UDAN – “Regional Connectivity Scheme”
I. Introduction & Objective
The Indian civil aviation industry is a promising sector owing to increased demand from the upper-middle class, higher disposable incomes, favourable demographics and rapid economic growth. India is currently the 7th largest aviation market in the world and 3rd largest in terms of domestic passenger traffic. It has the prospect of becoming the third-largest aviation market (domestic and international) by 2022 and reaching its zenith by 2040. The industry is following a progressive trajectory, paving the way for a new wave of growth and expansion with a substantial focus on low-cost carriers, modern airports, foreign direct investment (FDI) in domestic airlines, information technology developments and regional connectivity. Total passenger traffic to, from and within India, during Apr-Nov 2018 grew by around 15% year on year as compared to around 6% globally. However, there still exists room for growth and advancements by widening the scope of these activities and services which connect ‘country to the country’, implying – extension of aviation services to areas which remain unserved or underserved, as well as the community which is yet to ‘experience’ or ‘avail’ due to reasons varying from affordability to accessibility, aviation services.
The Ministry of Civil Aviation (MoCA), Government of India released the National Civil Aviation Policy 2016 (NCAP 2016) with the prime objective to “enhance regional connectivity through fiscal support and infrastructure development”.
UDAN – Regional Connectivity Scheme (UDAN RCS), which literarily means ‘Udey Desh Ka Aam Nagrik’, supported and developed by the MoCA on 15th June, 2016, with the idea of ensuring the people of the motherland the ‘dream’ of an ‘aam aadmi’ to be able to ‘fly’ by targeting 1.3 million annual passenger seats. The scheme builds upon it’s meaning by building infrastructure and developing machinery in order to incorporate more ‘usable’ airports and making air travel affordable.
The primary objective of RCS is to facilitate / stimulate regional air connectivity by making it affordable. The UDAN RCS will be applicable to routes that are between 200km and 800km with no lower limit set for hilly, remote, island and security-sensitive regions. A Regional Connectivity Fund will be created to fund the Scheme. States are expected to contribute 20 per cent to the fund. For balanced regional growth, allocations will be spread equitably across the north, west, south, east and north-east regions with a cap of 25 per cent.
II. The Framework
The scheme aimed at having 50 operational regional airports by the term end and an operational total of 100 regional airports by December 2018. The Scheme operates on a market-based bidding mechanism. The mechanism sets out guidelines for selection of an operator to operate on a dedicated RCS route for which the Proposals regarding operations on the routes are invited and the proposals presented are evaluated as per the mechanism provided in the scheme. Once such proposals have been evaluated, a selected operator will be identified, and the implementing agency will enter into a three (3) year contract with the selected operator for operations on the said RCS routes.
Further the scheme also provides for concessions for the passengers travelling on the RCS routes as well as the operator, the central and state government provides concessions including concession on tax on air tickets on the specified routes reducing the ticket prices, making the air travel affordable. The operators on the RCS routes are exempt from the imposition of landing charges, parking charges at any terminal, navigation landing charges etc.
III. Implementation & Execution
The scheme was introduced in the year 2017 and had undergone several rounds of discussion for the development and implementation of the same. The initial rounds focused on introducing 128 new regional fixed-wing-routes from 70 airports, including 43 under-served or unserved airports, out of these 43 airports, a massive number of 36 airports have been made operational recently.
As the rounds progressed, helicopter routes and fixed wings with 502 such routes being bid in 196 proposals with a special emphasis on the North-Eastern states were introduced. The latter rounds were held in 2018 and 2019 for deciding the further routes for the scheme and the same awaits implementation in December 2019.
IV. Vision 2040
The passenger traffic in India is expected to grow six-fold to around 1.1 billion. It has one of the largest aircraft order books currently with pending deliveries of over 1000 aircraft. Its commercial airline fleet is likely to grow from 622 in March 2018 to around 2359 in March 2040. With the passage in time and realization of the ‘need’ to bring upon Technology developments like artificial intelligence, machine learning, blockchain, biometrics, composites, super-alloys, biofuels etc. are changing the face of aviation. It is humanly impossible to predict the oil price or the exchange rate a month down the line, much less the impact of technology ten years hence. India will establish its own aircraft leasing industry which may handle almost 90% of aircraft being ordered in India by 2040. India’s tax structure and repossession processes will be equally or more attractive than those in leading global jurisdictions.
The Vision 2040 document is therefore a live document. It needs to be debated, renewed and improved upon as we go forth. The Union Minister for Civil Aviation, Suresh Prabhu released the Vision 2040 document in the Global Aviation Summit 2019. The Global Aviation Summit 2019 was organized in Mumbai with the theme ‘Flying for all’, thus, in line with UDAN-RCS. They, cumulatively focus their centers at the same core. The homogeneous core being the Indian Aviation Industry and sustainable and effective efforts to provide optimum and efficient results focused and upliftment of the Industry and broadening its scope, using multifarious policies and schemes for it’s Implementation.
Vision 2040 aims at uplifting the Indian-Aviation scenario:
Over the next 5-8 years, all Indian aircraft will aim at flying on the satellite-based GPS-aided GEO augmented navigation (GAGAN) system developed by AAI and ISRO. This will lead to better airspace utilisation and safer operations despite reduced aircraft separation.
DGCA, Directorate General of Civil Aviation, may be converted into a fully independent Civil Aviation Authority, with its own sources of funding and freedom to recruit professionals at market-linked salaries. Most transactions with DGCA will be automated with minimal human interface.
The framework accommodates amendments in Goods and Service Tax Act as well as specific inclusion of aviation fuel in the bracket of Goods and Service Tax applicable supplies, Land Acquisition, Rehabilitation and Restructuring Act, 2013.
It strives to achieve the goal of enhanced regional connectivity coupled with ease of doing business and promoting the entire aviation sector chain from cargo, general aviation, aerospace manufacturing to skill development.
The government considered establishing a Nabh Nirman Fund (NNF) with a starting corpus of around USD 2 billion to support low traffic airports in their initial phases.
The barriers to activity continue to hover dangers as grave clouds over the ideas of successful implementation. The slow pace in growth of RCS flights, indicates, lower subsidy outgo for the government. Going by the fund requirement, if all the routes awarded so far become operational, the total subsidy could go up to ₹1,800 crore while the available funds from all sources are about ₹1,000 crore. The officials stated fears and passed on the baton for less effective implementation stating, “The disbursement on account of subsidy has been low as not many routes have been operationalized,” therefore, indicating that due to operational side, lacking, the funds for the same are to be disbursed, proportionately.
There exist challenges regarding non-performance by some small operators. Limited slots as notified by busy airports became another hurdle along with restricted leasing options for small fleet owners. However, it is expected that as the rounds progress and the scheme, mature these problems would resolve. Due to the presence and active participation of leading players like Indigo and Spicejet, the success can thus be concluded.