aviation Sector
• UDAN Scheme
• Key Provisions
• Key Achievements
• UDAN 5.0
  • Key Features
• Challenges

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Some challenges of India’s Domestic Aviation Sector:

• Traffic concentrated between large airports: This leads to choking of large airports
• Existence of a lot of ghost airports: Inefficient resource utilization
• Poor connectivity to tier-2 and tier-3 cities -> this also hampers other services and tourism; negatively impacts national integration.
• States have ignored aviation sector as Civil aviation is mentioned in the Union List.

UDAN Scheme (A part of National Civil Aviation Policy 2016)

• Launched in 2017 with an aim to provide air connectivity to tier II and Tier-III cities and ensuring affordable fares.
• Under the scheme, government has approved a budget of Rs 4500 crore for revival of existing unserved/underserved airports/airstrips of the state governments, AAI, PSUs, and civil enclaves.
• Government has also accorded ‘in-principle’ approval for the setting up of 21 greenfield airports across the country.

Key Provisions of the scheme

1. Subsidization of regional flights – to promote regional connectivity.

• Regional Connectivity Fund (RCF) has been created to meet the VGF requirement.

2. Cap on Airfare at Rs 2,500/hour journey for 50% of the seats.
3. Other steps which are being taken

• Revival of airstrips/airports as No-Frills Airports at an indicative cost of Rs 50 crore to
  Rs 100 crore
• No airport charges
• Reduce service tax on tickets (on 10% taxable value) for 1 year initially
• Reduced excise duty of 2% on ATF picked at RCS airports
• Steps which states would need to take
  • RCS only in those states which reduce VAT on ATF to 1% or less, provide other
    support services and 20% of VGF.
  • State government will provide police and fire services free of cost. Power, water and other utilities at concessional rate.

4. Equitable Geographical Allocations: For balanced regional growth, allocations will be spread equitably across 5 regions – North, South, West, East and North East with a cap of 25%.
5. Regional connectivity scheme will be in operation for 10 years with individual route contract for a 3 year span.
6. Market based reverse competitive bidding mechanism to determine least VGF to select the airline operator with the right to match the initial proposer.

Key Achievements/Significance of UDAN Scheme:

• Increased number of operational airports to 140+ from 74 in 2014
• Increased connectivity to tier-2 and tier-3 cities
  • 400+ new routes have been initiated providing air connectivity to 29 states/ Uts across the country.
  • 46+ helicopter routes have been operationalized under previous rounds of schemes benefitting a number of hilly and NE region.
  • More than one crore passengers have availed the benefits of the scheme
• Better connectivity will contribute to inclusive growth, through more employment
  opportunities, and more tourism in the connected region.

UDAN 5.1 – Specifically designed for helicopters (May 2023)

• For the first time under RCS-UDAN, the round has been designed specifically for helicopter route.
• Key features:
  • Increase in scope of operation – Even if one of the locations (destination or origin) is priority area, these routes will be allowed.
  • Airfare caps have been reduced by as much as 25% to make flying in helicopters more affordable for passengers.
  • VGF caps for operators have been increased substantially for both single and twin-engine helicopters to enhance financial viability for operating the award routes.

UDAN 5.0

Why in news?

• Following four successful rounds of bidding Ministry of Civil Aviation launched the 5th
  round of the Regional Connectivity Scheme (RCS) – UDAN to further enhance the connectivity to remote and regional areas of the country and achieve last mile
  connectivity.

Key features:

• Focuses on Category-2 (20-80 seats) and Cateogry-3 (>80 seats)
• Stage length cap of 600 km is waived off and there is no restriction on the distance
  between the origin and destination of the flight.
•  VGF to be provided will be capped at 600 km stage length for both priority and non
  priority areas which was earlier capped at 500 km.
• Same route will not be awarded to single airlines more than ones.

Some Challenges

a. Not all the underserved and unserved (ghost) airports which were envisaged to become
operational have been revived and not all the routes for which airlines (new and established
ones) had placed bids have been started.
b. New players (like Air Deccan and Air Odisha) have little experience, lack funds and have
struggled with economics and logistics of providing connectivity from remote locations. Quality of service has also remained a concern with highest number of cancellations being seen for these new players.
c. Concerns about sustainability after VGF funding ends in 3 years is also keeping the aviation player worried especially now when oil prices are seeing a positive trend.
d. States have been reluctant to contribute.

• For e.g. VAT on ATF has not been decreased by many.

e. Land Acquisition for greenfield airports have emerged as a major issue.

Some criticisms of the scheme

• Subsidy for air travel will only benefit middle class and upper middle class -> it could be used at other places.
• Before COVID-19 crisis, India had the fastest growing aviation market and thus state subsidies could be avoided.

Way forward

• Government should think about extending the VGF beyond three years to bring in more player at the route.
• Regulations for Scheduled helicopter service should be finalized ASAP so that smaller airports can be viably connected.
• There is a need of higher investment on airport infrastructure to increase the quality of service and to complement the efforts by new players in the aviation industry.
• A Cooperative Federalism Framework can provide the required impetus to the Civil Aviation Sector.
  • How can states contribute:
    • Reduce VAT on ATF.
    • Develop airports on its own or through PPP.

Conclusion 

• Travel dynamics through India is evolving and air service development is becoming a major force in this development. The newly connected cities have massive opportunities to boost regional and inter-continental connectivity.
• And with the significant benefits that a new air service brings to community, UDAN will only help to facilitate the further evolution of a modern, well-connected country.