The Union Cabinet has approved a ₹28,840 crore budgetary outlay to extend the regional air connectivity scheme, UDAN, for another decade until FY 2035-36. By moving to direct government funding and extending airline subsidies from three to five years, the initiative aims to build 100 new airports and 200 heliports. The move offers long-term support for regional operators but raises questions regarding fiscal costs and infrastructure execution.
The Indian government has officially approved the next phase of the Regional Connectivity Scheme, known as UDAN, with a total budgetary allocation of ₹28,840 crore. The initiative, which spans a ten-year period from FY 2026-27 to FY 2035-36, is a significant shift in how regional air travel is funded and developed across the country. Unlike previous phases that relied on levies collected from airfares, this new phase will be funded through direct budgetary support from the central exchequer.
The massive outlay is structured to address both infrastructure and operational stability. Of the total approved amount, ₹12,159 crore is earmarked for the development of aerodromes, while ₹10,043 crore is dedicated to Viability Gap Funding (VGF), which serves as a subsidy to help airlines cover costs on less profitable regional routes. Additionally, the plan allocates ₹3,661 crore for the development of 200 modern heliports and ₹2,577 crore for ongoing operations and maintenance support.
A key strategic change in this phase is the extension of the subsidy period for airlines. Regional operators will now receive support for five years instead of the previous three-year limit. This change is designed to give new routes more time to become commercially viable before the subsidy is withdrawn, reducing the financial cliff that some operators faced in the past.
For investors and the aviation sector, this funding clarity provides a long-term roadmap for infrastructure development. The goal of developing 100 new airports and 200 heliports creates opportunities for construction and airport management companies. However, the move also brings challenges. The shift to direct budgetary support increases the fiscal burden on the central government, as it no longer relies on self-sustaining cess collections.
Regional air connectivity remains a high-risk segment. While subsidies encourage airlines to fly to smaller, underserved locations, the long-term commercial sustainability of these routes is still unproven. Many regional airports struggle with high fixed operation and maintenance costs, which can outpace passenger revenue even with initial government support. There is also the potential for execution delays, as building or upgrading 300 total sites (airports and heliports) is a complex task involving land acquisition, environmental clearances, and technical approvals.
Investors may monitor the timeline for these infrastructure projects and whether regional operators can actually achieve profitability within the expanded five-year subsidy window. The success of the scheme will ultimately depend on how efficiently the allocated funds are spent and whether air traffic in regional areas grows enough to eventually operate without heavy government assistance.