The problem as I see it is that India, going by past behavior, is not really interested in involving any of the other parties and resolving the issue - the policy on your side is essentially one of "keep developing and ignoring Pakistan and the Kashmiris demands for talks towards a final settlement and eventually the Kashmiris might fall in line".
In my view that is what India's plan is as well.
But Agno i dont see any flaws in that. You have seen, or if you have not, let me tell you. The indigenous population in the Kashmir militancy was sizeable in the beginning, now it is totally dependent on foreigners namely Pakistani's and Afghans. The number of local people have declined not just marginally but substantially. At one point of time, the entire Kashmir valley sympathized with the 'cause' or the struggle, and actively supported it, now the support for terrorists remains only in some pockets.
Initially, Pakistan only gave the spark to an very flammable situation. And i agree, India was not putting any money in Kashmir, and there were indeed genuine problems. Pakistan only gave the spark, the fodder you can say was our own. The situation was pretty volatile, with or without Pakistan.
But now, a very small portion of the local people support the insurgency, even fewer are actively involved in it.
Things have changed completely in the valley. This could be because the people are really tired of the militancy which has brought nothing but more and more problems for them, a desire for peace, or a better situation prevalent now.Reasons, whatever they maybe, but the facts are undisputable, the ones i have mentioned regarding the tapering off of the insurgency and the local support.
The insurgency NOW, is almost completely dependent on Pakistan, with very very little local content. The lifeline is in Pakistan's hands, the day they stop the support, it will die. Things are extremely favourable to India, there has been development in the rest of the country even during the pinnacle of the Kashmir insurgency, the country is far from being cash strapped as it was in the old socialist days, and money is actually being put in Kashmir for development.
The Army has put more and more sophisticated equipments in use their, with no small help from Israel. The govt is increasingly buying more and more technologies from Israel to monitor the LoC and Pakistan be it the LORROS or Aerostats, and more and more militants are dying-infact Hizb has almost been eliminated. The Army has been exclusively targetting commanders and high level members of Hizb-one of the Principle militant groups in the valley.
You tell me how are things wrong with all this from the Indian perspective? I think its a good strategy.