The 10-year scheme may also include provisions to encourage local e-bus manufacturing, bring down the goods and services tax (GST) rate on components and support the creation of charging infrastructure.

The move has the potential to crack open the electric vehicle (EV) ecosystem beyond buses as well, cut down India's oil import bill and contribute significantly to a reduction in vehicular emissions.

The plan is a widened version of an earlier proposal by the heavy industries ministry to replace 800,000 combustion-engine buses with electric options. That has now been scaled up following inputs from other ministries.

Three ministries—heavy industries, commerce and industry, and housing and urban poverty alleviation—are in the process of submitting a formal proposal to the PMO, the people cited above said, requesting anonymity.

Queries sent to the ministries remained unanswered.

For context, there are about 2.3 million diesel and CNG-run buses on Indian roads today, according to industry estimates. Comparatively, only around 6,500 electric buses ply, as per vehicle registration data, a bulk of which were sold between 2019 and 2023. In the same period, 152,173 diesel and 15,163 CNG buses were sold.

The government estimates that it will take at least the first two years of the scheme's 10-year tenure to develop local capacity to manufacture these buses.

The proposal also looks at allowing foreign companies to set up a manufacturing base in India to speed up the development of a local manufacturing ecosystem. A provision for interest rate subvention for companies creating manufacturing capacity in the country is also being proposed.

The scheme is likely to have an operating expense (opex) model, where intermediaries buy the buses from manufacturers and lease them on a per-kilometre basis to state units. This ensures that the burden of buying these buses, which cost around ₹1.5 crore each after subsidies, does not drain state coffers. "Since states may not be able to fund the expense of replacing these buses, there will be a lease model available for states," said one of the persons cited above.

That would be similar to the opex model being followed for electric buses in the Faster Adoption and Manufacture of Electric and hybrid Vehicles in India (FAME-India) programme. In this scheme, the intermediary companies buy the buses and lease them to states at rates ranging from ₹50-100 per km with a minimum use guarantee.

"The FAME scheme has been very helpful in the faster adoption of electric buses and promoting e-mobility across the country," said Aanchal Jain, chief executive officer of PMI Electro Mobility, a maker of electric buses. "Higher adoption of electric buses will drive forward the local economy and the entire bus manufacturing ecosystem with larger players investing in capacities, higher indigenization of bus and bus parts and, in the process, more new jobs will be created."

The proposal to the PMO may also include a suggestion to lower the GST rate on components for electric buses, especially battery cells, to 5% from 18% today. The EV industry has an inverted duty structure, where the GST rate on key inputs like battery cells and other components ranges at 18-28%, but when they sell a bus, they can only charge 5% GST. This often leads to unutilized input tax credit with manufacturers.

To create enough charging stations for the buses, the proposal looks to rope in NTPC Ltd and Power Grid Corp. of India Ltd to develop the infrastructure.

The proposal is intended to cut emissions and India's oil import bill, while also fostering a local EV manufacturing ecosystem. If approved, this will be the government's fourth EV-focused scheme for the automotive sector. Other existing schemes include FAME-India and two production-linked incentives (PLI) schemes for advanced automotive technologies and advanced chemistry cells.

Based on the experience of these schemes, a consensus is developing in the government that the most effective way of taking the Indian automotive industry electric is to crack public transportation. This will transfer the benefits of modern transportation to a larger number of people rather than focusing the benefits on a few affluent buyers of personal vehicles.