Comparison of Transportation Infrastructure Funding in

India and the United States

Srijith Balakrishnan

srijith@utexas.edu

Transportation Systems Management

Cockrell School of Engineering

The University of Texas at Austin

1

Comparison of Transportation Infrastructure Funding in India and in the United States

1. India

1.1 Revenue Sources for Infrastructure Development

In India, most of the transportation infrastructure is regulated by different levels of governments (central,

state and local governments). As a result, much of the funding for transportation infrastructure comes from the

public sector itself. The Government of India presents annual union budget enlisting the anticipated expenditure

and revenue from each sector. The expenses are covered using the revenue received from various sources. The

revenue sources include receipts such as taxes, customs duty, revenue from state-owned enterprises, capital

revenues and foreign aid. The revenue is distributed among all the sectors according to the priorities of the

government as allocated in the annual budget. Since infrastructure is an important area of focus, all annual budgets

allocate a significant proportion of total revenue for maintaining and expanding existing infrastructure such as

roads, ports, airports, railways, etc. The union budget allocations (for the financial year 2015-16) to different

transportation ministries under Government of India are enlisted below (Table 1).

Table 1. Budgetary allocations (2015-2016), in $billions (Government of India, 2015)

Ministry Budget allocation I.E.B.R§ Total

Ministry of Road Transport and Highways 6.37 4.31 10.68

Ministry of Railways 4.92 10.08 15.00

Ministry of Shipping 0.13 0.39 0.52

Ministry of Civil Aviation 0.55 0.42 0.97

§I.E.B.R or Internal and External Budget Resources constitute the resources raised by public sector undertakings through profits, loan and equity

In addition to union budget, each state or union territory also allocates sizeable amount of funds for

maintaining and expanding the infrastructure under their responsibility. The statistics pertaining to state budget

allocations are not available.

Among the revenue sources, road user tax and fuel tax significantly contribute to the government’s

revenue. Road user tax is a direct tax levied on vehicle owners and directly goes to the state governments. The

road user tax include passenger and goods tax, and vehicle taxes. Fuel tax is a direct tax imposed by both central

and state governments. In India, a liter (0.264 gallon) of gasoline costs around $1, out of which $0.33 goes to

central government and $0.20 to the state government. Similarly, a liter of diesel costs around $0.80, out of which

$0.27 goes to central government and $0.12 to the state government. Even though this fuel tax revenue is not

specific for transportation infrastructure, a fraction of this is directed to a dedicated fund called Central Road Fund

(CRF), which is established to finance the development of national highways, state highways and rural roads. The

Central Road Fund cess is about $0.03 for every liter of gasoline and high-speed diesel. Around $393 million was

collected as CRF in 2015-16.

2

1.2 Expenditure on Transportation Infrastructure

As mentioned above, the revenue allocated to each sector is utilized for maintaining and expanding existing

infrastructures. There are several project delivery models adopted by various transportation sectors. The most

prominent ones are traditional procurement (Design-Bid-Build), Public Private Partnership (PPP), and private

funding (Department of Economic Affairs, 2016).

The values of projects awarded under each of these categories are presented in Figures 1, 2 and 4 (data is

available only for those projects worth more than $800,000). Figure 1 illustrates the value of projects awarded

under traditional procurement method, i.e., Design-Bid-Build. In this method, the public sector assumes most of

the risks attributed to the project. From the figures, it is clear that the value of projects awarded under this model

has surged significantly in the recent years (2014 and 2015). Road and urban public transport sectors are given

much importance compared to other transportation sectors.

Figure 2 provides the details regarding the projects awarded to private sector under public private partnership

model. Data of projects awarded in road, port and urban transport sectors are available. The value of projects

awarded under PPP model is relatively low compared to conventional Design-Bid-Build model. In addition, it is

also observed that the number of PPP projects awarded has come down in the recent years. The sector has been

facing multiple challenges over the recent years, such as high interest rates, increase in cost of raw material and

reduced availability of funds.

