The adoption of electric buses (“E-Buses”) in India is a significant step towards sustainable urban mobility, reduction of vehicular emissions, and the fulfilment of India’s climate commitments. The regulatory framework governing E – Buses in India is multi-layered, involving central and state governments, various ministries, and regulatory bodies. Additionally, the deployment of E – Buses, particularly under public-private partnership (“PPP”) models, is often governed by concession agreements that details the rights, obligations, and risk-sharing mechanisms between the relevant public authorities and private operators.

Concession Agreement 

A concession agreement (“CA”) is an arrangement between a public authority (such as a municipal corporation or STU (as defined below)) and a private operator for the supply, operation, and maintenance of E-Buses. The agreement typically covers the following key aspects:

Scope of Services: The private operator is responsible for procuring, registering, and operating a specified number of E – Buses on designated routes. The operator must ensure regular maintenance, servicing, and repair of the E – Buses to meet performance and safety standards. The agreement may require the operator to set up, operate, and maintain charging stations, or this responsibility may rest with public authority.

Tenure: The CA is typically structured as a long-term contract (e.g., 10–16 years). The agreement is based on an OPEX (per kilometer) model, where the operator is paid a fixed rate per kilometer operated.

Payment Mechanism: The authority pays the operator a per-kilometer charge, which may be indexed to inflation and fuel/ energy prices. Payment is typically routed through an escrow account to ensure timely and transparent disbursement. Deductions are made for non-performance, such as missed trips, breakdowns, or failure to meet service quality standards.

Permits and Approvals: The operator is responsible for obtaining all necessary permits for vehicle operation, depot construction, and environmental compliance. The authority assists in securing route permits and other statutory clearances. 

Termination and Exit Provisions: The agreement outlines conditions for termination due to default by either party, prolonged force majeure, or mutual consent. Compensation mechanisms are defined for early termination, including refund or forfeiture of performance security and settlement of outstanding dues.

Transfer: At the end of the contract period, the buses may either remain with the operator or be transferred to the authority, depending on the contract option chosen. Depots and immovable infrastructure usually revert to authority.

Dispute Resolution: Disputes are to be resolved through a structured process, typically involving negotiation, followed by arbitration under the Arbitration and Conciliation Act, 1996.

Regulatory Framework Governing E- Buses in India 

The key policies governing regulatory framework of E- Buses in India are set out below:

FAME Scheme: The Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (“FAME”) scheme, launched in 2015 and now in its second phase (“FAME II”), is the flagship policy for promoting electric mobility. FAME II provides financial incentives for the procurement of E-Buses by state transport undertakings (“STUs”) and municipal corporations, supporting demand aggregation and reducing upfront costs. FAME II provides substantial demand incentives to reduce the capital cost of E-Buses for STUs and municipal corporations.

The subsidy is calculated based on the battery capacity of the bus, set at INR 20,000 per kWh (under FAME II), with a cap of up to 40% of the ex-factory price of the bus and a maximum eligible bus price of INR 2 crore. Only buses that meet specific technical and localization criteria (such as minimum domestic value addition) are eligible for the subsidy. This ensures quality, safety, and the promotion of domestic manufacturing.

National Electric Mobility Mission Plan (NEMMP) 2020: The National Electric Mobility Mission Plan (“NEMMP”) 2020 is a flagship initiative of the Government of India, launched in 2013, aimed at transforming the country’s automotive and transportation sector by promoting the adoption and manufacturing of electric and hybrid vehicles. 

The plan is designed to enhance national fuel security, provide affordable and environmentally friendly transportation, and position India as a global leader in electric mobility. The plan set an ambitious target of achieving annual sales; of 6 – 7 million electric and hybrid vehicles from 2020 onwards.

Charging Infrastructure: The regulatory and policy framework for charging infrastructure for E – Buses is designed to ensure the rapid, safe, and efficient deployment of charging stations to support the growing fleet of electric buses across the country.

Under FAME II, the Ministry of Heavy Industries (“MHI”) sanctioned thousands of public charging stations, with a significant portion dedicated to supporting e-bus operations.

As of early 2025, over 6,800 e-buses have been sanctioned, and thousands of charging stations have been installed or are under development. Setting up charging stations is a delicensed activity — no specific license is required. Distribution companies (“DISCOMs”) must provide electricity connections up to 150 kW for charging stations with expedited timelines and clear standard operating procedure. Public land can be allocated to government/public entities on a revenue-sharing model and to private entities through bidding, ensuring fair access for E – Bus charging infrastructure.

Many states have issued their own EV policies, often providing additional capital subsidies for the installation of E – Bus charging stations, mandating charging infrastructure in new public transport projects, and facilitating land allocation and grid upgrades. States such as Delhi, Karnataka, Maharashtra, Tamil Nadu, and others have set ambitious targets for E – Bus adoption and have established dedicated nodal agencies to coordinate charging infrastructure deployment.

Key Challenges

High Upfront Costs and Financing Barriers:  E – Buses cost 2 – 4 times more upfront than diesel buses, primarily due to battery costs and the need for charging infrastructure. Public Transport Agencies (“PTAs”) and STUs often face poor financial health, making it difficult to secure loans or attract private investment. The lack of a well-established secondary market for E – Buses and uncertainty around battery health further dampen investor confidence. Further, delays and defaults in payments from STUs to private operators have led to low bankability of contracts, necessitating payment security mechanisms to reassure lenders and operators.

Charging Infrastructure Gaps: Despite rapid growth, the number of charging stations (over 12,000 as of early 2024) is still inadequate for widespread E – Bus adoption, especially in smaller cities and rural areas. Many cities face grid capacity limitations, and the need for significant upgrades to support high-capacity fast charging for E – Buses. Delays in installing charging stations at depots and en-route locations can limit service frequency and fleet efficiency, as buses may need to return to depots for charging. 

Supply Chain and Manufacturing Barriers: Government mandates for domestic value addition (“DVA”) and localization can cause supply chain disruptions and production delays, especially as the sector expands into smaller cities. Further, heavy reliance on imported batteries and components exposes the sector to global supply chain risks and geopolitical uncertainties.

Policy and Regulatory Hurdles: Varying technical specifications across states can delay production and deployment, with some tenders taking 1.5 – 2 years to materialize. Further, national schemes have so far focused on public sector buses, overlooking the private sector, which operates over 90% of India’s buses.

Having worked with sponsors, lenders and the Government in this space, we can say that India’s E – Bus sector stands at a pivotal juncture. While the challenges, namely high upfront costs, infrastructure gaps, financing barriers, and policy inconsistencies, are significant, the opportunities are equally compelling. With robust government support, technological innovation, and the inclusion of both public and private sector players, India is well-positioned to lead a green transit revolution.

Authors: Akshay Malhotra – Partner and Kush Saggi – Managing Associate

Disclaimer:  The contents of this note do not constitute any opinion or determination on, or certification in respect of, the application of Indian law by Talwar Thakore & Associates (“TT&A”). No part of this note should be considered an advertisement or solicitation of TT&A’s professional services.