Critically evaluate the Viability Gap Funding mechanism as a tool for sustaining regional airline operations in India.

Q. Critically evaluate the Viability Gap Funding mechanism as a tool for sustaining regional airline operations in India. (15 marks, 250 words)

Viability Gap Funding (VGF)—a subsidy bridging the gap between operating cost and capped fares on commercially unviable routes—anchors the Regional Connectivity Scheme, UDAN. The Modified UDAN (2026-27 to 2035-36) commits ₹10,043 crore as VGF, making a critical evaluation of this instrument timely [1][2].

Merits as a sustaining tool - Route creation: VGF made the unviable viable, operationalising 679 routes and carrying over 1.66 crore passengers, connecting Tier-2/3 towns, hilly regions and islands [1][3]. - Affordability with risk-sharing: fare caps keep travel within reach of the "common man in slippers" while the State absorbs early losses [3]. - Inclusive multiplier: seeds tourism, trade and emergency access in aspirational districts [2].

Limitations - Subsidy dependence, not self-sustenance: VGF now tapers—full support two years, reducing to 25% by year five, exclusivity capped at three years—yet many routes lapse once support ends, revealing thin underlying demand [1]. - Airline fragility: reliance on a few small carriers has caused route suspensions and financial stress. - Neglected enablers: without airport, MRO and pilot capacity, VGF alone cannot ensure continuity; funds risk chasing structurally weak routes.

VGF is a necessary catalyst that has democratised Indian aviation, but a subsidy is a bridge, not a destination. Its redesigned tapering, coupled with the ₹28,840-crore push on 100 aerodromes and indigenous aircraft, must be leveraged to build genuine demand and airline health—so regional connectivity becomes self-sustaining, advancing inclusive growth under Viksit Bharat 2047 [1][2].

(~250 words)

Sources: 1. Cabinet approves Regional Connectivity Scheme – Modified UDAN (₹28,840 crore) — VGF ₹10,043 crore, tapered support, 100 aerodromes, 679 routes 2. PIB: Cabinet approves Modified UDAN, total outlay Rs.28,840 crore — outlay and VGF component 3. PIB: PM launches Next Phase of UDAN – Viksit UDAN — 1.66 crore passengers, affordability vision, inclusive reach