Ever occured to you that it was out of need and not a favor? Since when did trade become a favor?
Let's not forget Malaysia, India halted trade relations with Malaysia because of their Kashmir opinion.
Either way, here are my points as to why the relations can't go further.
1. Modi Government is hell bent on confronting anyone who speaks on Kashmir.
2. They criticize Operation Peace Spring, and join hands with Armenia and Greece.
3. Historically, India's stance was similar, most prominent being the operation for TRNC (if you even know what that means).
4. Going even more back in history since you want to play the history card, Khilafat movement was used as a political tool to get more Muslims to support Congress and the non Muslim leaders. After abolishment, they were all in shock except Muslim league which kept opinion in favor of Turkish Republic, something to which Iqbal's book testifies.
5. Let's not forget the Indian public at large, the words they used for Turkey over Kashmir issue... it is obvious what Indians want, and it is for Turkey to keep quiet, and for that they will threaten, bribe with contracts, lobby, or do petty things with their diplomats in Ankara that I have seen.
6. Countries like Malaysia, trade relations broken off. Countries like China, India knows it can't break trade relations because trade is not a favor, it is a necessity, so they keep their mouth shut except the public.
7. Indians praise, upon praise, upon praise China for what they are doing in Xinjiang/East Turkistan to the Uighur Muslims.
8. Let's not forget the kind of humiliation Indians tried to do to the British and European politicians for trying to visit Kashmir. This is how India treats others.
9. Need more? There are many, many more. Not a dictation. I am only pointing out. Like I said, if Turkey can engage with Israel and have defence ties, they can also with India. The hurdle is your Government and your childish population.
Wveb Pakistan repeatedly expressed desire to build relations, and TALK on Kashmir issue. But your Government and people turned it down.