By Piyush P. Yadav

Every large electric bus order in India, from Delhi’s latest 400 buses to the 6,230-bus CESL tender now in progress, is structured the same way, and almost nobody outside the industry understands it. State transport undertakings do not buy electric buses. They rent them by the kilometre. Under the Gross Cost Contract model, a private operator buys the bus, employs the driver, charges it, maintains it and is paid a fixed rupee-per-kilometre rate for ten to twelve years. The transport undertaking keeps the fare revenue and the route planning. The model is the reason a Rs 1.2 crore electric bus can compete with a Rs 45 lakh diesel one, and it is also the reason so many operators have struggled to get paid. This explainer sets out how GCC works, what the benchmark per-kilometre rates are, how they compare with diesel and CNG, and why the central government had to create a Rs 3,435 crore payment guarantee to keep the model alive.

Why buses are rented, not bought

A 12-metre electric city bus costs roughly Rs 1 crore to Rs 1.5 crore depending on battery size and specification, against Rs 40 lakh to Rs 50 lakh for a diesel equivalent. Most state transport undertakings run at a loss and could not finance that premium across a fleet of thousands. The Gross Cost Contract shifts the capital burden to a private operator, who recovers it through the per-kilometre payment over the contract life. In exchange the operator takes on the technology risk: battery degradation, charger downtime and maintenance are all its problem, not the state’s.

The alternative structure, Net Cost Contract, gives the operator the fare revenue and makes it bear ridership risk. That model has largely been abandoned for electric buses because operators cannot price a 12-year contract against unknown passenger numbers. GCC, with its assured kilometres and fixed rate, is what banks will finance.

How a GCC is structured

Element Who is responsible Typical terms
Bus procurement and ownership Operator (often the bus manufacturer’s own operating arm) Operator buys or leases bus; ownership may transfer to STU at contract end
Drivers Operator Operator recruits, trains and pays drivers; conductors usually remain STU staff
Charging infrastructure Operator (depot space provided by STU) STU provides land and power connection; operator installs and runs chargers
Maintenance and battery Operator Operator guarantees availability; battery replacement is operator’s cost
Route planning and fares State transport undertaking STU keeps fare revenue and decides schedules
Payment STU pays operator Fixed Rs per km on assured kilometres (typically 180 to 225 km per bus per day)
Contract length Both 10 to 12 years
Penalties Operator Deductions for missed kilometres, breakdowns and below-threshold availability

The “assured kilometres” clause is central. The STU commits to giving each bus a minimum daily run, often around 200 km, and pays for those kilometres whether or not the bus completes them for reasons attributable to the STU. If the operator fails to provide the bus, it forfeits the payment and may pay a penalty. This is why availability, not ridership, is the metric operators obsess over.

Benchmark rates: what a kilometre of electric bus costs

The clearest public benchmark comes from CESL’s Grand Challenge tender of 2022, which aggregated demand from Delhi, Telangana, Haryana, Surat, Kerala and Arunachal Pradesh for 5,450 buses. The discovered rates, published in January 2023, remain the reference point the industry quotes.

Bus type Lowest discovered GCC rate (2022-23) Comparison
12-metre intra-city electric bus Rs 54.30 per km 29% below diesel equivalent (with subsidy); 27% below diesel and 25% below CNG without subsidy
12-metre intercity electric bus Rs 39.80 per km Higher daily km lowers the per-km rate
9-metre electric bus Rs 54.46 per km Comparable to 12 m despite smaller size
7-metre electric bus Rs 61.92 per km Smallest buses are the most expensive per km
Bengaluru BMTC diesel bus (reference) Rs 68.53 per km Operating cost quoted by Karnataka government in 2022

Those figures include the FAME II subsidy that was in force at the time, which was worth up to Rs 55 lakh per bus. CESL’s own analysis found that even without the subsidy the electric rate was 27 per cent below diesel and 25 per cent below CNG, because the fuel saving over 200 km a day for 12 years outweighs the capital premium. Since then, bus prices have risen with battery specification, the subsidy has moved to PM E-DRIVE, and bids in 2025-26 have generally landed between Rs 55 and Rs 70 per km for 12-metre AC buses depending on the city’s power tariff and depot arrangements.

Why electric wins on total cost

The arithmetic is straightforward. A diesel bus consumes roughly 3.5 to 4 km per litre in city service, so at Rs 90 per litre it costs about Rs 23 to 26 per km in fuel alone. An electric bus uses about 0.9 to 1.2 kWh per km, so at an industrial tariff of Rs 7 to 9 per unit it costs Rs 7 to 11 per km in energy. Over 200 km a day and 300 operating days, that is a saving of Rs 9 lakh to Rs 11 lakh per bus per year. Across twelve years the fuel saving alone exceeds Rs 1 crore, which is the entire capital premium of the electric bus. Maintenance is also lower because there is no engine, gearbox, clutch or exhaust after-treatment to service.

