Take a look at history, India is fine with the status quo. That is, LOC as Border such a deal was close in the early 2000 but things took a wrong turn. India was always the defending force when Pakistan forcefully tried to change the status quo with military. Even in 71, no matter how you justify it, it was Pakistan who drew the first blood.
Speaking of proxy, no. Your claim is unsubstantiated. India cannot possibly drown Pakistan in debts, neither the terrorism inside your country is India's fault. This is similar situation like we had in North East. The internal insurgency is far away from Pakistan and similarly far away in case of India too.(BLA, TTP etc...) There may have been attempts to help these insurgents but India is not funding BLA. Instead, they are supported probably by Afghan Taliban, and Iranian groups (not the state). TTP again have deep links with AT after all they are their brethren. Claiming India supporting them is just a reaction on India's allegation of Pak support for terrorism in India. Which is substantiated by evidence.
No country in the world would encourage insurgency in it's territory. Should we not be paranoid about it? What logic is that? We will take whatever means necessary to crush the insurgents and ensure safety of the public.
India has had much worse situation in the 80's, Kashmir almost become uncontrollable. In comparison, the current situation in Kashmir is much much better. Did you know there was heavy insurgency in Jammu, forget Kashmir. Now look at the situation. The militancy is left to few districts of Kashmir.
So, do you think India thinks it can't control the state? And it's slipping? No, we have more control over it than ever.
Attack Pakistan how? Almost all Indian PM's except MMS in the past decade have tried and have gone out of their way to make a deal despite strong pressure against it. Every time such a peace deal is close, military would topple the situation. First, your military needs to let the civilian government decide it's foreign policy. Indian civilian leadership or any civilian leadership thinks to avoid conflict, only military leadership thinks of conflict to stay relevant. In India, military is way under the civilian government. Is it the case with Pakistan?
You need to stop pretending it's your military who can't stop thinking about conflict.
Pakistan is not a threat, it is an inconvenience for India, say like DPRK it's a weak, broken ideological state with Nuclear weapons. The only threats for India from Pakistan is Nuclear weapons, Terrorists and Terrorists with Nuclear weapons (if things go awry in Pakistan). That's the only reason world powers tolerate you, it is your nukes getting into the hands of terrorists.
For a cold war to happen you need to at least be compatible in terms of technology, military prowess, economic prowess and size. India dominates the region with geography, economy and population it's the reality you have to live with rather than trying to compete. And I'm enjoying this ride without worrying about some road bumps.