There was something critically wrong with Kaveri for it to be completely dissociated from LCA. CAG report says...
III Shortcomings in the engine developed
Despite incurring an expenditure of Rs 1,892 crore (Annexure-III) as of March 2010, the engine developed has many problems.
*The weight of Kaveri engine required to fly the LCA should not exceed 1100 Kg. The first assembled Kaveri K1 engine weighed around 1423.78 Kg. Therefore, GTRE embarked on a weight reduction plan as early as July 1993. However, due to delay in development of the component assemblies/modules, polymer composites, design and freezing, GTRE has not been able to achieve the derived weight in the engine and as of January 2009, the engine weighs 1235 Kg.
The weight is not an issue the Kaveri is built as an test bed so the products used on it are not meant for flight, when and as it is required the robust parts can be brought down to size. Many of the parts like the exterior cladding, metal hoses have all been made for lab test requirements and when and where the extra weight can be shaved off. Currently the Kaveri weighs 1250kgs.
* Certain critical and crucial activities for successful development of Kaveri, viz. development of Compressor, Turbine and Engine Control System, have been lagging behind despite increase in cost by Rs 186.61 crore.
This is old news, since then DMRL and GTRE have manufactured the single crystal blade technology for the compressor spools and other key components which have been manufactured and are under going testing in Russia. The winter in Russia is particularly harsh so they postponed the tests and the last i checked they restarted it.
* GTRE has been unable to freeze the design of the turbine blades, the compressor has witnessed mechanical failure in performance and the engine control system is not flight-worthy.
Again old news, the design is frozen and on testing phase in Russia.
Testing of the existing engines has also indicated short-comings. Various tests have to be undertaken at stages in order to test the different modules of the Kaveri engine for quality, efficiency and endurance. Audit found that critical tests for components have not been carried out owing to the absence of facilities. More significantly, tests carried out to evaluate the engine itself have revealed the following deficiencies:
Almost all the short coming on the above table are out dated news.
Yes the lack of facility is a worrying and also delays work, what do you expect in 300million USD when countries in the west shell out billions to merely improve efficiency.
Accepting the facts, the Ministry stated that delays in tests like EAT3, OAT4, PFRT5 and QT6 have increased the project cost quite substantially and that GTRE is putting all efforts to bridge the gap as early as possible. The Ministry added that the Altitude test on K8 engine is slated for 2009, however, FTB trials cannot commence till the performance of engine modules are proven to the desired level.
Again old news, its already on FTB trails in Russia.
So basically it was little more than a bench test tech demonstrator when it was cut from LCA.
How is it a bench test when it is on the FTB already? There is also an early model LCA which is kept in storage for the Kaveri to be tested on. Your knowledge is quite amateur about the engine. There is no need for demonstrators, the engine is meant to power the LCA, if the Chinese had an engine that even worked as well as the Kaveri they would have strapped it on already. The IAF requirement keeps increasing and they dont accept even if it falls short by a little. currently they want the F-414 thrust when the initial air staff requirement was F-404 like engine, same goes for the LCA.