Current Affairs Topics Archive
International Relations Economics Polity & Governance Environment & Ecology Science & Technology Internal Security Geography Social Issues Art & Culture Modern History

Union Cabinet expected to take up proposal for Modified UDAN

March 01, 2026 6 min read Economics Polity & Governance GS Paper 3 GS Paper 2
On This Page ▼

What Happened

  • The Union Cabinet is expected to take up a proposal for a Modified UDAN (Ude Desh ka Aam Nagrik) scheme, marking a significant expansion of India's regional air connectivity programme.
  • The modified scheme envisages an investment of Rs 30,000 crore aimed at adding 120 new destinations over the next 10 years.
  • The proposal follows the Union Budget 2025-26 announcement, which committed to extending the UDAN scheme for an additional 10 years beyond its original mandate.
  • As of early 2026, 625 UDAN routes have been operationalized, connecting 90 airports — including 20 greenfield airports and several underserved airstrips.
  • The expansion targets Tier-2 and Tier-3 cities that currently lack air connectivity, with a focus on the Northeast, hilly terrains, and remote regions.
  • The modification includes revised Viability Gap Funding (VGF) structures and potentially reduced airline obligations per route, aimed at attracting more airline participation.

Static Topic Bridges

UDAN Scheme — Origin, Objective, and Mechanism

UDAN — an acronym for "Ude Desh ka Aam Nagrik" (Let the Common Citizen of the Country Fly) — is a flagship Regional Connectivity Scheme (RCS) launched on October 21, 2016, under the National Civil Aviation Policy (NCAP) 2016. The nodal ministry is the Ministry of Civil Aviation. The scheme aims to make air travel affordable and available to common citizens by connecting unserved and underserved airports in Tier-2 and Tier-3 cities at capped fares (originally Rs 2,500 for a one-hour journey). The first UDAN flight operated on April 27, 2017, connecting Shimla to Delhi.

  • Full name: Ude Desh ka Aam Nagrik (Let the Common Citizen Fly)
  • Launch date: October 21, 2016 (first flight: April 27, 2017)
  • Policy basis: National Civil Aviation Policy (NCAP) 2016
  • Nodal ministry: Ministry of Civil Aviation
  • Target: Unserved airports (no air service for 1 year+) and underserved airports (fewer than 7 weekly departures)
  • Fare cap: Originally Rs 2,500 per seat for approximately 1 hour of flight
  • Duration: Original scheme had a 10-year mandate (2016-2026); Budget 2025 extended it for another 10 years

Connection to this news: The Modified UDAN builds on the original scheme's framework, with expanded funding and a longer time horizon — the Cabinet approval marks the formal launch of the second phase of regional aviation policy.

Viability Gap Funding (VGF) — How UDAN Works

UDAN addresses the market failure in regional aviation through a Viability Gap Funding (VGF) mechanism. Since regional routes are commercially unviable (thin traffic, high operational costs), the scheme provides direct financial support to airlines to operate these routes. Under the scheme, airlines must offer a fixed number of seats at capped fares ("UDAN seats"); the shortfall between capped fares and airline costs is compensated through VGF. The funding is shared between the Centre and states: approximately 80% from the Centre and 20% from the state in whose territory the route operates.

  • VGF formula: 80% Centre + 20% State (General category states); 90% Centre + 10% State (Special Category States — Northeast, hilly states, islands)
  • UDAN seats: Airlines must offer 50% of seats as UDAN seats at capped fares on selected routes
  • Airline selection: Competitive bidding process; routes awarded to airlines bidding for lowest VGF
  • Fund: Regional Connectivity Fund (RCF) — financed by a levy of Rs 8,000 on non-UDAN domestic flights
  • Regional Connectivity Fund levy: Charged on tickets of non-subsidized flights; collected by AAI
  • AAI (Airports Authority of India): Develops and operates airports; also waives landing and parking charges for UDAN operators at AAI-managed airports

Connection to this news: The Rs 30,000 crore Modified UDAN expansion is essentially a scaled-up VGF commitment — the government is committing higher subsidy to attract airlines to 120 new destinations that are commercially even less viable than current UDAN routes.

Airport Infrastructure — AAI and PPP Models

The Airports Authority of India (AAI), established under the Airports Authority of India Act, 1994, manages 137 airports across India, including most UDAN-eligible airports. However, large metropolitan airports (Delhi, Mumbai, Bengaluru, Hyderabad, Cochin) operate under Public-Private Partnership (PPP) or private operator models. The National Monetization Pipeline (NMP) and UDAN expansion both drive airport infrastructure investment — the government has set a target of operationalizing 220 airports by 2025 and beyond.

  • AAI: Statutory body under AAI Act, 1994; under Ministry of Civil Aviation
  • PPP airports: Operated by private entities (GMR — Delhi/Hyderabad; GVK (now Adani) — Mumbai; Adani — 6 AAI airports taken over)
  • Greenfield airports: 20+ operational under UDAN; Dholera, Navi Mumbai, Jewar (Noida International) under construction
  • National Monetization Pipeline (NMP): Monetization of AAI airports as part of government asset monetization policy
  • Northeast connectivity: UDAN routes have particularly expanded connectivity in the Northeast — Arunachal Pradesh, Meghalaya, Mizoram, Tripura, Nagaland

Connection to this news: The 120 new UDAN destinations will require either rehabilitation of existing airstrips or greenfield airport development — linking the scheme directly to AAI's infrastructure expansion mandate.

Centre-State Relations in Infrastructure Schemes

UDAN is a centrally sponsored scheme (technically, a Central Sector Scheme with state cost-sharing). The 20% state VGF contribution requires states to share costs — which means states must actively participate in the scheme's implementation and budget for it. This makes UDAN an example of cooperative federalism in infrastructure delivery. State governments must also commit to providing land, waiving state taxes on aviation turbine fuel (ATF), and facilitating ground infrastructure at the airport.

  • Scheme classification: Central Sector Scheme (funded primarily by Centre) with state co-contribution for VGF
  • State commitments under UDAN: 20% VGF contribution (10% for Special Category States), ATF VAT reduction/exemption, land provision, state police and fire services at airports
  • Aviation Turbine Fuel (ATF): Major cost component for airlines; states can reduce VAT on ATF to incentivize airline operations — most UDAN states have done so
  • Schedule II tax powers: ATF is not under GST — states retain the power to levy sales tax/VAT on ATF

Connection to this news: The Modified UDAN's success will depend on state governments' willingness to share VGF costs and provide ATF tax relief — making Centre-state coordination a critical execution variable for the Rs 30,000 crore plan.

Key Facts & Data

  • UDAN full form: Ude Desh ka Aam Nagrik (Let the Common Citizen Fly)
  • Launch: October 21, 2016; first flight: April 27, 2017 (Shimla-Delhi)
  • Nodal ministry: Ministry of Civil Aviation
  • Current status (early 2026): 625 routes operationalized, 90 airports connected
  • Modified UDAN proposal: Rs 30,000 crore investment, 120 new destinations over 10 years
  • VGF split: 80% Centre + 20% State (general); 90% Centre + 10% State (special category)
  • Regional Connectivity Fund levy: Rs 8,000 per non-UDAN domestic ticket
  • AAI Act: 1994; manages 137 airports
  • Budget 2025 announcement: UDAN extended for additional 10 years
  • ATF taxation: Outside GST; states retain VAT/sales tax power on ATF
  • Fare cap: Rs 2,500 per seat for approximately 1-hour route (original design)
  • NCAP 2016: Policy document under which UDAN was conceptualised