India's Electric Bus Push Needs Dedicated Central Financing Facility

A proposed central government-owned electric bus financing facility could resolve the payment security and balance sheet risks that have deterred major automotive manufacturers from participating in India's National Electric Bus Programme. The facility would function similarly to the Indian Renewable Energy Development Agency, mobilising concessional capital from domestic and international sources to lease buses to financially weak state transport undertakings.

India launched its National Electric Bus Programme in 2022 with a target of deploying 50,000 electric buses over five years, backed by investment of US$10 billion. Progress has been slow: as of May 2023, only 4,506 of 359,432 registered buses since the inception of the FAME scheme in April 2015 are electric, representing just 1.25% of the total fleet. A recent CESL electric bus tender valued at Rs50 billion saw major OEMs decline to bid, citing the poor financial health of State Road Transport Undertakings, which collectively carry debt of Rs380 billion and reported a combined net loss of approximately Rs180 billion in FY2018-19.

The proposed financing facility addresses two core problems: it removes electric buses from OEM balance sheets under the gross cost contract model, and it interposes a creditworthy central government entity between OEMs and financially distressed state transport undertakings. This mirrors the structure of the Indian Railway Finance Corporation for railway assets and IREDA for renewable energy. International climate financiers, including multilateral development banks, generally prefer to channel concessional capital through central government-controlled entities, making the proposed structure well-suited to attracting foreign climate finance.

The facility would procure buses via CESL-managed tenders and enter into operating lease agreements with state transport undertakings, which would maintain separate service contracts with OEMs. A payment security mechanism at either the central or state level would mitigate lease payment default risk. States are expected to be motivated providers of payment security given their own decarbonisation goals. The facility could also generate additional revenue by monetising carbon credits from avoided emissions, and could extend financing to private-sector zero-emission vehicles, becoming India's one-stop zero-emission vehicle financing institution.

Key figure — Rs380 billion — combined debt of India's 56 State Road Transport Undertakings as of the latest Ministry of Road Transport and Highways data.