Regional Connectivity Scheme

The Regional Air Connectivity Scheme (RCS) i.e. UDAN (Ude Desh Ka Aam Nagarik) has been launched to provide connectivity to un-served and under-served airports of the country through revival of existing air-strips and airports. This scheme has been launched as per the vision in new Civil Aviation Policy which had capped the passenger fares for flight journeys from un-served and underserved airports at Rs.2500 per hour of flying for around 500 kilometers under RCS scheme. This is first of its kind scheme and has been rolled out in January 2017 for a period of 10 years.

Objectives

The key objectives of the UDAN scheme are as follows:

• To revive the existing under-served and un-served airports / airstrips in smaller towns and provide them connectivity so that persons in those towns are able to take affordable flights.
• Provide viable and profitable business to operators.
• Promote tourism, increase employment, promote balanced regional growth

Salient Features

The key features of UDAN scheme are as follows:

• RCS is applicable on route length between 200-800 kilometers with no lower limit set for hilly, remote, island and security sensitive regions.
• The business model of the scheme is based on Government subsidy and viability gap funding (VGF). The central government will provide concessions of around 2% excise on VAT and service tax at 1/10^th rate along with liberal code sharing for regional connectivity airports.
• The airlines are required to commit around 50% of the seats as RCS seats on RCS flights.
• The fund for this scheme would come from a Regional Connectivity Fund (RCF) created by levying certain charges on certain flights. States will need to contribute around 20% to this fund.
• For balanced regional growth, the allocations will be spread equitably across five regions in the country viz. North, South, East, West and North East with a cap of 25%.

How the scheme works

The scheme will be in operation for 10 years with individual contracts for 3 years. The interested operators submit initial route proposals and the government compensates gap in cost and revenue through Viability Gap Funding (VGF). To determine the least VGF, government will select airline operators on the base of Market-based reverse auction mechanism. Implementing agency for the scheme is Airports Authority of India.

Role of Central and State Governments

Under this scheme, the central government will fund 80% of the losses incurred by the airlines by flying on regional routes. The rest of the loss will be covered by the states. The states will also incentivize the airlines in the form of lower excise duty at 2% and VAT at 1% on aviation turbine fuel at RCS airports. The VGF will be funded by charging a cess per departure on domestic flights at a rate decided by the aviation ministry from time to time. The VGF will be shared between the aviation ministry and the states in the ratio of 80:20. In case of the North Eastern States the ratio will be 90:10. VGF will be provided for a term of three years from the beginning of operations of such RCS flights. In sum the financial assistance to the airlines will be in the form of:

• Concessions offered from central and state governments.
• Viability gap funding (VGF)
• Concessions offered by the airport operators like not levying parking and landing charges.

The role of states in implementation of this scheme is immense and scheme’s success depends on their role. RCS will be implemented only in those states which reduce VAT on ATF to 1% or less and offer other support services and 20% of VGF.

RCS Scheme and Federalism

The success of the scheme requires Centre-State cooperation. States are required to provide free land and operational infrastructure. Similarly, the centre has to forego excise on aviation fuel and service tax on tickets. So, the success of this scheme ultimately rests upon the commitments of governments both at the Union and the state levels. Private airlines have not showed much interest in this scheme. So, ultimately the burden of operation in the regional routes may fall on the state owned Air India. This may undermine the success of this scheme. Given the magnitude of the scheme, the issue of providing air traffic control services and air safety has to be taken into consideration as there can be no room for compromise.