The Centre is targeting a rollout of a sovereign-backed financing support scheme for private electric bus and truck operators by the end of the year, as policymakers look to shield lenders from the high-risk nature of commercial EV financing amid rising concerns over country’s fuel import dependence following the ongoing West Asia crisis.
The ministry of heavy industries (MHI) is working with public and private sector banks, non-banking financial companies (NBFCs) and apex financial institutions to develop a financing architecture that could combine interest subvention with partial credit guarantees for electric commercial vehicles.
The move marks a significant shift in EV policy approach, from direct procurement subsidies and manufacturing incentives towards sovereign-backed credit support aimed at unlocking private fleet electrification.
“The scheme is being designed to reduce both the cost of borrowing and the perceived lending risk. It is likely to be rolled out by the end of this year,” a senior official said.
The domestic commercial transport sector remains overwhelmingly diesel dependent despite rapid growth in electric passenger vehicles and state-run electric bus procurement programmes. Private operators account for nearly 90% of the country’s estimated two million buses, while medium and heavy-duty trucks continue to dominate freight movement.
The urgency has increased amid volatility in global crude markets linked to continuing geopolitical tensions in West Asia, which have renewed concerns within the government over the country’s exposure to imported fossil fuels, another official said.
India imports more than 85% of its crude oil requirements, with road transport accounting for a major share of diesel consumption.
Interest Subvention
Under the proposed framework, MHI may compensate lenders for the additional 1-4 percentage point interest premium typically charged on electric commercial vehicle loans compared with diesel vehicles. Electric bus financing currently attracts interest rates of around 10.5-11.5%, significantly higher than conventional diesel fleet financing due to concerns around asset resale value, battery life and the absence of a mature secondary market.
The ministry is also evaluating a partial credit guarantee structure under which the government would absorb part of the losses in case of borrower defaults for a limited period, effectively acting as a sovereign-backed risk cover for lenders.
Financial institutions have historically remained cautious about financing electric buses and trucks because of their high upfront costs and uncertain long-term asset performance.
Price of Transition
An electric bus currently costs around ₹1-1.25 crore, compared with ₹25-50 lakh for a diesel bus. Similarly, electric heavy trucks above 12 tonnes are priced at ₹1-1.5 crore, roughly two to three times the cost of diesel equivalents.
The Centre believes reducing financing costs could significantly improve total cost of ownership economics for high-utilization commercial fleets, particularly in fixed-route applications such as inter-city buses, staff transport, urban logistics and dedicated freight corridors.
The proposed scheme is also expected to include a dedicated allocation for electric trucks, a segment that has so far seen limited policy support despite accounting for a disproportionate share of transport emissions.
According to NITI Aayog’s e-fast India report, the government is targeting 40% electrification in buses and increasing penetration in commercial freight fleets over the next decade as part of India’s broader net-zero commitments for 2070.
The Centre has already supported electric bus deployment through schemes such as PM eBus Sewa and PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE), but these programmes largely focused on public transport undertakings and state-run deployments.