Govt announces a new regional air connectivity scheme UDAN for the next 10-years will be launched in Budget 2025-26

UDAN scheme.

The central government is planning to launch a new regional air connectivity scheme UDAN (Ude Desh ka Aam Naagrik), Finance Minister Nirmala Sitharaman said.

Finance Minister Nirmala Sitharaman in her budget speech on February 1 announced that the new UDAN scheme will be expand include 120 new destinations in the next 10 years. While she did not mention the total outlay for the Civil Aviation Ministry, Sitharaman did say that the new UDAN scheme will benefit 4 crore additional passengers in the next 10 years.

The allocation for government's regional air connectivity scheme UDAN has been pegged lower in the Union Budget 2025-26. In the budget for FY26, the government has earmarked Rs 540 crore for the scheme, slightly higher than the Rs 502 crore (BE FY25) announced in July 2024 but lower than the revised estimate of Rs 800 crore.

Even though the budget speech itself didn’t mention a broad allocation towards the sector, the government earmarked Rs 2330.31 crore as capital expenditure for the Ministry of Civil Aviation in 2025-26. This is down by 8.9 percent when compared to 2024-25 actual spending of Rs 2,556.94 crore by MoCA.

Moneycontrol had in December reported that the central government is likely to trim funding for the regional air connectivity scheme (RCS) in the Budget for 2025-26, because passenger traffic under the scheme has remained muted for the last few years.

Sitharaman added that the government will also facilitate the development of new greenfield airports in Bihar. Sitharaman also said that the first UDAN scheme has benefited 1.5 crore middle class people connecting 88 airports, with 619 routes. Modified UDAN to be launched to 120 new destinations

In the 2024-25 budget, the government has earmarked Rs 502 crore for the scheme, down from Rs 1,244.07 crore (BE FY24) and a revised estimate of Rs 850 crore.  The FY24 allocation was double that of 2022–23.

In December, Moneycontrol had reported that the central government is not keen on continuing fund the scheme per the current financial model, and a new model is in the works to only include flights operated by sea planes and helicopters.

In the last eight years, 1.46 crore passengers have flown under the scheme till November 28, 2024, Civil Aviation Minister Rammohan Naidu had said in response to a Lok Sabha question this week. Around 2.6 lakh passengers had flown in 2017-18, 12.4 lakh in 2018-19, 29.9 lakh passengers in 2019-20, 14.98 lakh in 2020-21, 32.99 lakh in 2021-22, 20.86 lakh passengers in 2022-23, and 19.2 lakh passengers in 2023-24.

Civil Aviation Minister K. Rammohan Naidu had in August 2024 said that Ministry of Civil Aviation (MoCA) will seek an extension of the RCS beyond the initial 10-year period that was announced at the time of its launch in 2016.

Naidu had informed parliament in August that MoCA is working to address the issue of airlines stopping operations on regional routes after subsidies are stopped.

"A specific situation has arisen and airlines are backing away... after three years. We will address this issue,” Naidu had said, and added that the government will tweak the RCS norms so that after one year the routes can be bid for again.

Civil Aviation Secretary Vumlunmang Vualnam had also said that MoCA is looking at the financial viability aspects and streamlining of the procedures under the scheme.

UDAN is a regional airport development programme under the centre’s regional connectivity mission, aimed at refurbishing under-served airports to make air travel more affordable.

In recent years, the centre has been improving regional air connectivity through UDAN, which focuses on linking tier two and three cities.

Under UDAN, VGF equivalent to 50 percent of the seating capacity on an aircraft is given. In return, the airlines sell 50 percent of the seats at a flat rate of Rs 2,500 per flight hour  in order to make air travel accessible to those who could not hitherto afford to fly.

The cost of the subsidy is borne by flights plying non-RCS routes, which pay a levy of Rs 15,000 per departure, as per the latest revision that came into effect in April 2023. The airlines pass this on to passengers on non-RCS flights. A total of Rs 2,038 crore has so far been collected as RCS levy.