I more or less agree with your point that the current versions of the JF-17 don't have much higher capabilities than the J-7PG they are replacing and they still have a long way to go before they truly become a 4th generation fighter jet. It is also a fact that the PAF urgently required fighter jets to replace their worn out legacy planes and so inducted the JF-17 as a matter of necessity.
But I do question the other part of your post. According to all of the articles I've read, the LCA Tejas was supposed to replace the MIGs as the main second line fighter bomber of the IAF. Not being able to induct them in a timely manner has led to the IAF's force levels falling to critical levels, and no less than the IAF chief has voiced concerns about this. The delay in the LCA Tejas has also forced the IAF to initiate the tender for large number of foreign single engined fighters to be built in India (these planes are also being lined up to replace the Migs). Now I don't think it is not illogical to think that if the LCA Tejas was available, the IAF could've saved the $20 billion that this new tender is expected to cost, and induct a much larger number of Dassault Rafales in its place.
So it seems like it wasn't only a matter of choice which led to the delay in the induction of the LCA Tejas into the IAF.