India knows they are in the wrong here, they have to send in a million troops to keep down a small pupulation of Muslims.
If India does the right thing they will gain so much more than a mountain area with villages.
They can negoiate a deal with Paksitan to normalize trade, gain access to central asia, have a better relationship with China, OIC, etc etc.
They will turn a money loosing venture that is Kashmire, into a .... cash cow.....(sorry, could not help myself)
But most importantly, they will lose that dagger that will always be facing their back.
Like it or not, Pakistan has in essence kept India in check. India can easily remove that dagger by simply giving up a mountainous land that does not produce any real value for it.