India's electric bus penetration in the medium and heavy vehicle segment is expected to rise to around 30% by 2029-30 from about 7% currently, according to a rating agency. Continued policy support and total cost of ownership economics are expected to support adoption.

Delhi, Maharashtra, Karnataka, Gujarat and Telangana together account for around 75% of e-buses deployed in India so far. The segment has been supported by government programmes including FAME-I, FAME-II, the National Electric Bus Programme, PM e-Bus Sewa and PM E-Drive. Collectively, these schemes target the deployment of more than 80,000 e-buses, backed by cumulative budgetary allocations of around Rs. 1 trillion (US$ 10.5 billion) until 2027-28.

E-bus economics and public transport electrification

Despite their higher upfront purchase cost, electric buses can have lower operating expenses. The rating agency estimates the total cost of ownership for a 12-metre air-conditioned e-bus at around Rs. 39 per km, compared with around Rs. 51 per km for a diesel bus and Rs. 48 per km for a CNG bus. It said the lower operating costs can offset the higher capital expenditure after subsidies are taken into account.

If the entire fleet of around 150,000 buses operated by Public Transport Authorities (PTAs) were electrified over the next decade, the required capital outlay could reach around Rs. 1.5 trillion.

"The e-bus segment presents a large market opportunity for original equipment manufacturers (OEMs), operators, and investors, anchored on strong policy support and favourable cost economics," an analyst said.

The Gross Cost Contract model has emerged as the preferred structure for e-bus projects. Under this model, an operator owns and operates the buses, while the PTA pays the operator a fee based on kilometres travelled.

The rating agency said the daily scheduled running of its rated e-bus projects has exceeded the assured contracted kilometres, while energy consumption has remained in line with expectations. Cost overruns have remained below 10% of initial project costs.

Payment security and execution risks

The credit profiles of e-bus projects remain dependent on project execution and timely payments from PTAs. Some authorities have cleared operator dues with delays, while delays have also been reported in establishing escrow accounts and handing over depots. Commercialisation delays of six months to one year have been observed in several projects.

The agency also identified battery costs, technology changes, and geopolitical and supply-chain risks as factors that could affect the segment. Battery replacement accounts for around 25-30% of the cost of a bus, while dependence on imported cells, batteries and other components exposes projects to supply-chain risks.

The Payment Security Mechanism (PSM), routed through Convergence Energy Services Limited and backed by a Direct Debit Mandate arrangement with the Reserve Bank of India, could help mitigate counterparty payment risks. A dedicated PSM fund has also been capitalised to support timely payments to operators.

The segment includes strategic and financial investors such as KKR, Tata Motors, Ashok Leyland, JSW, IFC and NIIF-backed platforms. Declining battery costs, total cost of ownership and environmental considerations are expected to support further demand.

Government considers broader support for electric commercial vehicles

Alongside existing programmes focused largely on government and public transport fleets, the Centre is considering a separate policy framework to accelerate the adoption of electric buses and trucks among private commercial operators.

The proposed framework could extend incentives beyond government-owned and state transport fleets to private bus operators and commercial truck owners. The government is also discussing financing support with banks to make loans for electric commercial vehicles more accessible.

The move is intended to address two barriers to electric commercial vehicle adoption: high upfront costs and limited access to affordable financing.

The government is also working on a private e-bus de-risking framework that could include measures such as interest subvention and viability-gap funding. Discussions are reportedly being held with industry participants and financial institutions before the framework is finalised.

Existing EV schemes remain focused on public fleets

The Centre operates several programmes supporting electric buses. Under PM E-Drive, Rs. 43.9 billion has been allocated for 14,028 electric buses, with deployment routed through state or city transport undertakings and public transport agencies.

The PM e-Bus Sewa-Payment Security Mechanism has an outlay of Rs. 34.35 billion to support the deployment of more than 38,000 electric buses while reducing payment risks for operators working with PTAs.

PM E-Drive also provides support for electric trucks, with a target of 5,643 e-trucks and an allocation of Rs. 5 billion. However, government data showed that e-truck registrations under the scheme remained at zero as of July 2026.

The proposed broader policy framework could shift support from predominantly public transport fleets towards electric vehicle adoption across India's private commercial transport sector. Wider access to incentives and financing, along with changes in operating costs and battery prices, could support the expected increase in e-bus penetration to around 30% by 2029-30.