The long-delayed deal is part of a major modernisation programme being undertaken by India, which has become the biggest importer of military hardware among emerging nations as it enjoys rapid economic development.
"The defence secretary has agreed to the proposal put forward by French defence majors Dassault and Thales and (European group) MBDA for the Mirage-2000 retrofit," a source in the Indian Air Force (IAF) told AFP.
The upgrade of the French-built Mirage jets is expected to include advanced navigation systems, mission computers, electronic warfare systems and radar.
The process is likely to take nine years and will see two of the jets being re-fitted in France, said the source who declined to be named.
Other aircraft will be upgraded at the state-owned Hindustan Aeronautics base in Bangalore.
No confirmation of the deal was released by the Indian government, but a defence ministry official told AFP that the decision was cleared by the cabinet committee on security on Wednesday.
The overhaul of the fleet will add 20-25 years to the life of the Mirages, which were introduced to the Indian air force in the mid-1980s.
The deal had been frozen for five years due to differences over costs and the intended benefits to the IAF, which is also finalising a $12 billion deal to buy 126 new combat aircraft.
The IAF has argued that the Mirage upgrade was good value as it will transform the aircraft into cutting-edge combat planes.
"The history of Mirage shows that it is one of the most reliable multi-role fighter aircraft," Neeru Khatri, a defence analyst with international consultancy firm KPMG, told AFP.
"It was used very intelligently during the Kargil conflict with Pakistan (in 1999). It definitely makes sense to upgrade it and use it for the next two decades because it is not beyond economic repair."
India in February boosted military spending to Rs1.65 trillion ($36 billion) for the financial year to March 2012 from Rs1.47 trillion the previous year.
KPMG estimates New Delhi will hand out military contracts worth $112 billion by 2016.
"Refurbishing and upgrading of the current inventory is one of the most important strategic goals of the IAF," said Kapil Kak, additional director of New Delhi's Centre of Air Power Studies think-tank.
"India has never been in a worse situation as far as strength of its combat fleet is concerned. The new acquisitions and upgradations will transform the IAF beyond recognition in the next few years."
According to the Stockholm International Peace Research Institute, India over the last five years was the world's biggest importer of weapons, buying mostly from Russia.
The country is upgrading its million-plus military with hardware worth tens of billions of dollars because of its long-standing tensions with regional rivals China and Pakistan.
It has also been investing in homeland security since the 2008 attacks by gunmen which left 166 people killed in India's financial capital Mumbai.
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Fati re fati, Ya alla ab hum kya kare?
@Amjad ..With all due respect..Pakistan is just a nuisance to India. While for India,china is a threat so we have to maintain the status quo...
India is in a very awkward situation at present. Effectively, the world economy is run by two powers - USA and China. Both USA and China are on one side, giving huge amounts of latest military hardware to Pakistan, and that too absolutely free gifts. On the other hand, India has to pay for the military hardware, and ends up paying even more than other countries pay (example, Australia paid almost half to USA for the same military cargo planes that the USA has sold to India recently - why? Ask the Americans and the Indian stupid politicians). Then, both the Chinese and Pakistanis get together to needle India on the borders and arm and send terrorists into India to cause death inside India. The least that should be expected is that the USA wakes up and stops giving free military hardware to Pakistan; as that would cause some relief to India. Otherwise, India has no alternative but to stop all military purchases from USA completely. USA cannot expect that India will buy the same F-16 for billions of dollars that the USA gifts free to the Pakistanis in first place.
Shows you again who has started the arms race in South Asia- whether nuclear weapons or missiles or conventional weapons- it's always India but then they have the hypocrisy of blaming Pakistan.
@Bangash:
Pakistan spends 60% of its budget on Defence + Debt Servicing, India does'nt have such problems. What can you expect?
@Bangash: Wow! How d'u manage to live in such utter denial? No matter what Pakistan does, the balance is always in favour of India. Just ask your army man Asghar Khan or Roedad Khan.
India has already made a lot of struggle to improve her air defense capabilities by arranging billions of dollars expenditure . She has hundreds of old air crafts like mirage-2000,mig-21 mig-27 and others. She has already closed mig-25 fleet for ever and launched SU-30,mig29,35 and others Russian Air crafts. India now is taking different developing programme to increase the capabilities of her old air crafts strength and fleet capacity.I think India now is able to modernize old air crafts effectively by their own technology, engineers and devices or kits. A Primary School Teacher from Bangladesh.
This is why Indians oppose US aid to Pakistan, so that military balance remains in their favor.
Today Fastest attack is by air,so put all energy to upgrade airforce fighter plane, missiles against world levels.