hypothetically speaking
what would happen if India just let's Pakistan have Kashmir?
---- an immediate but brief period of bonhomie between the two countries. Trade and cooperation will pick up momentarily.
---- after a period of five years or so, some isolated incident/riot shall be held as proof of state atrocities against india's minorities by the pakistani media (media retaliation by jingoistic indian media to follow).....thus negating almost all the goodwill and trust among these two countries. However, commercial interests in both sides shall ensure trade continues at a satisfactory rate.
----another 5 years later - - after almost 3 decades peace in punjab, dissent among our sikh brothers shall be born, in action, almost overnight. what reamins to follow is anybody's guess. "Khalistan" shall be born again like a phoenix.
---- meanwhile 10 years down the start of the timeline, islamic fundamentalism, whose seeds were already sown in the millitancy days, will grow up to be a behemoth. It shall be similar on the lines of TTP (ISIS model for the kashmiris cant be ruled out, but its highly unlikely). only this time, they are more near to the borders of india. the way india is now hands tied situation in Azad Kashmir shall be the same with entire Kashmir then. Pakistan shall try washing its hands off the matter with the old rhetoric of "non state actor" BS.
---- 20 years down the line, indian politicians will wake up from their "pakistani honeymoon", take some concrete action regarding kashmir which will eventually flare up into a full fledged war ---- this war might be nuclear, or conventional (but the desperation by which the pakistani generals act when cornered is legen (wait for it)...daryyyy , hence dont get surprised if they begin to threaten IA with nukes from day 1). Alliances can only be guessed at this point of time. My guess is as good as yours. but my take on this shall be - china firmly on pakistan's side - diplomatically but shall refrain from active participation. russia on the other hand, may (i know its a big may), mite give pakistan some surplus bullets.
---- 25 years later - hopefully india regains the whole kashmir region (back to status quo) without a nuclear holocaust.
hence, after 25-30 years of blood shed, we shall be back to the same position, with not much of net result.
why go though the process , wasting money and men, when we have already achieved the requirment 3 decades after accepting ur proposal of giving kashmir to pakistan.