The Council on Energy, Environment and Water and WRI India have both published total cost of ownership studies reaching the same conclusion: AC electric buses come out 15 to 20 per cent cheaper than AC diesel over a 12-year life, and operating costs are roughly 31 per cent lower than diesel and 18 per cent lower than CNG. The caveat in every study is the same. The result depends on the bus actually running its assured kilometres. An electric bus parked for want of a working charger earns nothing and still carries its EMI.

The payment problem, and the Rs 3,435 crore fix

GCC’s weakness is that the operator’s entire revenue depends on a state transport undertaking paying its monthly invoice on time, and many STUs are chronically late. Operators in several states have reported dues running to months, which in turn made banks reluctant to finance new contracts. By 2023 this was the single biggest brake on the e-bus programme, more than bus supply or charger availability.

The response was the PM-eBus Sewa Payment Security Mechanism, approved by the Union Cabinet in September 2024 with an outlay of Rs 3,435.33 crore. It works as follows:

  • The scheme covers more than 38,000 electric buses deployed from FY2024-25 to FY2028-29, for up to 12 years of operation each.
  • If an STU defaults on a monthly payment to the operator, the scheme fund pays the operator directly.
  • The fund then recovers the money from the parent state government. States must register a Direct Debit Mandate with the Reserve Bank of India so the recovery is automatic.
  • Only STUs that adopt the Gross Cost Contract model are eligible.

The guarantee does not lower the per-kilometre rate directly, but by removing payment risk it lowers the cost of capital operators build into their bids. Industry estimates suggest a credible payment guarantee can shave Rs 3 to Rs 5 per km off a 12-metre bid. It is also a precondition for the demand aggregation now running through CESL, which we covered in our report on the 6,230-bus CESL tender and its localisation complication.

What is changing in 2026

Three developments this month bear directly on GCC economics. First, the traction motor localisation rules that took effect on 1 September require bus makers to assemble motors in India to qualify for PM E-DRIVE support, which affects which buses can be bid at subsidised rates; we set out the details when the localisation deadline hit e-bus and e-truck makers. Second, the Ministry of Heavy Industries has floated a Rs 9,852 crore heavy-duty scheme with interest subvention and partial credit guarantees for 50,000 e-buses and 50,000 e-trucks, which would cut operators’ financing costs further; our analysis of the proposed heavy-duty EV scheme explains how the credit guarantee would work. Third, Delhi’s addition of 400 buses and Tata Motors crossing 3,400 electric commercial vehicle orders, covered in our August 2026 fleet update, show that the pipeline is now large enough that per-km rates are being set by competition between four or five serious operators rather than by a single bidder.

What to look for in a GCC tender

For readers evaluating a bid, whether as an operator, a lender or a municipal official, the terms that determine whether a contract is viable are:

  • Assured kilometres per bus per day. Below 180 km the per-km rate has to rise sharply to cover fixed costs.
  • Power tariff and who bears escalation. A contract that fixes the electricity rate or indexes it transparently is worth several rupees per km to the operator.
  • Depot readiness. Delays in the STU providing land and grid connection are the most common cause of late deployment and disputed payments.
  • Payment security. Whether the contract is covered by the PSM scheme or an equivalent state escrow.
  • Battery replacement provision. A 12-year contract will almost certainly require one battery replacement; who pays and when should be explicit.

Sources & Further Reading

Frequently asked questions

What is a Gross Cost Contract for electric buses?

A contract under which a private operator owns, drives, charges and maintains the bus and is paid a fixed rate per kilometre by the state transport undertaking for 10 to 12 years. The STU keeps fare revenue and sets routes.

What is the per-kilometre cost of an electric bus in India?

CESL’s 2022-23 Grand Challenge tender discovered Rs 54.30 per km for a 12-metre intra-city bus and Rs 39.80 per km for a 12-metre intercity bus. Recent bids for 12-metre AC buses have generally fallen between Rs 55 and Rs 70 per km depending on the city.

Are electric buses cheaper than diesel buses to run?

Yes on total cost of ownership. CESL found electric GCC rates 29 per cent below diesel with subsidy and 27 per cent below without. CEEW and WRI studies put the 12-year total cost advantage at 15 to 20 per cent, driven by fuel savings of Rs 9 lakh to Rs 11 lakh per bus per year.

What is the PM-eBus Sewa Payment Security Mechanism?

A Rs 3,435 crore central fund approved in September 2024 that pays electric bus operators if a state transport undertaking defaults on its monthly payment, then recovers the money from the state via an RBI direct debit mandate. It covers more than 38,000 buses through FY2028-29.