Artificial intelligence, semiconductors and defence could together attract investments of about ₹16.24 lakh crore in India over the next three to five years, according to a Union Bank of India research report that identifies emerging technology and advanced manufacturing as major drivers of the next capital expenditure cycle.
The report projects indicative public and private investment of around ₹5.9 lakh crore in AI, ₹5.27 lakh crore in semiconductors and ₹5.07 lakh crore in defence.
It said traditional sectors such as steel, cement, automobiles and conventional manufacturing would continue to support investment activity, while newer industries including renewable energy, battery storage, data centres, electronics and advanced manufacturing are becoming large enough to create substantial lending opportunities for banks.
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AI, Semiconductors and Defence Lead Investment Pipeline
The report identifies AI, semiconductors and defence as the three largest emerging investment opportunities.
In semiconductors, financing demand is expected to extend beyond large fabrication facilities to advanced packaging and assembly. Opportunities are also expected in lithium iron phosphate and sodium-ion battery manufacturing, battery recycling, storage infrastructure and component suppliers serving defence companies.
Green hydrogen is another sector where banks could see lending opportunities, although the report said projects with assured offtake agreements are likely to be more attractive to lenders.
For banks, this would mean favouring projects with committed buyers and clearer future cash flows rather than those dependent on uncertain demand.
Data Centres and Battery Storage Could Create New Lending Demand
The report expects data-centre investment to expand as AI adoption increases.
Rather than remaining concentrated only in large hyperscale facilities, growth could extend to edge data centres and colocation facilities as AI inference moves closer to businesses and users.
Such facilities require significant upfront investment in land, power, cooling, servers and network infrastructure, potentially creating another source of financing demand.
Renewable energy and grid infrastructure are also expected to remain central to the investment cycle. India’s renewable energy capacity stood at 288.6 GW against a target of 500 GW by 2030.
The government has projected a requirement of 208 GWh of battery energy storage systems by 2030 as more renewable power is added to the grid.
The report also projects that India’s electric vehicle and battery storage market could expand from $34 billion to $113 billion by 2030, creating financing requirements across manufacturing, charging infrastructure, battery plants, recycling and supply chains.
Long Payback Periods and Technology Risks Remain Key Challenges
The report cautioned that many emerging sectors carry risks linked to rapid technological change, uncertain revenues, delayed payments and long investment payback periods.
Semiconductor projects typically have payback periods of five to eight years, while space projects can take seven to ten years, potentially creating a mismatch with conventional loan tenures.
AI infrastructure presents an additional challenge because GPU clusters may require upgrades every 18 to 24 months, affecting asset life and the economics of loans backed by such equipment.
Of the 12 emerging sectors examined, the report found identifiable debt-financing routes in 10. AI and space remain more dependent on equity funding because of technology risk and long repayment horizons.
Union Bank suggested that lenders develop specialised financing capabilities for sectors such as semiconductors, hydrogen, data centres and battery storage. It also recommended structures including milestone-linked disbursements, receivables financing, equipment leasing and green loans to better match funding with project cash flows and technology cycles.
About the author — Suvedita Nath is a science student with a growing interest in cybercrime and digital safety. She writes on online activity, cyber threats, and technology-driven risks. Her work focuses on clarity, accuracy, and public awareness.
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