It will not work. There is an islamic angle to it. The Kashmiri sepratists are on ISI payroll, so when a moderate voice speaks up - he is eliminated. The govt has spent tons on money on the Kashmir vale (ignoring Ladhak & Punch/ Rajouri), to no effect. In 1989 the poverty ratio was 4% in J&K, when it was 26% in the rest of the country.One option is do put money on development of the Kashmir valley. Get in the good books of the Kashmiris and than extend the idea of an independent Kashmir (including Northern Areas and GB). This will cut-off Pakistan from China and also provide a much friendlier gas line through the Northern Areas.
In 1994 the retail price of sugar in India was Rs.14 per kg, while in POK it was (pak) Rs.32 per kg. The best part is that the people along the LOC in POK know about this. but it makes no difference. We are kafirs, they want to be with their muslim brothers.Do what US did with West germany. Let the people of Pakistan occupied Kashmir know what they are missing. This would keep them in our good books. Their source of income through tourism will be largely from India. Investment in Kashmir will be largely from India. They will be on our side as far as economics are concerned.