New Delhi: India’s electric bus segment is poised for strong growth, with e-bus penetration in the medium and heavy vehicle segment expected to rise to around 30 per cent by 2029-30 from 7 per cent currently, driven by policy support and favourable operating economics, rating agency ICRA said on Wednesday.
ICRA said the country’s e-bus market has scaled up rapidly, with sales in the medium and heavy segment rising from just 37 units in 2017-18 to 5,412 units in 2025-26. More than 2,000 units have already been sold in the first four months of 2026-27.
The rating agency said government schemes, including FAME-I, FAME-II, the National Electric Bus Programme, PM-eBus Sewa and PM E-Drive, cumulatively target the deployment of more than 80,000 electric buses with a budgetary allocation of around Rs 1 trillion through 2027-28.
The uptake so far has been concentrated in five states — Delhi, Maharashtra, Karnataka, Gujarat and Telangana — which together account for around 75 per cent of e-buses deployed to date.
Despite the higher upfront cost, e-buses offer a more favourable total cost of ownership (TCO). ICRA estimated the TCO of a 12-metre air-conditioned electric 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.
” The e-bus segment presents a large market opportunity for original equipment manufacturers, operators and investors, anchored on strong policy support and favourable cost economics,” ICRA Senior Vice President and Group Head, Corporate Ratings, Jitin Makkar said.
If the entire 1.5 lakh bus fleet of public transport authorities were to be electrified over the next decade, it would entail a capital outlay of around Rs 1.5 trillion, he said.
ICRA said the Gross Cost Contract model has emerged as the preferred structure for e-bus projects, under which operators own and run the buses while public transport authorities pay a fee based on kilometres operated.
The agency said the operating track record of its rated e-bus projects has been satisfactory, with daily scheduled running exceeding assured contracted kilometres across most projects. Energy consumption has largely remained in line with expectations, while cost overruns have been contained below 10 per cent of the initial project cost.
However, counterparty payment risk remains a key concern, with some public transport authorities delaying payments to operators. Delays in setting up escrow accounts, depot handover and receipt of government subsidies have also affected project cash flows, it said.
ICRA said the newly introduced Payment Security Mechanism (PSM), routed through Convergence Energy Services Ltd (CESL) and backed by a Direct Debit Mandate arrangement, is a significant positive development for the sector.
The mechanism is designed to mitigate counterparty payment risk by facilitating recovery of dues from state accounts in case of default. A dedicated PSM fund has also been capitalised to support timely payments to operators.
“PSM is, therefore, a pivotal reform that should mitigate the receivable risk of the operators,” Makkar said. The agency, however, flagged execution and technology risks, including commercialisation delays of six months to one year in several projects, primarily due to delays in setting up and handing over depots.
Battery replacement remains a significant lifecycle cost, accounting for around 25-30 per cent of the bus cost, while the segment also remains exposed to geopolitical and supply-chain risks due to dependence on imported cells, batteries and other components.
ICRA said the entry of strong strategic and financial investors, including KKR, Tata Motors, Ashok Leyland, JSW, IFC and NIIF-backed platforms, is strengthening the capital base of the sector.
Declining battery costs, favourable TCO and the environmental benefits of electric mobility are expected to provide durable support to e-bus demand, it added.