Air connectivity in the northeast region has received a boost under the Regional Connectivity Scheme (RCS) UDAN (UdeDesh ka Aam Nagrik) due to subsidised operation under the scheme making it affordable for many. The commercial viability of the routes after the expiry of three years of Viability Gap Funding (VGF), however, remains a key sustainability challenge. Official data tabled in the Parliament by the Ministry of Civil Aviation show that out of 1,098 valid awarded routes, 453 UDAN routes have commenced connecting 70 airports, including nine heliports and two water aerodromes. The VGF period is over for 197 routes, and of these, 78 routes are currently operational while flights on other routes were discontinued due to factors like low demand, and management issues of the airline. Under the scheme, VGF and exclusivity of the route are offered to select airline operators and after the expiry of the exclusivity period, any scheduled airline can start flight operations on that route depending upon the traffic demand and their commercial viability, in compliance with relevant guidelines. Airfare plays a crucial role in determining demand, particularly in areas like the Northeast with a smaller section of the population having adequate disposable income to be spent on frequent flights. Under the UDAN Scheme, the Ministry of Civil Aviation has targeted an indicative airfare of Rs 2,500 for a distance of 500 km to 600 km per RCS seat under Regional Connectivity routes (equivalent to a one-hour flight). The scheme requires selected airline operators to provide up to 50 per cent of the aircraft seating capacity or a maximum of 40 seats, whichever is lower, as seats in a fixed-wing aircraft under UDAN. The Airports Authority of India, the Implementing Agency makes VGF payments to the airline operators' RCS fund for the operation of UDAN flights and till November 30 approximately Rs 2,218 crore has been paid as VGF. The government informed the Parliament that in line with the practice being followed globally, the airline pricing system in India runs in multiple levels of buckets or RBDs (Reservation Booking Designators). The prices are fixed by airlines keeping in mind the market, demand, seasonality and other market forces. The airfare increases as the lower fare buckets get sold by the airlines. Some of the airlines have introduced Apex-90, in addition to the existing advance purchase schemes of 60 days, 30 days, 14 days etc., in which highly discounted fares are offered that facilitate travelling on low fares even during peak seasons if tickets are purchased in advance. Aviation Turbine Fuel (ATF) account for a major portion of airlines' cost and the reduction of ATF can provide an incentive to the airline operators operating on RCS routes to keep the fares low after VGF and the exclusivity period is over. Airlines pay Goods & Services Tax (GST) on revenue while ATF also attracts VAT/Sales tax which varies from state to state. The Central government's view is that some states charge high VAT/sales tax on ATF and bringing the slabs down can significantly increase the affordability of air travel by bringing down operational costs for airliners. The Ministry has been urging the states to rationalize VAT on ATF across all airports in states within the range of 1-4% to make air travel affordable and to boost air connectivity. Union Civil Aviation Minister Jyotiraditya Scindia, while writing to States to reduce the VAT on ATF, argued that revenue collection from it is insignificant compared to overall tax collection by individual states and lowering the slabs to 1-4 per cent is not going to hurt their economies and positive impact on flow economy on account of increased air connectivity can offset the loss. Of the total 185 thousand metric tonnes (TMT) of ATF in the Northeast during 2019-20, Assam accounted for the highest consumption of 159 TMT, and among other states in the region, Manipur accounted for the maximum quantity of 10 TMT. This explains why the reduction of VAT on ATF by Assam is not comparable with the rest of the north-eastern states even though total consumption in the region is quite less compared to 2486 TMT in the southern, 1931 in the western and 2757 TMT in northern regions. Assam levies 23.65 per cent VAT on ATF. During that year airports in the country handled 275 million passengers which declined to 105 million in 2020-21 due to the adverse impact of COVID-19, and it is yet to reach the pre-COVID level even though it increased gradually to 167 million in 2021-22 and to 147 million up to October this year. Exploring the possibility of lowering the slab to 1-4 per cent would boost tourism and other economic activities to the extent that an increase in revenue will be able to offset the loss due to the rationalization of VAT will be a critical factor for the state to determine if the tax on aviation fuel can be reduced to lower slabs, if not to the level sought by the Ministry.