Regional Connectivity Scheme (RCS-UDAN) (Launched 2016) – IMPRI Impact And Policy Research Institute

Policy Update
Muskan Thakur

Background

On October 21, 2016, the Government of India launched the Regional Connectivity Scheme (RCS), known as UDAN (Ude Desh ka Aam Nagrik) under the National Civil Aviation Policy (NCAP), 2016.  The scheme was conceptualised with a 10-year vision to connect tier-2 and tier-3 cities. The objective was to simulate regional air connectivity by making flying accessible and affordable for all. It also focused on linking the smaller towns and remote areas to the national aviation grid. 

The first flight under UDAN took off in April 2017 from Shimla to Delhi which was a symbolic journey showing that flying wasn’t just for metros anymore. The scheme supports airlines to operate on the low-traffic routes by providing Viability Gap Funding (VGF) and caps on ticket prices so that a one-hour flight can cost as little as a train’s AC fare.

Before UDAN, regional aviation faced multiple challenges such as high fares, idle and underutilized airports, lack of airline interest in low-demand routes, poor infrastructure at smaller airports, and heavy concentration of air traffic in metros. These bottlenecks restricted tourism, trade, and inclusive economic development. This ambitious scheme aimed at providing affordable airfare, strengthening regional connectivity,  developing underserved airports, promoting tourism as well as economic growth.

UDAN benefits:

• Airline Incentives: The scheme provides financial support to airline operators to run flights on low demand routes.
• Social Inclusion: Enables faster and cheaper connectivity for passengers in underserved regions.
• Infrastructure Development: The scheme revives underutilized airports and airstrips enhancing regional airport capacity and facilities.
• Economic Growth: Faster connectivity and better accessibility give a boost to local economies through enhanced trade and tourism activities.
• Environmental & Efficiency Aspects: Promotes smaller aircraft which are suitable for short-haul, low-demand routes (lower fuel use per flight).
• Beneficiaries: include tier-⅔ cities, first time fliers and the airlines.

UDAN has evolved through different iterations and phases over the years. In phases 1-4, the focus was on opening up connectivity to small towns, hilly terrain and islands. Phase 5 introduces seaplane and helicopter services aiming to improve connectivity in remote areas.

UDAN 1.0 (2017): The first UDAN flight took off on April 27, 2017 from Shimla to Delhi. Under this phase, 5 airline operators awarded 128 routes to 70 airports, including 36 new airports.

UDAN 2.0 (2018): This phase expanded the scheme to include 73 more underserved and unserved airports. 

UDAN 3.0 (2019): Added several regions in the North-East Region under the ambit of the scheme. Also introduced tourism routes and incorporated seaplane operations under the scheme.

UDAN 4.0 (2020): This phase prioritised hilly regions, islands and north-eastern states and increased emphasis on helicopter and seaplane services.

UDAN 5.0 (2023-2024):

• UDAN 5.1, which introduced helicopter routes to tackle difficult terrains and serve priority areas.
• UDAN 5.2, was designed for small aircraft operations and aimed at supporting rural tourism. 
• UDAN 5.4, conducted special rounds to re-bid discontinued or terminated routes.

The Union Budget 2025 extended UDAN for an additional 10 years, reinforcing the government’s long-term commitment to expanding regional air connectivity.

Functioning

The scheme functions through a competitive bidding process. Airlines propose routes that they would like to operate, and the government awards them contracts along with VGF to make the routes financially viable. In return, airlines agree to keep the fares low and maintain a set number of seats at the subsidised rates. 

Key Mechanisms of UDAN:

• Viability Gap Funding (VGF): To make regional flights financially sustainable, the government provides direct financial support. The central government bears 80% of the subsidy, while states contribute the remaining 20%. This helps airlines cover operational losses on less profitable routes.
• Route Allocation: Airlines compete for routes through a bidding process. The airline that asks for the lowest subsidy (VGF) wins the route. Routes are prioritized based on demand and the need to improve regional connectivity.
• Capped Airfares: To ensure affordability for common citizens, airfares are capped at ₹2,500 for a one-hour flight (for at least 50% of the seats). This makes air travel accessible to more people, especially in smaller towns.
• New Routes: The scheme emphasizes linking Tier-2 and Tier-3 cities with bigger hubs, reducing travel time and enhancing connectivity to major economic centers.

Challenges

1. Low passenger demand: Some UDAN routes continue to face low passenger demand, making them commercially unviable once government subsidies end. 
2. Airline withdrawals: due to high operational costs and sustained losses. 
3. Infrastructure gaps: In many small towns, airport infrastructure is still developing, which affects their operational reliability. 
4. Delay in VGF disbursal: have occasionally added to the financial strains on airlines.
5. Uneven coverage: Some upgraded airports like Tusura (Odisha) remain unused as no airline bids for them.
6. Environmental concerns: Increased flights on short-haul routes may raise carbon emissions, the reliance on smaller aircraft, though more fuel-efficient per trip, may still offset gains if the routes see low occupancy.

