NEW DELHI (Reuters) - India and France are speeding up negotiations on a US$10 billion (S$12.5 billion) deal for 126 Rafale aircraft following disagreements over the cost of building them in India, which caused months of delays, two Indian Defence Ministry officials told Reuters.

India started exclusive talks with French Dassault Aviation's Rafale for a 126-plane order in January 2012, over the competing Eurofighter Typhoon. The two sides still have to sign a final contract.

French President Francois Hollande discussed the deal with Indian Prime Minister Manmohan Singh on Thursday, the first day of a two-day visit to India.

"We've seen progress in these discussions and I'm hopeful that they will succeed," Mr Hollande said after the talks. Dr Singh said discussions on the sale were "progressing well".

The deal is being negotiated against the backdrop of the arrest of the chief executive of Italy's Finmeccanica this week after allegations kickbacks were paid during the sale of helicopters to India. India has suspended the deal pending investigation.

There were no immediate indications the fallout from the Finmeccanica investigation would affect the French deal.

Indian Defence Minister A.K. Antony said on Wednesday that the kickback allegations were likely to cause an "initial setback" to India's push to modernise its weaponry.