Former defence minister, George Fernandes
"In early 1980s, the Indian Air Force carried out an evaluation of perceived threats and the likely battle scenario of the 1990s which highlighted the inadequacies of MiG Bis, the main stream aircraft of the Air Force. Consequently, the Ministry sanctioned in August 1983 the development of LCA class of aircraft to fill the gap in force level of the Air Force from 1995. The LCA was expected to enter into service in 1995 to replace MiG Bis that were scheduled to be phased out on the expiry of their life of 20 years/2400 hours."
Note that as of spring 2007, the LCA is still no where near deployment status. Consequently IAF pilots are still flying variants that were meant to be phased out a long time ago. IAF has also launched various mitigation projects that include upgrading some MIG-21s (designated MIG-21 UPG). However the majority of the MIG-21s still being flown are older variants.
"In March, India's Defence Ministry released figures showing that 54 MiG-21 fighter jets had crashed in the past seven years."
"If India builds the Bomb, we will eat grass or leaves, even go hungry. But we will get one of our own."
Pakistani president Zulfikar Ali Bhutto
India's foes are willing to go hungry to acquire offensive capabilities against her. On the other side IAF's need for replacing the Mig-21 has been highlighted without any action for well over two decades now. What has been lacking is the political will to execute that which is necessary. Some analysts estimate that India can replace all of its 400+ aging Mig-21s with a more modern aircraft by purchasing around 100-120 fighters at a cost of USD 9 Billion. IAF only needs 100-120 new fighers because these later generation planes are more capable. Defence experts believe one of the fighters can replace over three Mig-21s each. USD 9 Billion amounts to 38700 crore INR (2007, 1 USD=43 INR). A significant amount. But not impossible. For instance the latest Indian budget proposes boosting critical education spending by around 5000+ crore INR. This money will be raised by imposing a 1% cess on income tax. By these counts it will take a one time cess of 7% to finance this entire upgrade. The figure could be significantly lower as India's tax base increases because of its booming economy. There may be other reasons for not accelerating the replacement but financial constraints are not one of them. Not many Indian tax payers will object a one time increase of their tax bills from 100 to 107 Rupees if that means the nation is better defended.