Performance in Recent Years

Growth Achievements

• 625 routes operationalized across 90 aerodromes (including 71 airports, 15 heliports, and 2 water aerodromes).
• 1.49 crore passengers have flown under UDAN by April 2025.
• 3 lakh flights operated across the country under the scheme.
• Airports doubled from 74 in 2014 to 159 in 2024, many with UDAN support.
• ₹4,023 crore VGF disbursement till March 2025.
• 102 new routes have been launched till 2024-25.
• Enhanced regional trade, tourism, improved air connectivity and also enabled the rise of regional airlines like Star Air, IndiaOne Air and Flybig.

Critical Evaluations

• CAG Report (2023): 52% of awarded routes never started their operations and only 7% of routes have remained operational beyond 3 years, raising questions about the sustainability of the scheme.
• State-wise variations: Strong uptake has been observed in UP, Maharashtra, and Northeast India, but weaker implementation in parts of Odisha and Chhattisgarh.
• Passenger uptake: Demand has been uneven: some routes (e.g., Hisar-Chandigarh) report occupancy, while others fail to attract enough passengers.

Impact

Positive Impacts

• Improved accessibility: Reduced travel time drastically (e.g., Pune-Jalgaon route cut from 12 hours by road to 5 hours by air).
• Tourism: Enhanced connectivity to hilly states, North-East, and pilgrimage sites.
• Economic benefits: Improved regional trade and facilitated easier business mobility.
• Employment generation: New jobs emerged in aviation, ground handling, and allied services.

Emerging Issues

1. Low Route Viability: Many routes discontinued due to poor passenger demand.
2. Delayed VGF Payments: Airlines face financial stress due to delay in VGF disbursal.
3. Infrastructure Gap: Several airports still lack capacity for consistent operations and smaller airports lack modern facilities.
4. Regional Imbalance:  Some states disproportionately. Benefit from the scheme 
5. Financial burden: Rising subsidy costs raise questions of long-term viability of the scheme.

Way Forward

1. Strategic Route Planning: Use of demand mapping to ensure better route planning and linking UDAN more closely with tourism, industry, and economic corridors to ensure strategic route planning.
2. Digital Monitoring: Introduce real-time dashboards to efficiently streamline fund release and strengthen transparency in fund disbursal.
3. Sustainability through PPP: Encourage Public-Private Partnerships for airport development, operations, and maintenance. For example, smaller airports could be managed under PPP models similar to Delhi and Hyderabad airports, with private players investing in the infrastructure, maintenance, and services while the government provides policy and financial support. Airlines and private operators can also be incentivized to co-develop regional hubs.
4. Regional Equity: Provide special incentives for airlines to operate in underserved geographies like the North-East, tribal belts, and coastal regions, which often face high logistics costs but hold potential for tourism and trade.
5. Airport Connectivity: Strengthen last-mile connectivity to airports through improved road, metro and bus connectivity so passengers can access them conveniently.
6. Multimodal Transport Integration: Align UDAN with the PM Gati Shakti Master Plan by integrating airports into multimodal logistics networks. This would mean connecting airports not only with highways but also with rail freight corridors, waterways, and urban metro systems, making them hubs for both passengers and cargo.
7. Integration with National Vision: Align UDAN with India’s “Viksit Bharat 2047” vision by ensuring inclusive air connectivity.

References 

1. Comptroller and Auditor General of India. (2023). Report No. 22 of 2023 – Performance audit of Regional Connectivity Scheme (UDAN). https://cag.gov.in/webroot/uploads/download_audit_report/2023/Report-No.22-English-064d5dc4be9bf67.48739275.pdf
2. Economic Times. (2025, February 1). Budget 2025: Government extends Udan scheme by 10 years. https://m.economictimes.com/industry/transportation/airlines-/-aviation/budget-2025-government-extends-udan-scheme-by-10-years/articleshow/117821357.cms
3. Ministry of Civil Aviation. (2024, July 18). UDAN (Ude Desh ka Aam Nagrik) scheme. Ministry of Civil Aviation, Government of India. https://www.civilaviation.gov.in/en/about-udan
4. PIB Delhi. (2024, February 5). UDAN scheme has successfully completed 6 years with 517 routes operationalised. Press Information Bureau, Government of India. https://pib.gov.in/PressReleasePage.aspx?PRID=1994480
5. Press Information Bureau. (2025, February 1). Government extends UDAN scheme by 10 years; 619 routes operational. Ministry of Civil Aviation. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2124459
6. ResearchGate. (2020, November). A critical review on Regional Connectivity Scheme of India. https://www.researchgate.net/publication/344979642_A_Critical_Review_on_Regional_Connectivity_Scheme_of_India

About the contributor: Muskan Thakur is a Research Intern at IMPRI and a Master’s student in Economics at Gokhale Institute of Politics and Economics, Pune.

Acknowledgement: The author extends her sincere gratitude to the IMPRI team and Ms. Aasthaba Jadeja for her invaluable guidance throughout the process.

Disclaimer:  All views expressed in the article belong solely to the author and not necessarily to the organisation.  

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