UDAN Scheme - All You Need to Know

UDAN Scheme - All You Need to Know

Introduction:

The Govt. of India has planned a scheme to increase the passengers in air routes in the country. The scheme is known as UDAN( Ude Desh ka Aam Nagrik). The scheme aims to enhance the numbers of passengers in domestic routes of India. The amount is collected as Regional Connectivity Fund (RCF) to provide financial assistance to the airlines to build the set-up under this scheme. 19 states have already signed UDAN MoU and give their consent to this scheme. 

RCF collects funds from various sectors as well as from states to boost growth and provides support in the form of viability gap funding for development under this scheme.

Advantages of this Scheme:

• The nationalized scheduled airlines which provide services in the domestic routes can avail the benefit of Regional Connectivity Scheme (RCS). The fees levied per departure are also eligible under this scheme.
• The air passengers also get benefited by this additional connectivity services on the domestic routes at a price below the airfare caps.
• The funds collected are used for the benefit of the nationalized airlines and its passengers.
• It is also expected that the creation of RCS would ensure the investment of the airfare, taken from the passengers traveling by other airlines (not under RCS), in the development of airlines sector.

Benefits for the Regional Operator:

• The regional operators generally face huge loss due to the high operating cost and govt. tax. The levies collected by these operators are not enough to bear the total maintenance cost. UDAN scheme recognizes the problem and has reduced tax on fuel and other charges.
• The scheme will allow improving the liquidity in the market giving lease the small planes. Thus the entrepreneurs and airlines feel safe to start these routes. The airlines company, who has got the contract, must have three years exclusivity on that particular route until the route is matured and can give profit.
• The scheme must conduct a market research on the specific route. Based on that, a subsidy will be provided to the air passengers. The winning bidder can sell half of the tickets at market price. They can also give the information about the price which the passengers can agree to pay when there is no subsidy.

Economic Importance of Regional Connectivity Program:

• The regional connectivity program has earned immense popularity in the world. The large countries like USA, Brazil, Australlia and Canada support the remote and domestic connectivity. UDAN is the first such scheme which can use the power of markets to provide public service.

Expectation of Concerned Ministry:

• The subsidized levy, which is charged as the airfare, is very small in amount. According to the ministry, the small levy can increase number of passengers and can help the Govt. to get a good profit after certain time. To develop the airlines sector, they itself can absorb the part of levy without effecting the passengers.
• According to the recent study of ICAO, the output multiplier of the Airlines industry is 3.25. It means every Rs. 100 spent on air transport can give Rs. 325 indirect benefit.
• On the other hand, the employment multiplier is 6.10 which means every 100 direct jobs in Airline industry can help to produce 610 jobs in the economy. In a word, The RCF can boost the growth of regional and Indian economies.