Airports PortsRailway track,tunnels and

bridges

Roads andbridges

Urban publictransport

Grand Total

2010 63.14 20.03 0.00 1066.32 38.91 1188.40

2011 0.00 78.31 0.00 1145.59 6798.17 8022.07

2012 52.03 212.71 71.09 1147.47 38.07 1521.36

2013 33.34 94.35 277.08 2411.36 821.13 3637.26

2014 97.11 0.00 0.00 6068.09 8176.07 14341.27

2015 69.56 37.62 510.66 12047.00 28.00 12692.84

2016 0.00 0.00 23.47 51.38 0.00 74.86

0

2000

4000

6000

8000

10000

12000

14000

16000

Pro

ject

val

ue

($m

illio

n)

Value of government projects under Design Bid Build in $millions

2010 2011 2012 2013 2014 2015 2016

Figure 1. Value of projects awarded under Design Bid Build model

3

Figure 2. Value of projects under PPP model

The PPP projects awarded between 2008 and 2016 can be classified into eight categories as presented in

Figure 3. It is evident that majority of the projects awarded follow Design-Build-Finance-Operate-Transfer

Method (revenue risk and annuity payment).

Figure 3. Types of PPP models and percentage of projects awarded

Ports Roads and bridgesUrban public

transportGrand Total

2008 0.00 35.43 0.00 35.43

2010 145.56 3034.38 0.00 3179.94

2011 49.72 1803.13 10.80 1863.64

2012 129.72 2118.32 0.00 2248.04

2013 99.88 1508.93 0.00 1608.81

2014 1217.69 290.67 0.00 1508.37

2015 0.00 115.83 0.00 115.83

0

500

1000

1500

2000

2500

3000

3500P

roje

ct v

alu

e ($

mill

ion

)

Value of government projects under PPP in $millions

2008 2010 2011 2012 2013 2014 2015

7%4%

16%

1%

45%

8%

18%

1% 1%

PPP types (2008-2016)

Build-Operate-Transfer

Build-Operate-Transfer Annuity

Build-Operate-Transfer Toll

Build-Own-Operate

Design-Build-Finance-Operate-Transfer

Design-Build-Finance-Operate-Transfer Annuity

Design-Build-Finance-Operate-Transfer Toll

Design-Build-Own-Operate-Transfer

Not Available

4

Available data also shows that there are a few projects that are completely owned and operated by private

sector (Figure 4). These are operational in port and railway sectors. The private sector is yet to catch up in

infrastructure development in other transportation sectors, mainly because of stringent government regulations.

Figure 4. Value of projects awarded to private sector

2. United States of America

2.1 Revenue Sources for Infrastructure Development

1 http://www.fhwa.dot.gov/policyinformation/statistics/2014/hf10.cfm 2 http://www.heritage.org/research/reports/2015/05/highway-trust-fund-basics-a-primer-on-federal-surface-transportation-spending

PortsRailway track,

tunnel,and bridgesGrand Total

2012 132.31 0.00 132.31

2014 0.00 38.46 38.46

0

100

200

300

400

500

Pro

ject

val

ue

($m

illio

n)

Value of projects awarded to private Sector in $millions

2012 2014

Table 2. Revenue sources for financing highway projects in U.S.

Type Revenue sources Characteristics/Rates Revenue (2014)

Federal

Motor fuel taxes Gasoline (18.3¢/gal), diesel (24.4¢.gal)

$92bn1 Truck tire excise tax 9.45¢/10 lb (for trucks with >3500 lb)

Truck and trailer sales tax 12% of retailer’s sales price

Heavy vehicle use tax $100 - $550 depending on truck GVW

Federal general fund Funds diverted to Highways Trust Fund $62bn (2008-14)2

State

Motor fuel taxes and fees Gasoline (12¢-55¢/gal), Diesel (13¢-69/gal)

$68bn

Vehicle registration fees A flat fee by weight, by age, and by value

Motor vehicle sales tax These are not transportation specific funds.

VMT fees Distance based fees levied on vehicle users

Tolls Direct user fee charged for use of facility

Other sources Bonds, inspection fee, license fee, etc.

Local

Sales tax A fraction of sales tax is used to fund

transportation sector NA

Fuel and vehicle tax Fee collected for registering vehicles $3bn

General fund appr. State funds $37bn

Property tax Tax levied on land and buildings $12bn

Others taxes - $6bn

5

The federal, state and local governments have different mechanisms to finance transportation infrastructure

projects. As far as federal government is concerned, the major revenue sources to fund transportation projects are

federal motor fuel taxes, and other vehicle related taxes. In addition, a portion of the federal general fund may

also be diverted to the Highways Trust Fund to meet the revenue deficits. The state governments rely on state

motor fuel taxes, and vehicle taxes and fees for funding transportation projects. In addition, the state governments

also receive revenue from tolls and other sources. The most important revenue source of local governments is

sales tax. The sales tax covers a large fraction of the local budgetary allocations to transportation infrastructure.

