Sort of, but not exactly for the same reasons and on a much minor scale. First off, the hundreds of thousand have to do less with Kashmir itself, rather they're there because Kashmir is the sour point between Pakistan and India and the focus of most wars between us. Armed separatism is a recent occurrence in Kashmir.
As far as the Indian government is concerned, Kashmir is an integral part of India. India doesn't see a need to settle with the Kashmiris. It's already settled that Kashmir is Indian territory. There is no need for peaceful resolution because the issue was resolved 70 years ago. Everything else is agression from other parties.
Then there is the issue of scale. Remove Pakistan from the equation and the Kashmir issue is diminished, the Kashmiri separatists have almost 0 bargaining power, and all the chips are in India's hands.
Quite simply, peace with Pakistan is a good thing to have down the road and might be benificial. Peace with Kashmir is an afterthought.