Union Bank of India report highlights ₹16.24 lakh crore capex push in semiconductors, AI and defence

India's credit and capital expenditure demand is shifting toward strategic high-growth industries, with artificial intelligence, semiconductor assembly, battery storage, and defence manufacturing taking center stage over the next three to five years, according to research published by Union Bank of India.

The findings point to a structural transformation in domestic manufacturing, backed by robust public and private investments. The investment pipeline across the top three emerging sectors alone—artificial intelligence, semiconductors, and defence—is expected to reach approximately ₹16.24 lakh crore.

Investment pipeline in key sectors

This capital push aligns with India's broader push toward technology leadership and supply chain resilience. Financing demand is expanding rapidly beyond traditional infrastructure into advanced packaging and assembly of semiconductors, battery recycling, sodium-ion battery capacity, and specialized components for defence equipment.

Growth drivers across green energy and storage

The report highlights significant opportunities in green hydrogen projects backed by long-term buyer agreements, as well as data centers expanding into edge and colocation facilities to support artificial intelligence expansion.

India's renewable energy capacity stands at 288.6 GW as the nation progresses toward its national target of 500 GW by 2030. At the same time, the combined market for electric vehicles and battery storage is projected to grow from $34 billion to $113 billion by 2030.

Ten of the twelve emerging sectors identified in the study already possess established debt-financing channels. Renewable energy, critical minerals, green hydrogen, and chip manufacturing are well suited for project finance and development finance institutions. Electric vehicles and drone technologies are drawing robust support from non-banking financial companies and asset-backed lenders.

Managing long-term risks

While industrial momentum remains strong, the report notes specific structural considerations for lenders. Semiconductor manufacturing projects carry payback periods of five to eight years, while space sector developments require seven to ten years—durations that exceed traditional corporate loan cycles.

Artificial intelligence infrastructure faces tight technology refresh cycles, with advanced graphics processing unit clusters needing upgrades every 18 to 24 months. As a result, both space and AI initiatives remain predominantly equity-funded.

To keep pace with this national industrial expansion, the report advises commercial banks to build specialized lending capabilities for hydrogen, battery storage, data centers, and microelectronics, introducing tailored credit products such as milestone-linked disbursements, equipment leasing, and green loans.