During talks with US officials at the time of American Defence Secretary Chuck Hagel's recent visit, it was conveyed by India that it cannot go ahead with the deal due to the price hike asked for by the equipment manufacturer, Defence Ministry sources said here.
Till early 2013, the deal for the M777 howitzers was expected to cost India around Rs 3,600 crore but due to the delay in finalising the deal, the American side sought an increase of over Rs 300 crore in August last year.
The sources said the US side has conveyed that the production line of the howitzers has been closed down and India will have to pay for its reopening and the costs may escalate further if there are more delays in finalising the deal.
Under the procurement process, certain procedures have to be followed and it is difficult to justify a price hike in the middle of negotiations for the contract, they said.
Recently, Defence Minister Arun Jaitley had stated that the deal has not progressed due to issues over cost of the deal and offsets requirements.
"The case for procurement of the ULH guns through the US government has not progressed due to cost issues and because the vendor has not been able to come up with a proposal fully compliant to the offset requirements," he had said.
India and the US have been discussing the deal for the last several years to induct the howitzers into the Army, which has not bought a single artillery gun in the last 25 years.
The guns were planned to be bought from the US for deployment in high-altitude frontiers along with China and Pakistan and were also expected to be part of the newly raised 17 Mountain Strike Corps of the Army.
The Defence Acquisition Council (DAC) had in February asked the Army to review the plan for procurement of these guns in view of the increased price of the deal as the equipment manufacturers have hiked the cost of the proposed contract.
The offsets proposal offered by the US firm was also not in line with the DAC benchmark, the sources said.
The Army has been waiting for induction of a new artillery gun since 1980s after the Bofors gun scandal.
The Ordnance Factory Board and Defence Resarch and Development Organisation (DRDO) are also working towards developing indigenous guns for meeting the requirements of the Army.