RCS Udan Scheme: Cheaper airfare, better regional connectivity in coming days

Good news for airline companies! The government has created a trust fund to increase regional connectivity. 

The Finance Ministry has issued this notification.

Government grants, taxes imposed on some air routes will be included. 

The forfeited bank guarantee will go to the fund for not fulfilling the conditions of Udan. 

Interest on deposits will also be included and it will not be used for any activity other than UDAN. 

Will be valid from 01st June 2020 till FY24-25.

Implementation from the old date has no negative effect on anyone.

What is the plan?

Under the Regional Connectivity Scheme (RCS), it is planned to connect these under-served airports to major airports through flights, which will cost Rs 2,500 per hourly flight. 

RCS envisages providing subsidies to airlines to offer these fares. 

AAI will invest Rs 17,500 crore in the upgradation of airport infrastructure in the period up to 2019-20.

The Regional Connectivity Scheme will be applicable on route lengths between 200 and 800 km, with no lower limit for hilly, remote, island, and security-sensitive areas.

The Central Government Regional Connectivity Scheme will provide concessions of 1/10 rate on Value Added Tax (VAT) and Service Tax for airports and 2 per cent excise duty on liberal code sharing.

A Regional Connectivity Fund (RCF) will be created to fund the scheme through levies on certain flights. States are expected to contribute 20 per cent to the fund.

For balanced regional development, the allocation will be spread evenly across 5 regions - North, West, South, East, and North East with a ceiling of 25 per cent.

The market-based reverse bidding mechanism reserves the right to match the initial proposer to select the airline operator to determine the minimum VGF. 

The government said that if the passenger load factor remains high, the VGF will be reduced and it will be discontinued after 3 years when the route becomes self-sustainable.