By Sanjeev Miglani
NEW DELHI (Reuters) - India signed an inter-governmental agreement on Monday to buy 36 French-built Rafale fighter planes, but the leaders of both countries said there was still work to do to finalize financial terms after months of talks.
The deal, worth an estimated $9 billion, was to have been the centerpiece of a visit to India by French President Francois Hollande, invited as guest of honor for Tuesday's Republic Day parade.
But Hollande and his host, Narendra Modi, both said further talks were needed to finalize terms of the government-to-government deal, which the Indian prime minister had announced when he visited France last spring.
Hollande described the deal on Rafale as "a decisive step", adding: "There remain financial issues which will be sorted out in a couple of days."
Both leaders played up their interest in cooperation in the fight against international militant groups, with Hollande saying France and its allies would strike "again and again" against Islamic State.
"ISIS is provoking us in the worst possible way," Hollande said, citing the widely used acronym for Islamic State, which controls parts of Syria and Iraq, and was behind several attacks on Paris in November that killed 130 people.
Hollande also noted that French air force Rafales had proven their effectiveness in the ongoing campaign of air strikes against Islamic State.
Hollande and Modi stepped into the deal last year, ordering government-to-government talks after commercial negotiations with planemaker Dassault Aviation had collapsed.
The leaders agreed to scale back the original plan for 126 Rafale planes to just 36 in flyaway condition, to meet the Indian Air Force's urgent needs, as it faces an assertive China and long-time foe Pakistan.
The fighter deal is part of a $150 billion military overhaul that India has launched, drawing global arms makers into one of the world's biggest markets.
"France is a special friend. Eighteen years ago, France was the first country we signed a strategic partnership with. We are now here to take it higher," Modi said at a joint press conference following his talks with Hollande.
In other business, France's Alstom signed an agreement with Indian Railways to produce 800 locomotives.
Hollande said an agreement for France's Areva to build six nuclear reactors in India should be concluded within a year.
"From nuclear cooperation to railway locomotives, we are sowing the seeds of an ever-tightening web of cooperation between our two countries, " Modi said.
French companies will invest $10 billion in India over the next five years, chiefly in the industrial sector, Finance Minister Michel Sapin said earlier on Monday in New Delhi.
As part of the Rafale deal, there would be significant "offsets", or related French investments that Modi hopes will support his "Make in India" initiative to boost the manufacturing sector.
"The majority of these investments are meant for the industrial sector, which makes France the major player in Prime Minister Modi's 'Make in India' programme," Sapin said.
(Writing by Douglas Busvine; Editing by Nick Macfie)