UDAN Scheme Set for Overhaul as Govt Reviews Subsidy Model

India’s regional air connectivity scheme, UDAN (Ude Desh ka Aam Naagrik), is set for a possible overhaul as the government reviews its existing subsidy model. A proposal to change how the scheme is funded is currently awaiting Cabinet approval, with the aim of making flights to remote and underserved destinations more financially viable for airlines.

Why the Subsidy Model Is Being Reviewed

UDAN was launched in 2016 to make air travel affordable and improve connectivity to smaller towns and remote regions. Under the scheme, airfares are capped on 50% of the seats on regional routes. While this benefits passengers, it often makes such routes commercially unviable due to low passenger traffic and high operating costs.

To offset these losses, the government provides support through subsidies and incentives. However, internal reviews have shown that the current funding mechanism may not be sufficient to sustain long-term operations, prompting the need for a revised model.

How UDAN Is Funded at Present

Currently, about 80% of the subsidy is funded through a levy of ₹6,500 per commercial flight, with the remaining amount contributed by state governments where the airports are located. Airlines also benefit from waivers on landing and navigation charges, lower aviation turbine fuel taxes, and exemption from airport fees at select regional airports.

Since the scheme’s launch, the government has disbursed over ₹4,352 crore in subsidies and invested another ₹4,638 crore in airport development and upgrades.

Operational Challenges Under the Scheme

Despite significant investment, UDAN has delivered mixed results. Of the 649 routes awarded since inception, only about 60% are currently operational. The civil aviation ministry has also spent nearly ₹900 crore on 15 regional airports that are still non-operational.

Airlines operating under UDAN receive three-year exclusivity on routes and must begin services within four months of winning a bid. However, smaller regional carriers often face delays due to aircraft shortages or airport readiness issues, increasing financial strain.

Possible Changes Under the New Plan

As part of the overhaul, the government is considering extending the subsidy period beyond the current three years and increasing the overall fund size. Finding an alternative funding structure has become important, especially as large airlines may be unwilling to cross-subsidise the scheme through higher levies.

Read more: The Real Cost of a Flight Ticket in India: What Are You Actually Paying For?

Conclusion

The proposed overhaul of the UDAN scheme highlights the government’s effort to make regional air connectivity more sustainable. While affordability remains a key goal, revisiting the subsidy model could help balance airline viability with public interest and ensure that regional routes continue to operate in the long term.

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