My thinking is we lost interest in the deal as it may attract US sanctions.
Some major reasons that the deal can be dropped:
1. Not worth the sanctions list, unlike strategic requirement of S-400.
2. High price, even greater than Sig-716i. Original thinking was import expensive rifle, and manufacture another foreign rifle (under TOT) for non-frontline troops which is cheap but meets the requirements. However, it did not turn out to be cheap.
3. Little improvement of AK-203 over existing AKs.
4. Amethi plant was not producing any rifles till now. Their quality control can be difficult to judge. Worst case is that QC issues are similar to what RFI faced during late 90s during Insas induction.
4. Satisfactory performance of TAR (from OFB Trichy) in CAPFs.
5. The AK-203 deal was not part of any open tender. Hence, it can be challenged in court.
6. Realization that armed forces cannot be dependent on foreign rifles for the next 2 decades (at least), especially when big talk of Atmanirbhar Bharat and no import list is going on.
7. Shifting of economic priorities to Covid situation.