High EV costs? Government plans cheaper loans to accelerate India’s private electric bus rollout

The push comes amid heightened lender caution across the electric vehicle (EV) industry over the past year, following the collapse of electric cab company BluSmart.

The proposed scheme, being finalized by the ministry of heavy industries and likely to be rolled out over the next six to twelve months, the officials said, seeks to address one of the biggest bottlenecks in India’s electric bus transition: the high cost of capital for private operators, who run nearly 90% of the country’s two million buses.

According to officials, the scheme aims to accelerate the shift from diesel to electric fleets by channelling lower-cost, longer-tenor funds to non-banking finance companies (NBFCs) through Sidbi and Nabard, a move which will reduce EMIs, extend repayment periods, improve margins and risk-adjusted returns for operators.

E-buses currently cost two-and-a-half to three times more than diesel-fuelled buses, making financing a critical constraint for adoption, particularly among private operators who dominate intercity and commercial routes. The new scheme is expected to complement existing incentives that have largely focused on government-run city buses.

“The government is now looking to provide benefits to private bus operators for procuring more electric buses. While there are about 1-1.5 lakh (100,000-150,000) government buses on Indian roads, the private sector market is much bigger with about 19 lakh (1.9 million) buses covering various intercity routes," said one of the government officials cited above, requesting anonymity.

Mint had earlier reported that the central government was developing an incentive framework to improve financing options for electric trucks and buses, as limited access to affordable credit remains a key obstacle to India’s green mobility transition.

About 4,000 e-buses are sold in India each year, according to data from the government’s Vahan registry. As per the latest publicly available annual report of the ministry of road transport and highways (MoRTH) for FY25, around 145,000 buses were operated by 61 state transport utilities. MoRTH’s road transport yearbook for FY20 shows that India had about 2.1 million buses at the end of FY20, of which roughly 149,000 were publicly owned, with the remainder operated by private players.

The proposed scheme would be the fourth for buses in India’s EV space, following incentives for government-run e-buses under the ₹11,500-crore FAME II, the ₹10,900-crore PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) scheme, and the ₹57,613-crore PM-eBus Sewa, under which the government plans to add 10,000 electric buses through a public-private partnership for city operations.

Queries emailed to the spokespersons of heavy industries ministry, Sidbi, and Nabard on 2 January remained unanswered till press time.

Cost of capital

In August last year, federal policy think tank NITI Aayog had recommended that the ministry of heavy industries work with the finance ministry to create a fund-of-funds structure to ease adoption of high-cost electric buses and trucks.

“The scheme will involve the government providing funds to state-run financiers including the Small Industries Development Bank of India (Sidbi) and the National Bank for Agriculture and Rural Development (Nabard), which in turn will pass it on to private financiers and NBFCs to provide cheaper loans to e-bus operators," said the other official, also speaking on the condition of anonymity.

India recently concluded its largest electric bus tender for 10,900 vehicles, in which new-age manufacturers PMI Electro and EKA Mobility outbid established players.

The country’s electric bus market is valued at $1.17 billion in 2025 and is projected to reach $2.48 billion by 2029, growing at a compound annual growth rate of 20.66%, according to Mordor Intelligence.

Industry experts say privately operated e-buses serve diverse use-cases. “The use-cases for private sector e-buses are quite varied from school buses to intercity travel. A robust financing mechanism for rollout of more private sector e-buses is likely to boost intercity e-bus travel, as the returns on investment are best on intercity travel," said T. Surya Kiran, former executive director of the Association of State Road Transport Undertakings.

Private financiers say the scheme’s success will hinge on whether it meaningfully lowers borrowing costs.

“Private bus operators are extremely cash-flow sensitive. Even though e-buses have lower operating costs, high upfront EMIs and conservative lending tenors make them unattractive today. Over the last year, multiple stakeholders, including OEMs, financiers, and policy bodies, have highlighted that the cost of capital, not technology, is the biggest bottleneck for private e-bus adoption," said Dhiraj Agarwal, chief business officer of Mufin Green Finance.

“A structure where apex institutions provide lower-cost, longer-tenor funds to NBFCs can translate into lower EMIs and longer repayment periods aligned with routes for bus operators. NBFCs would be able to price loans more competitively, take measured exposure to first-time operators, and invest more in asset monitoring, collections, and lifecycle risk management," Agarwal said.

Rohan Dewan, founder of bus operating company Leafybus, said an electric bus can cost between ₹1.6 crore and ₹2 crore, nearly three times the price of a diesel bus.

“Initially as a startup, we got an NBFC to back us for the first 4-6 buses, and the cost of capital was relatively high as financiers require prior experience of operating EVs. This is a very nascent industry," he said, adding that corporate governance lapses at electric ride-hailing firm BluSmart had unsettled both government and private financiers.

In April 2025, India’s capital markets regulator accused BluSmart’s founders of using ₹262 crore of company funds for personal luxury expenses, leading to the company’s abrupt shutdown. BluSmart had operated about 8,000 electric cars before ceasing operations.

Mufin Green Finance’s Agarwal said the episode has made lenders more cautious.

“Lenders, including banks and non-banking financial corporations, are now re-evaluating their exposure to the EV sector. The BluSmart case has highlighted the risks associated with lending to EV companies, particularly those with aggressive growth plans and uncertain revenue streams," he said.