The UDAN (Ude Desh ka Aam Naagrik) Scheme is a key component of the Prime Minister Narendra Modi’s National Civil Aviation Policy (NCAP) which was released by the Ministry of Civil Aviation (India) on June 15, 2016. UDAN is a regional airport development and “Regional Connectivity Scheme” (RCS) initiated by the Government of India. The objective is to “Let the common citizen of the country fly”, making air travel affordable and widespread, to boost inclusive national economic development, job growth and air transport infrastructure development of all regions and states of India. This scheme will expedite the development and operationalization of India’s potential-target of nearly 425 un-served, underserved and mostly underdeveloped regional airports with regular scheduled flights. It is jointly funded by the Center and State government.
The government’s Regional connectivity scheme will give a boost to the aviation sector. This is a first-of-its-kind scheme globally to stimulate regional connectivity through a market based mechanism. 27 States/UTs have already signed MOUs with the Central Government under RCS-UDAN. Many private sector airlines are actively participating under this scheme, listing it as one of the initiative that will give a boost to the aviation sector.
The scheme has two components. The First component is to develop new and enhance the existing regional airports to increase the number of operational airports for the scheduled civilian flights from 70 (in May 2016, total 98 operational including army airports) to at least 150 airports (by December 2018) with regular scheduled flights.
The Second component is to add several hundred financially-viable capped-airfare new regional flight routes to connect more than 100 underserved and unserved airports in smaller towns with each other as well as with well served airports in bigger cities by using “Viability Gap Funding” (VGF) where needed. Union government share of “Viability Gap Funding” is from the Cess applied to flights to popular routes to main cities and respective state governments have also offered additional benefits to the flight operators to make UDAN-RCS viable.
Five airlines Alliance Air, SpiceJet, Turbo Megha, Air Odisha and Air Deccan were awarded 128 routes under the scheme after a bidding process. The selected airlines will enjoy a three-year exclusivity period on the specific routes they have won. Some of the proposed routes are Hyderabad-Cuddapah, Hyderabad-Nanded, Nanded-Mumbai, Chennai-Mysuru, Chennai-Salem, Mumbai-Porbandar, Kolkata-Aizwal, Pune-Nashik, Delhi-Dehradun, and Ranchi-Raipur.
Value Gap Funding (VGF)
The scheme entails making the routes financially viable, without insisting on the financial viability of the regional airports, by lowering the cost of flight operations and through VGF. VGF will be available to flight operators on specific routes for the first 3 years of their operation.
The demand driven revival and enhancement of the regional airports with financially viable commercial flight routes, without insisting on the financial viability of the airports, is based on the combination of seeking firm proposals from Airlines for the names of airports they wish to fly to and MoU-bound commitment from the state governments for providing various concessions for the airport operations, such as state tax concessions, free land and security, etc.
To make the routes viable for commercial airlines, the union government offers flexible code sharing arrangements, reduced excise on value-added tax on fuel and service tax. Airlines will be given a Value Gap Funding (VGF) raised from the RCS levy.
Concessions and Benefits
UDAN also provides several concessions for several entities to ensure smooth functioning of the scheme. The Central government focuses on Value Gap Funding (VGF) to subsidise the airfare; provide concession on service tax on tickets and permits Code-sharing of UDAN-RCS flights with other operators.
The State Government also issues various concessions at their airports such as reduction of VAT (or GST after GST came in operation) to 1% or less for 10 years; coordinate with oil companies to create fuelling infrastructure on airports; provide free land for the development of airport, with multimodal (rail, road, metro, waterways, etc.) hinterland connectivity; provide free trained security; availability of water, electricity and other utilities at reduced rate; provide 20% share of Value Gap Funding, North-Eastern states while Union territories to provide 10% share only.
Airport operators (commercial or private companies, central and state governments or their entities such as AAI and Defence Ministry) also provide concessions such as no landing, parking or other charges; no Terminal Navigation Landing Charges (TNLC); allow selected airline to manage the ground handling of flights; Route Navigation and Facilitation Charges (RNFC) on UDAN-RCS flights by AAI on a discounted rate of 42.50% of Normal Rates.
Budget 2018 highlights on UDAN
The UDAN scheme seems to be the catalyst in bringing changes to the air-travel sector in the new budget. The government plans to make operational 56 unserved airports and 31 helipads all over the nation; 16 unserved airports were made operational in the past one year. The UDAN scheme has received a big allocation, Rs. 1,014.09 crore, for the fiscal year of 2018-19, from Rs. 200.11 crore in the previous year. Presenting the Budget for 2018-19, Arun Jaitley said that the government has proposed expansion of airport capacity by more than five times to handle a billion trips a year under a new initiative.
Boon to aviation sector
UDAN is seen to connect unserved and under-served airports as well as make flying more affordable for the masses. Under this Scheme, the air fare between Tier 2 and Tier3 cities will be made Rs. 2500 per hour of travel. Also, for helicopter the fare will be Rs. 5000 per hour. In a flight, around 50% of the total seats will be reserved for UDAN scheme. This scheme will be helpful for those common citizens who have to travel frequently for commercial purposes.
While launching the scheme, PM Modi said, “The aviation sector in India is filled with opportunities. The lives of the middle class are being transformed and their aspirations are increasing. Given the right chance, they can do wonders.” This scheme aims to Unify India by advancing air connectivity.
To boost regional airline connectivity, the government promises with immense government in the form of lower taxes, viability gap funding (or subsidy) and assurances to build airport infrastructure. This initiative is certain to be a Bud-jet free travel for the commoners, aiming a comfortable travel at an affordable price, which is truly reflected in Mr. Jaitley’s comment when he aptly says “Sarkar ki iss pahal se hawai chappal pehnne wale nagrik bhi hawai jahaj mein yatra kar rahe hain” (With this initiative, people wearing slippers are also travelling in aircraft).