The unwillingness of India to consider independence or cession of Jammu and Kashmir is unlikely to be an example of the sunk cost fallacy.
What is the sunk cost fallacy?
The sunk cost fallacy occurs when the agent relies upon already paid, or sunk, costs in their calculation to make that calculation rational.
Why India is not engaged in the sunk cost fallacy in Jammu & Kashmir
They need not rely upon past costs to make their calculation rational, because the costs and benefits of changing policy are indeterminate.
While there is no doubt that India is paying a steep cost for its policy of retaining Jammu and Kashmir, it is not at all obvious that changing policy will result in a future decrease in those costs that would be commensurate with the decrease in benefits. In fact, given that the networks for insurgency are well established, the militants who are currently attacking India might continue to do so, and might even be emboldened by success in forcing India to withdraw. Additionally, India would very probably pay an audience cost with the nationalists for abandoning an area they see as part of the Indian homeland as this other SE answer shows.
None of this is to say that cession of Jammu and Kashmir wouldn't be a preferred policy, only that the benefits and costs are relatively indeterminate, and consequently unlikely to rely primarily or solely upon the Sunk Cost Fallacy. Instead, there is more likely a status quo bias, based upon large uncertainties surrounding changes in course of action. Even if the government is calculating based upon uncertainty, they may still be using sunk cost fallacy argumentation in their rhetoric, and that would be an interesting addition, or separate answer.