In a significant move to accelerate India's electric mobility transition, the central government is formulating a new financing scheme aimed at making loans cheaper for private electric bus operators. This initiative comes as these operators face severe challenges in securing affordable credit, a situation worsened by heightened caution among lenders following the high-profile collapse of electric cab company BluSmart.
Addressing the High Cost of Capital
The proposed scheme, being finalized by the ministry of heavy industries, is expected to be rolled out over the next six to twelve months. Its core objective is to tackle one of the most significant bottlenecks in India's shift to electric buses: the prohibitively high cost of capital for private operators. These private players run nearly 90% of the country's approximately two million buses, dominating intercity and commercial routes.
The plan involves channeling lower-cost, longer-tenor funds to non-banking finance companies (NBFCs) through two key state-run institutions: the Small Industries Development Bank of India (Sidbi) and the National Bank for Agriculture and Rural Development (Nabard). This structure is designed to reduce equated monthly instalments (EMIs), extend repayment periods, and ultimately improve margins and risk-adjusted returns for bus operators.
Currently, an electric bus costs between ₹1.6 crore and ₹2 crore, which is two-and-a-half to three times more than a diesel-powered bus. This high upfront cost makes financing a critical constraint for adoption.
A Scheme for the Dominant Private Sector
While existing government incentives like FAME II, PM E-DRIVE, and PM-eBus Sewa have largely focused on public transport, the new scheme specifically targets the vast private bus market. One government official highlighted the scale, noting that while there are about 100,000-150,000 government buses on Indian roads, the private sector operates a much larger fleet of roughly 1.9 million buses covering various intercity routes.
The push for this scheme follows a recommendation in August last year from federal policy think tank NITI Aayog. It had advised the heavy industries ministry to collaborate with the finance ministry to create a fund-of-funds structure to ease the adoption of high-cost electric buses and trucks.
Overcoming Lender Caution Post-BlueSmart
The timing of this intervention is crucial. The past year has seen lenders grow increasingly wary of the electric vehicle (EV) sector after the dramatic collapse of BluSmart in April 2025. India's capital markets regulator accused BluSmart's founders of misusing ₹262 crore of company funds for personal luxury expenses, leading to the shutdown of a company that operated about 8,000 electric cars.
This episode has had a chilling effect. "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," said Dhiraj Agarwal, chief business officer of Mufin Green Finance.
Industry operators feel this caution directly. Rohan Dewan, founder of bus operating company Leafybus, shared his experience, "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 added that corporate governance lapses at BluSmart had unsettled both government and private financiers.
Experts believe a robust financing mechanism is key to unlocking growth. "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.
The success of the scheme will depend on its ability to meaningfully reduce borrowing costs. Agarwal of Mufin Green Finance explained, "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... 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."
This new scheme would become the fourth major government initiative for buses in the EV space. It follows the ₹11,500-crore FAME II, the ₹10,900-crore PM E-DRIVE scheme, and the massive ₹57,613-crore PM-eBus Sewa, which aims to add 10,000 electric buses via public-private partnerships for city operations.
The market potential is substantial. According to Mordor Intelligence, India'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%. The recent conclusion of India's largest electric bus tender for 10,900 vehicles, won by new-age manufacturers PMI Electro and EKA Mobility, signals a dynamic and competitive landscape ready for growth, provided the financing hurdle is cleared.
