Kashmir issue

What are the points that India has in favour of retaining Kashmir? How do these match up with the points from Pakistan's perspective?

India's morality primarily comes from the fact that Jammu & Kashmir has a significant minority population that is threatened with a complete destruction if Indian army exits. 

This is where the comparison with Junagadh or Hyderabad ends. The Muslims of those two regions still exist and prosper in independent India. But, the same could not be said of the millions of Hindus who ended up in Pakistan. 

Sure, India is no utopia for the minorities and its record is not blemish free,  but its record is way better than its neighbor's. We know what happened to the Hindu population in Pakistan (A Hindu hell on earth: Families are being torn apart by their desperation to flee persecution in Pakistan) and thus they could not be trusted with the safety of Jammu & Kashmir's Hindus and Buddhists who form a sizable part in in the vast tracts of the state. Not just for Hindus, Christians and Buddhists, India is a better place even for the Muslims - both Shias and Sunnis in India live with a much less risk of sectarian violence than Pakistan. 

An independent Kashmir is also quite unlikely to hold up against the major powers of the region to protect its minorities. We already knew the carnage that happened to the minorities in 1947 when raiders from Pakistan attempted to invade the then independent nation (Indo-Pakistani War of 1947). The multicultural ethos of the state is more compatible with India than Pakistan.

 The dark green region below with mostly Muslims has already been taken over by Pakistan and Indian government doesn't have any goal to take it back. But, it will be a disaster for the locals if India chose to exit from the regions in brown or blue. 

The fact that in the recent elections, the state voted a nationalist Indian party with the most share of votes should tell how willing the minorities are in keeping the status quo. 

My morality comes from the fact that millions of them would die or be rendered homeless if Indian army exits Kashmir. Since it concerns with the lives of so many and we have a good picture of where Pakistan ended up and where it is heading to, Indian people are unlikely to agree to anything that would involve a transfer of present territory. If and when Pakistan builds a state conducive for its minorities to live and where its Hindus can live as well as India's Muslims, India might talk something serious. That day doesn't look likely.

Until then possible solution is to formalize the Line of Control with Pakistan holding on to the Northern Areas and western part of Kashmir, while India holding on to the valley, Jammu and Ladakh.