Sweden’s Quest for a Foothold in India’s Defense Market
The global arms trade is a highly intricate and competitive landscape, where countries strive to secure lucrative defense contracts with nations seeking to bolster their military capabilities. In this complex web of arms exports and imports, India has emerged as a significant player. As one of the world’s leading arms importers, India’s quest for military self-sufficiency faces ongoing challenges, leaving the door open for Western arms suppliers. Sweden is one of the Western exporters with great interest in tapping into the Indian arms market, but a shaky arms history with India – combined with fierce competition – has made it difficult for Sweden’s ambitions to actualize.
The question is if Sweden and India can overcome these hurdles and if Sweden can expand its share of exports and local (Indian) manufacturing despite great competition. Do the evolving dynamics of India’s defense policy ambitions play into Sweden’s hands?
India’s Unquenchable Thirst for Arms
India’s insatiable appetite for arms is driven by its commitment to fortify its defense capabilities and originates from tensions with neighboring countries, namely Pakistan and China. According to SIPRI, India is one of the largest arms importers in the world with more than 80 percent of procurements between 2016 and 2020 being from foreign origin, despite its efforts to develop indigenous defense technologies through its ‘Make in India’ program. The country’s ambitions to design and manufacture its defense systems (in many cases through licensing with foreign partners) have encountered numerous roadblocks, resulting in a sustained dependence on foreign weaponry.
India’s attractiveness as a defense partner extends beyond its appetite for arms. Politically, India aligns with Western democracies, making it an attractive strategic ally. Its pivotal role in the Indo-Pacific region further enhances its appeal as a partner for Western countries. This shift towards closer cooperation is partly due to Western nations’ willingness to provide the technological support that India had been hesitant to embrace. In a discussion with the author on September 19, 2023, Seimon Wezeman, Senior Researcher with the SIPRI Arms Transfers Programme, argued that initiatives like ‘Make in India’ have also paved the way for collaboration with private companies, making it a more appealing option compared to India’s historically problematic state-owned enterprises.
Sweden’s Challenges in the Indian Arms Market
India and Sweden share a long history of diplomatic ties dating back to 1949 which has further been strengthened in recent years through defense and security agreements – with a recent India-Sweden Virtual Summit in March 2021 that highlighted the potential for increased collaboration in defense and security. Sweden’s position as the 15th largest arms exporter (2016-2020) offers multiple opportunities for collaboration, particularly in R&D, manufacturing, and share of technologies.
Nevertheless, Sweden’s attempts to enter the Indian arms market have been met with several challenges, as historical and ethical concerns continue to cast a shadow over the future potential of bilateral arms trade and manufacturing between India and Sweden. One significant hurdle is the lasting stigma from the Bofors Scandal in the mid-1980s, a scandal that was entwined with the Indian National Congress Party’s history of corruption and has to this day significantly impacted Sweden’s image and credibility in India. Ethical considerations are also at play: While Sweden adheres to UN embargoes and restrictions, it continues to export to countries embroiled in conflicts or disputes. With both India and Pakistan being clientele of Swedish arms, a critical voice not only locally but also institutionally has been present about Sweden’s role in supplying arms to both sides of regional conflicts.
The risk of diversion adds another layer of complexity. Indian exports sometimes find their way into the hands of unintended recipients, as demonstrated in the case of Myanmar, in which Swedish projectile fuses have been exported to Myanmar through India despite the EU’s arms embargo. The inconsistent enforcement of agreements and pledges exacerbates this issue, and these intricacies influence India’s willingness to procure Swedish weapons. Another complicating factor is India’s close defense ties with Russia, especially as technology transfers have been on the agenda for both parties. Albeit India aspires to diversify away from Russia in the coming years, their historically close partnership may cause Sweden’s security establishment to second guess their aspirations if India does not change course in that matter.
The competition in the Indian arms market is fierce as countries such as France, the UK, Russia, and the U.S. all have a big share of arms exports to India. In the aerospace sector where the Swedish Gripen aircraft tries to compete, strong contenders such as the French Rafale and the Russian Su-30 series are already well established in India’s arsenal, with the U.S. also seeking to complement the Indian Air Force with its portfolio of aircraft. Moreover, in naval and maritime defense, countries such as France and Russia are well established and have collaborated with India on a range of technologically advanced naval vessels and submarines, making it extremely difficult for Sweden to enter that market segment. Looking at the bigger picture, these countries have quantifiably larger and well-established arms industries with larger production capabilities, more extensive global market shares, and a stronger ability to provide cost-effective solutions, notably to a big defense spender such as India. This makes it difficult for a small country like Sweden to enter the market and compete for a market share.