The other revenue sources include fuel and vehicle taxes, general fund appropriation, property tax, and other local

taxes. Table 2 enlists the revenue sources and corresponding revenues in the year 2014.

2.2 Expenditure on Transportation Infrastructure

In the United States, federal, state and local governments invest significant fraction of the revenue for

developing transportation infrastructure. In 2014, the total public spending on transportation sector was $279bn.

The federal government’s share of public spending stood at $82 billion on transportation infrastructure, which

constituted 2.7% of total federal spending (Nathan and Petz, 2015). Out of this, 71% of the spending was utilized

for capital investment and remaining 29% was spent on operation and maintenance of existing transportation

infrastructure.

Figure 5 presents the allocation of federal spending for each of the four transportation sectors (highways,

mass transit and railways, civil aviation and water transportation). The federal share for highways was $46bn.

$15bn went to mass transit and railways and $16bn went to civil aviation sector. The water transportation sector

received $4bn in 2014.

Similarly, the state and local government spending in transportation sector in 2014 was $198bn, which was

much higher than the federal spending for the same (Figure 6). The states and localities allocated $118bn for

highways, $54bn for mass transit and railways, and $19bn for civil aviation. The share of water transportation was

$6bn. The state government directed most of the spending to highways, while local governments spent a

significant proportion on water infrastructure. Out of the total spending, 65% was used for operations and

maintenance, while 35% was allocated for capital investments.

46.08, 56%15.36, 19%

16.32, 20%

3.84, 5%

Federal Expenditure on Transportation Sector in $billions (2014)

Highways

Mass Transit and Railways

Civil Aviation

Water Transportation

Figure 5. Federal spending in Transportation Infrastructure in 2014

6

In addition, there are several transportation infrastructure projects in the United States, which are based on public

private partnership model. The total value of highway projects under construction or operational (Design-Build-

Finance-Operate-Maintain mode) in December 2015 was around $25bn (US Department of Transportation, 2016).

3 Comparison of Transportation Financing in India and the United States

The comparison of the transportation infrastructure spending in India and United States provided an insight into

the similarities and differences between both countries in terms of spending priorities. The following observations

are significant.

1. The public and private spending on transportation sector is much higher in the United States compared

to that of India. However, this could be explained based on the following facts.

a. U. S. is a developed economy, whereas India is an emerging economy. The budget constraints is an

important factor that determine transportation infrastructure funding.

b. U. S. is larger with respect to land area compared to India (India – 1.269 million mi2, U. S. – 3.797

million mi2). Hence, U. S. needs more infrastructure compared to India.

c. U. S. has a larger manufacturing sector, and hence larger investment is essential to meet the logistics

needs of the sector.

d. The cost of developing and maintaining infrastructure is higher in U. S. compared to that of India.

2. U. S. give significant emphasize on highways, whereas in India, both highway and railway sectors are

given equal importance.

3. In recent years, India has seen very significant rise in spending on infrastructure. However, in U. S.,

recent years saw fall in public spending on infrastructure.

118.4, 60%54.4, 27%

19.2, 10%6.4, 3%

State/Local Expenditure in Transportation Sector in $billions (2014)

Highways

Mass Transit and Railways

Civil Aviation

Water Transportation

Figure 6. State/local Spending in Transportation Infrastructure in 2014

7

References

Department of Economic Affairs, Government of India (2016). “List of Infrastructure Projects based on

Customized Search Parameters”. PricewaterCopers Private Limited. Web. [Accessed October 15, 2016].

URL <https://infrastructureindia.gov.in/search>

Government of India (2015). “Union Budget 2015-16: Total Expenditure of Ministries/Departments”. 9p.

[Accessed October 14, 2016] URL

<http://www.indiabudget.nic.in/budget2015-2016/ub2015-16/eb/stat02.pdf >

Musick, Nathan, and Amy Petz (2015). "Public Spending on Transportation and Water Infrastructure, 1956 to

2014", Congressional Budget Office, Congress of the United States. 37p. [Accessed October 14, 2016] URL

< https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/49910-Infrastructure.pdf>

United States Department of Transportation (2016). “Successful Practices for P3s – A Review of What Works

When Delivering Transportion via Public-Private Partnerships”. 74p. [Accessed October 14, 2016] URL

< https://www.transportation.gov/sites/dot.gov/files/docs/P3_Successful_Practices_Final_BAH.PDF>