Review: CAG Highlights Certain Gaps in the implementation of the RCS-UDAN Scheme
Sai Krishna Muthyanolla
August 22, 2023
Regional Connectivity Scheme – UDAN (Ude Desh Ka Aam Naagrik) is a scheme initiated by the Government of India to enhance regional air connectivity in the country. The scheme was launched in 2016 as a part of the National Civil Aviation Policy. The CAG recently presented its audit report of the scheme covering the first three phases of the scheme. Here is a review.
Regional Connectivity Scheme – UDAN (Ude Desh Ka Aam Naagrik) is a scheme initiated by the Government of India to enhance regional air connectivity in the country. The scheme was launched in 2016 as a part of the National Civil Aviation Policy. The goal of the scheme is to make air travel affordable and accessible to the common people by connecting under-served and unserved airports across India. Under this scheme, airline operators are offered various incentives to operate flights on certain regional routes, which otherwise might not be financially viable. The Airports Authority of India (AAI) was designated as the nodal agency for the implementation of the scheme. The Scheme focuses on encouraging sustainability of operations under RCS in the long term so that the connectivity established is not dependent in perpetuity on Viability Gap Funding (VGF) provided by the government.
The Comptroller and Auditor General of India (CAG) recently presented its audit report of the scheme during the recent Budget Session. The audit was carried out to assess the objectives and indicators of the scheme, its implementation, fund management and the monitoring and control mechanisms. Some of the key findings of CAG have been discussed in this story. Based on these findings, CAG has listed 16 recommendations for the Ministry of Civil Aviation to improve the implementation of the scheme in planning, management, and implementation. The audit covers three phases of the scheme (1, 2, and 3) that have been completed as of March 2021. As of July 2023, the Government has launched version 5.2 of the scheme.
Measures to improve planning
CAG observed that up to UDAN-3, 52% (403) out of 774 awarded routes had not commenced operations. Out of the 371 routes which had commenced operations, only about 30%, or 112 routes, had completed the full concession period of three years. Further, out of these 112 routes, only 54 routes (7% of the 774 awarded routes) that connected 17 RCS Airports could sustain the operations beyond the concession period of three years, as of March 2023. Operations in the rest 58 routes were discontinued after the completion of the concession period.
Likewise, in the case of heliports, up to UDAN-3, out of the 83 heliport routes comprising of 31 heliports identified and awarded, operations could commence only on 34 routes (41%) comprising of nine heliports, and subsequently operations were discontinued in 14 (41%) out of 34 routes comprising of four heliports. The report noted that the majority of the heliports identified for operations based on helicopter operators’ proposals either remained unutilised/underutilised or saw discontinued RCS operations.
Based on these observations, CAG recommended that appropriate mechanisms be formulated to assess the feasibility of routes for achieving the sustainability of long-term operations and to identify unserved/underserved airports, considering the stage length, availability of alternate mode of transportation, terrain, socio-economic scenario and tourism potential, etc. Similarly, it recommended devising mechanisms to identify heliports under the scheme.
Recommendations for management of funds
Analysis revealed that 6 out of 7 airlines in operation in non-RCS routes, between 2019-20 and 2021-22, had collected excess Regional Air Connectivity Fund (RCF) levy of nearly Rs.72 crores from the passengers, which was much more than what they had remitted to the Regional Air Connectivity Fund Trust (RACFT). With respect to the collection and remittance mechanism of the Regional Air Connectivity Fund (RCF) levy, CAG observed that there was no rule to regulate the same. Further, it noted that there was a delay on the part of RACFT in raising RCF levy claims on the airline operators. The average delay was about 21 days for Air Vistara and Air Asia and 24 days for Indigo and Air India. A significant delay was also observed in realizing the RCF levy. The average delay was 71 days until October 2021 ranging from 12 days for Air Vistara to 223 days for Air India.
Monitoring mechanisms to ensure that the collected RCF levy from passengers does not exceed the amount to be remitted to the government or become a profit source for airlines were suggested. It also called for introducing penalties for such delays according to the Draft Standard Operating Procedure.
Even after more than five years, a clear procedure for recording transactions in RCF was not established according to the guidelines of the CAG of India. Additionally, the accounts of the RACFT were also not submitted for CAG audit, and because of this, CAG called for immediately entrusting the accounts to it. It also recommended that an accounting methodology was needed to map the concessions extended to airlines by various stakeholders.
AAI’s Viability Gap Fund’s claims approved through self-certification led to non-compliance to several scheme provisions. The audit identified instances where the scheme’s provisions were breached like excess disbursement of VGF, violation of RCS fare cap, etc.
For instance, in the case of Alliance Air, out of 4.3 lakh tickets sold in 11,017 RCS flights between 2018-19 and 2021-22, a total of 87,702 non-RCS seats were sold prior to selling prescribed RCS seats violating the provisions of the scheme. As a result, Alliance Air not only collected excess fare of Rs. 8.80 crores from passengers but also claimed excess VGF of nearly Rs. 31 crores. In Factly’s story, we saw that Alliance Air had received the highest share of VGF between 2017-18 and 2022-23. About 60% of the total amount released or Rs. 3502 crores went to Alliance Air which had the second-highest share of flights flying under the scheme.
CAG suggested that a mechanism be developed to align the VGF claims submitted by airlines using flight data provided by airport operators, instead of self-certification for VGF disbursement.
Measures suggested to improve implementation of scheme
Significant delays in the revival/development of identified RCS airports were highlighted, despite budgetary support of Rs. 4,500 crores that was sanctioned by the Cabinet Committee on Economic Affairs in March 2017. As of March 2023, work had commenced in only 116 airports/ heliports, out of which works have been completed and operations commenced in 71 airports/ heliports at the cost of Rs. 2,599 crores. In 83 airports/ heliports/ water aerodromes, operations were either discontinued or could not be commenced even after incurring an expenditure of Rs. 1,089 crores. CAG suggested that a better mechanism be devised to identify airports for revival/development considering the experience gained. In 2023-24, the Government has also approved Rs. 1000 crore in the Budget for the revival and development of fifty additional aerodromes in the country.
With respect to helicopter operations, CAG noted that the airfare cap and VGF cap were based on flight duration. However, while disbursing the VGF, instead of the actual time of travel, the time as per the letter of award was considered. This resulted in higher airfare and higher VGF disbursement than what would have been if the actual time of travel was considered.
Observing that the independent audit of airlines was not conducted after 2017-18, the CAG called for an audit of the performance of airlines operating on routes under the UDAN scheme to ensure compliance with the provisions of the scheme as well as the Selected Airlines Operator Agreement.
The CAG report also recommended that airlines establish a transparent seat booking system for RCS flights. This system should be overseen by the Ministry to guarantee that seats covered by the UDAN scheme are given priority over those not included in the scheme when selling seats. Also, the system should be such that airline operators do not charge airfare more than the airfare cap stipulated.
NITI Aayog is also planning to study the relevance of scheme
To sum up, CAG called for measures to have a properly structured procedure in place for each of the stages of implementation of the scheme. Even though there has been improvement in the number of passengers, there still needs to be concerted efforts to ensure that the scheme meets its objectives. Just a few days before CAG presented its report, NITI Aayog floated an RFP document calling proposals to evaluate the relevance of the scheme as well as assess whether it has improved regional connectivity and made air travel economical.