Monday, July 06, 2020

Govt’s flagship aviation scheme has not delivered for Northeast

The country finally saw its first National Civil Aviation Policy released in 2016. Integral to the policy was the regional connectivity scheme aptly named the Ude Desh Ka Aam Nagarik (UDAN) scheme. It was launched with much fanfare including the slogan “from Hawai chappal to Hawai-Jahaz.” Put simply, it incentivized airlines to fly to unserved and underserved airports. The goal: connecting all parts of India. Yet, when one looks at the connectivity map the scheme has simply not delivered for the Northeast.
The intent of the UDAN scheme was to encourage spur connectivity especially to the un-served or underserved parts of the country. It was widely believed that the Northeast which has been a focus area of the government would finally get the connectivity it required. Not only to other cities but also intra-region connectivity. The inauguration of Pakyong airport along with the laying of the foundation stone for the greenfield airport at Hollongi by the Prime Minister further cemented this belief.But as of today, the region continues to want for connectivity. Flights from Pakyong have been pulled, there is no estimate on how soon the airport at Hollongi will be completed, intra-region flights are few and far between, the list goes on…

The scheme is built around supply side focused initiatives and entices airlines to fly routes via economic incentives. These include a reduction of charges and also cash subsidies for a portion of seats on the aircraft. The cash is generated from levies on passengers flying on core routes mostly between metro cities. The only caveat is that in exchange for this cash, the airfares on these routes have to be capped at pre-determined levels. And the cash-subsidy is only valid for three years after which the route is assumed to have gained enough traction. It goes without saying that the scheme depends on robust passenger demand on core routes to generate the cash. And with passenger demand at 40% - 50% of previous levels and not expected to recover anytime soon, the cash-flow has simply dried up.
The subsidy burden on the government if all UDAN routes are flown as allocated is estimated to be between Rs 1,700 – Rs 1,900 crore per annum. The collections were falling way short of this even prior to the Covid impact. The budgetary support requirements for the scheme were estimated at INR 441 crores for FY19 and INR 480 crore for FY20. In earlier years, the shortfall was made up by a dividend payment by the Airports Authority of India that ironically is also the designated implementing agency for the scheme. But now in a catch 22 situation, the AAI is also owed money (at times by the same operators that the scheme will subsidize with dividends paid by AAI).
06/07/20 Satyendra Pandey/EastMojo
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