I think the "delay" isn't really because they're changing some things to make it even more capable in light of Rafales becoming IAF's most capable fighter. I mean they are spending F-35 money to buy 36 and maybe another 36 after. This is solved by a few dozen ballistic and cruise missiles. I mean if it really came down to it, and there is simply no way to allow those Rafales to operate against Pakistan, even China could be obliged to provide Pakistan with some mach 10 projectiles onto those airfields. It's not like they're getting 360 Rafales to be located all over India.
The delay is partially due to covid slowdown and partially because it seems to be a lower priority for CAC developer. They may have fewer people available to be working on it while other projects are taking off, quite literally sometimes. I suspect block 3 is just adding some upgraded electronics avionics and the new AESA to be capable of the PL-10 and possibly PL-15. Overall block upgrades to everything else and that's it.
The delay from expected service may actually indicate how busy or understaffed CAC has been. We know there are UCAV projects there, J-20 upgrades, new engines and possibly TVC upgrades to be designed for J-20 and J-10. Definitely long started working on the next gen since one on the way out, one just in, one on the boards. Integrating Dark Sword UCAV with J-20? Twin seater? those hints are never too wrong. There may be pressing need for block 3 with more modern missiles and radar but I feel the block 3 project may take a backseat compared to the other stuff CAC is working on.
After all, Pakistan's sovereignty will not be taken by India. Worse comes to worst, China would not allow that. It'll be like the US letting Russia take land from Canada. Pakistan's military and existential security is also guaranteed by Pakistan's own nukes. Meanwhile the US has been HEATING things up with China while India and Pakistan are easing military tensions, albeit with J&K underlying issues unresolved.
Point is Pakistan has no genuine desperation even if it seems on the surface that Rafales will provide IAF with quite a capability boost. Then again, remember it's 36... not 360 and even that will take time to complete deliveries and training.