Five airlines will operate on 128 routes under the regional connectivity scheme wherein fares are capped at Rs 2,500 for one-hour flights.
For flights less than 500 km or one hour, 50 per cent of seats on every flight will cost Rs 2,500 per seat under the UDAN scheme.
Over 45 unserved and under-served airports would be connected under the scheme - UDAN (Ude Desh ka Aam Naagrik) that seeks to make flying more affordable.
"UDAN network will cover the whole country, giving a major economic boost to hinterland areas," Civil Aviation Minister Ashok Gajapathi Raju tweeted.
"This will have a positive effect on the economy, in terms of employment and investment," Raju added.
India's domestic air passenger traffic grew at a record breaking rate of 23 per cent in 2016 - amongst the highest in the world.
Unseating Japan, India became the third largest aviation market in domestic air traffic with 100 million passengers in 2016.
In a century of Civil Aviation in India, only 76 airports became operational with scheduled commercial flights. With UDAN, the government plans to connect 33 unserved airports.
Announcing the names of winning bidders and the routes, civil aviation secretary RN Choubey said 128 routes are being awarded to a total of five operators.
The operators are Air India subsidiary Airline Allied Services, SpiceJet, Air Deccan, Air Odisha and Turbo Megha. They would be operating 19-78 seater aircraft.
UDAN will stimulate the growth of regional aviation market in India, Minister of State for Civil Aviation Jayant Sinha tweeted.
Indian civil aviation industry is all set to welcome a new era of transformation as UDAN connects many new destinations, Sinha added.
The airports that would be connected under UDAN include Bhatinda, Puducherry and Shimla.
On each flight, 50% of the seats would have a cap of Rs 2,500 per seat/hour, Choubey said.
Under UDAN, the operators would be extended viability gap funding.
The amount is estimated to be around Rs 205 crore per annum for the operators chosen in the first round of bidding, Choubey added.
Minister of State for Civil Aviation Jayant Sinha said the scheme provides for various benefits including no airport charges and three-year exclusivity on the routes.
UDAN is expected bring the Indian aviation sector to 31 new cities.