UDAN budget reduction | Sky-high ambitions didn't match ground reality

With funding slashed by 32 per cent to ₹540 crore compared with the previous year, the move suggests growing scepticism about the scheme’s viability and effectiveness even though the government does not want to admit its inadequacies.

In her Budget speech, Union Finance Minister Nirmala Sitharaman said UDAN has enabled 1.5 crore middle-class people to meet their aspirations for speedier travel. "Inspired by that success, a modified UDAN scheme will be launched to enhance regional connectivity to 120 new destinations and carry 4 crore passengers in the next 10 years. The scheme will also support helipads and smaller airports in hilly, aspirational, and north-east region districts," she said.

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That raises the question: if the scheme had been successful, there would have been no need to modify it. Rather, it should have received a higher budgetary allocation.

Many hurdles, low penetration

In a September 2024 report, rating and research agency ICRA pointed out that UDAN has faced several hurdles in its implementation, resulting in relatively low penetration.

A confluence of factors, including low-capacity deployment by airlines on awarded routes, delays in the commercialisation of new airports (primarily targeted to enhance regional connectivity), and other infrastructure-related bottlenecks can be attributed to the above.

“These factors, coupled with financial sustainability issues for a few airlines and limited fleet availability, have hindered the scheme’s ability to fully realise its objectives of enhancing regional connectivity and making air travel affordable. Accordingly, it is estimated that only 41 per cent of the awarded routes commenced successfully till UDAN 5.0,” said the report.

Volatile passenger traffic

The ICRA report pointed out that the air passenger traffic under the UDAN scheme has been relatively volatile. For instance, while it grew from 2.63 lakh passengers in FY18 to 33.00 lakh in FY22, it declined to 18.13 lakh in FY24. This was due to the three-year expiry of prior-period commenced routes, and subsequent fewer routes awarded in FY23 and FY24 under the UDAN scheme.

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In an earlier report, ICRA also said the slow progress of UDAN implementation is attributable to delayed upgradation of infrastructure and readiness of airports. This, in turn, is due to lack of adequate right of way (including insufficient runway lengths) at some of the RCS airports and delays in securing necessary regulatory approvals.

Low demand on a few routes awarded saw adverse and unpredictable weather conditions, leading to inconsistent operations. That, too, resulted in the closure of operations by some airlines.

Several challenges: CAG

In its report, the Comptroller and Auditor General of India (CAG) stated that the UDAN faces several challenges.

For example, up to UDAN-3, 52 per cent (403 out of 774 routes) of the awarded routes could not commence operations, and from the 371 commenced routes, only 112 routes (30 per cent) completed the entire concession period of three years. Further, out of these 112 routes, only 54 routes (i.e., 7 per cent of the awarded routes) connecting 17 RCS airports could sustain the operations beyond the concession period of three years as of March 2023.

Most heliports identified for operations from the proposals submitted by helicopter operators either remained unutilised or under-utilised, or RCS operations from such heliports were discontinued.

Enthusiastic start

The scheme, launched in 2016, was envisioned as a revolutionary initiative to make air travel affordable and accessible to ordinary citizens, particularly in India's underserved and unserved regions.

The policy aimed to bolster regional connectivity by incentivising airlines to operate on lesser-known routes through financial support, infrastructure development, and lower operational costs. However, nearly a decade since its inception, UDAN's promise remains largely unfulfilled, and the government has now scaled back its funding.

A critical evaluation of the scheme’s performance reveals fundamental flaws that necessitate an overhaul rather than mere modifications.

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Stumbling blocks

The initial optimism surrounding UDAN stemmed from its potential to integrate India's smaller cities and remote towns into the national aviation network.

The numbers appeared promising at first – 74 airports in 2014 expanded to 141 by 2022 – and new routes were introduced at an unprecedented rate. The government projected that UDAN would democratise air travel by providing affordable fares while catalysing regional economic growth.

Yet, despite the government's backing, the passenger footfall on UDAN routes has consistently been underwhelming. According to several reports, as of November 2024, only 13 lakh passengers had travelled under the scheme in FY25, significantly below the projected 30 lakh for the entire year.

This glaring mismatch between expectation and reality points to a fundamental miscalculation of demand. Regional air travel remains a niche segment, and passengers prefer alternatives such as railways and highways, which offer more affordable and reliable connectivity.

Operational miscalculations

The UDAN scheme was structured around a viability gap funding (VGF) model, wherein airlines received financial subsidies for the first three years to operate on UDAN routes. However, airlines found it difficult to sustain operations once this support expired.

Many domestic carriers either reduced flight frequency or ceased operations once the financial incentives ended. The scheme assumed that passenger volumes would naturally increase over time, making these routes self-sustaining. This assumption proved incorrect.

The issue was exacerbated by limited participation from major airlines. According to the CAG report, of the 19 operators awarded UDAN routes in UDAN 1, 2 and 3, only five including IndiGo remain active, while nine never commenced operations. Smaller carriers that did attempt to operate struggled with compliance, infrastructure challenges, and a lack of resources to weather financial turbulence.

Meanwhile, major airlines, focused on profitability, showed little interest in maintaining loss-making regional routes beyond the subsidy period.

Stiff competition

UDAN routes have also faced stiff competition from alternative transportation modes. The expansion of expressways and high-speed rail networks has significantly enhanced intercity travel, making air connectivity less attractive for short-haul routes.

Despite these financial setbacks, the government has announced ambitious plans to connect 120 new destinations over the next decade. However, expanding the network could be futility without addressing the scheme's systemic issues.

The fluctuating financial commitment also highlights inconsistent policy execution. Funding allocations for UDAN remained at ₹200 crore annually from 2016-2021 before rising to ₹400 crore in 2021-22 and peaking at ₹800 crore in subsequent years.

Policy rethink?

However, the sharp reduction in 2025-26 signals a policy rethink.

The government appears to be shifting focus towards specialised operations like seaplanes and helicopters for remote areas, reflecting an implicit admission that conventional UDAN routes are not sustainable.

Captain GR Gopinath, the pioneer of low-cost aviation in India and the founder of Air Deccan, has been vocal about the scheme’s challenges. He has pointed out that infrastructure constraints and regulatory bottlenecks have impeded its success.

Additionally, he has warned that smaller airlines operating on UDAN routes will struggle to compete against larger carriers without continuous financial support, leading to route closures and monopolisation of regional aviation by dominant players.

Need for overhaul

The core issue with UDAN is that it was built on assumptions rather than grounded realities. While the vision of affordable and widespread air travel is laudable, the scheme did not account for India’s deeply entrenched preference for short-distance road and rail travel.

Nor did it anticipate airlines prioritising profitability over fulfilling social objectives once subsidies ran out.

For UDAN to succeed, a comprehensive overhaul rather than incremental modifications is required. The financial model needs to be restructured to provide longer-term incentives while ensuring airlines are held accountable for maintaining services.