Sweden's Defence Minister Peter Hultqvist met his Indian counterpart Manohar Parrikar here on Wednesday.
Delegates of both nations met for consultations during Hultqvist's four-day visit to India.
India and Sweden were in talks after a deal with French giant Dassault Aviation was scaled back.
Sweden's Saab has clawed its way back into the race to equip the Indian Air Force's ageing squadrons after Prime Minister Narendra Modi struck a pact to buy 36 French Rafale planes, instead of 126 originally planned, to cut costs.
Saab has offered to produce its single-engine Gripen plane locally under Modi's 'Make-in-India' programme, after an earlier version was passed over in favour of the French aircraft.
With India allowing up to 49 percent foreign participation in the defence sector, Sweden is looking at India as a manufacturing base, said an official.
Between 2010 and 2014, India was the world's top arms buyer, according to the Stockholm International Peace Research Institute, importing three times more weapons than China to equip a military for a two-front war including Pakistan.
As well as France and Sweden, the United States has been active in India, and was one of the top three arms suppliers in recent years in a challenge to Russia's traditional dominance.
But Modi has vowed to slash India's dependence on arms imports, saying it weakened its strategic autonomy, and vowed to build a domestic industrial arms base.
Hultqvist arrived in India on June 9. According to local media reports, the minister will also visit the Hindustan Aeronautics Limited and Bharat Electronics Limited units in southern city of Bengaluru.
Hultqvist's visit came soon after Indian President Pranab Mukhejee visited the country in May. During Mukherjee's tour, India and Sweden agreed to enhance bilateral trade that stands at USD 2.3 billion.
The two countries signed agreements for cooperation in the field of micro, small and medium enterprises, besides an agreement on visa exemption for diplomatic passport holders.
