Because the $ 1 billion offer was fair and very cheap, but you're too ignorant about engine technology to understand it.
DRDO's engine tech has reached a good enough place that they feel the K10 specification should not need greater investment than what was planned earlier. New Indian materials from two sources will enter the testing phase sooner than France can offer the same type of tech through the deal. So they might very well wait for that. So either a solution has to be found for transfer of engine tech, or SAFRAN has to find a new way to fulfill the offsets obligation.
But what's disappointing is the flight testing of the original Kaveri K9 has stalled in the process. They should have delinked the two right from the start.
Anyway, I don't think it's 1B euro. It appears both SAFRAN and DRDO were supposed to invest 250M each, with SAFRAN's 250M coming in as offsets. And possibly, SAFRAN contributing 250M worth of technology that was already developed, so no actual financial investment was involved at the time. Which means the actual financial input for R&D came in from DRDO. But during negotiations, DRDO's investment practically doubled to 500M, and that killed the deal. I hope the flight testing for K9 is renewed in new negotations at the very least.
Also, with DRDO and IAF having delinked Kaveri entirely from both Mk1A and MWF, any further development of the fighter jet version will end, unless something changes really fast, at least with respect to MWF and perhaps even AMCA Mk1A. It's too late for LCA Mk1A.
So it appears SAFRAN will be forced to put actual money into India as an alternative in lieu of simply giving away to India what is essentially useless technology to the French.
Otoh, the DRDO-Rolls Royce deal will be much bigger for more advanced tech.
Don't worry. They did not live upto their promise and they will loose many orders for Rafale. No IN orders for them and even the IAF orders will be reduced from over 150 to just about 80. Four squadrons and that is it.
Won't be an issue. Many times companies have backtracked from their initial offer and changed it to something else later on, the Americans for example, Boeing was supposed to give us a trisonic wind tunnel as offsets and also a flying testbed, but decided to change it to just production orders.
Otoh, IAF doesn't care about these things, they only care about their operational requirements, so as long as SAFRAN finds some other way to meet their obligations, the IAF will push for more Rafales. And even with MRFA, unless the F-35 joins in, the Rafale has no competition. It's practically a shoo-in for both L1 and T1.