The aerospace industry is a prime example of this as Sweden’s efforts to sell its Gripen fighter aircraft to India has faced various obstacles. Saab and the Adani group signed an MoU in 2017, wherein Saab expressed willingness to manufacture 96 of India’s requested 114 aircraft. However, Saab withdrew from the deal in early 2023, citing the non-renewal of the MoU in 2019 whilst highlighting the fierce competition in the aerospace market. India has also since 2017 opted for the French Rafale as the viable option for the Indian Air Force, as the French can produce on larger scale and at a lower cost whilst providing robust support on their aircraft on a scale that the Swedes cannot match, thus serving as a stark reminder of the competitive challenges Sweden faces in that sector. More importantly, the risk of the Gripen becoming less of an option is underlined by the fact that India is interested in its own 5th and even 6th generation fighter aircraft, and with Sweden’s potential participation in the GCAP (6th generation fighter) program remaining uncertain, the prospects for India are further constrained.
Is Sweden out of the Game?
Despite the competitive challenges in the aerospace sector, Sweden remains highly committed to establish itself in the Indian market and collaborate with Indian manufacturers to an extent that exceeds its biggest competitors, but the question remains how Sweden can overcome its current hurdles and challenges. A plausible avenue would be the prospects of establishing a joint production line between Swedish and Indian manufacturers, serving as an indirect accessway to the Indian market. With recent successive improvements in Sweden-India ties, particularly in defense collaboration as India’s Defense Minister Rajnath Singh actively invited Swedish defense majors to set up manufacturing bases in India in 2021, the actualization of such proposal would perhaps not be as far-fetched in the coming years.
However, for such an alternative approach to actualize, Indian manufacturers must become a more attractive alternative in terms of effectiveness and trust in joint development, which is something they have been historically lacking. Saab needs assurances from Indian companies like HAL (Hindustan Aeronautics Limited) that the risk of blame-shifting can be avoided. Furthermore, the heavy reliance on Russian equipment is an issue India is addressing and must overcome. As India continues to successively phase out their Russian assets, the Indian companies may be viewed as a more attractive alternative to Swedish manufacturers.
With that said, cooperation in the defense sector does exist between the parties, and bilateral relations between India and Sweden has been improving. An example of this would be the MoU inked between the Society of Indian Defense Manufacturers (SIDM) and the Swedish Security and Defense Industry (SOFF) in 2021, aiming to encourage and improve bilateral defense industrial relations. As a result, Swedish manufacturers have been gaining ground in terms of local manufacturing compared to their competitors by focusing on local production mainly for the Indian Army. Saab announced in 2022 that they will set up a manufacturing facility for the shoulder-launched weapon system Carl-Gustaf in India and planned to start production in 2024.
In accordance with this announcement, India announced on November 9, 2023, that the first 100% foreign direct investment (FDI) has been cleared in the defense sector and granted it to Saab, gaining them with permission to set up a new facility under the name Saab FFV India.
Furthermore, BAE Systems Hägglunds, one of the Swedish subsidiaries of the British arms, security, and aerospace company, has jointly with L&T signed an agreement to offer the BvS10 Articulated All-Terrain Vehicle (AATV) to the Indian armed forces, making the Swedish manufacturer one of the main bidders to enter the Indian market under the ‘Make in India’ program. Albeit a joint effort, it further emphasizes the optimism in terms of Swedish exports to the Indian market – and more importantly, indicates that Swedish and Indian collaboration in the arms industry is still a possibility.
In terms of the aerospace market, Sweden’s reputation for simplicity and affordability in its weapon systems is still viewed as compelling. The Gripen is renowned for its low maintenance costs and can provide a cost-effective solution for India long term. Sweden also offers export credit and government guarantees which further enhance its appeal. These mechanisms ensure that agreed-upon prices remain stable, even in the face of fluctuating market conditions. Brazil’s decision to select and continue to purchase the Gripen exemplifies the attractiveness of this option. Thus, even though Saab and Adani’s MoU deal never came into effect, the offer Saab has made is still on the table and the interest from Saab to enter the Indian market is still very present. And it will most likely continue to do so as the relationship between India and Sweden improves in the defense sector.