Two senior Indian defence officials told news agency Reuters that the two sides cannot agree on the unit price of the warplane. They are also wrangling over a condition that planemaker Dassault Aviation invest a large percentage of the value of the contract in India, through activities such as the sourcing of components for future French operations.
Modi announced in April that Delhi had ordered 36 ready-to-fly Rafale jets in a multi-billion-euro agreement, after three years of original negotiations to buy 126 planes from Dassault had been stalled over disagreements on cost and where the aircraft would be assembled.
India wanted the twin-engine fighters to be built by India’s state-run Hindustan Aeronautics in Bengaluru.
But the new negotiations have been bogged down over India's insistence on a lower unit price than the roughly 200 million dollars (180 million euros) each which was discussed with Dassault during the commercial talks, the defence officials told Reuters.
Since there is no production in India in the new arrangement, “the price that was on the table during the commercial talks cannot stand," said one of the officials.
Complicating matters further, the Indian Air Force has asked for technical modifications so the latest weapons can be fitted to the jets, the second defence official said.
India has launched a vast defence modernisation programme to keep up with its rival neighbours Pakistan and China.
Dassault last month delivered three Rafale fighter jets to Egypt, the first sold abroad in the 14 years it has been building the versatile but hard-to-sell plane. Qatar has also placed an order for the planes this year.
Meanwhile, France has agreed to compensate Moscow for cancelling the 1.2-billion-euro sale of two Mistral warships because of Russia's involvement in the Ukraine conflict.
French weekly Le Canard Enchaîné reported Wednesday that with additional expenses, the total cost to France will be 2 billion euros, and that Russian equipment and technology already installed on ships will need to be returned.
French media reported last week that Egypt and Saudi Arabia are interested in buying the warships.