There is space for the homegrown fighters and the Rafale.
No doubt that the world's finest 4.5 gen fighter appeals to the IAF top brass more than the LCA (which appeals to them for other reasons ) and given it is their job to be in the best shape possible to secure India's skies there is nothing wrong in wanting the best.
There is a middle road between sacrificing capabilities and buying Indian, balancing both is what the MoD is looking to do (and always has been) similar to the IN's approach.
The finest bit is debatable since that depends on what suits what force best, but what is important is overkill in capabilities when there is no need for it. The IAF is looking for the latter whilst the government is actually being very sensible about it.