What the Scholar Says
The origins of Kashmiri are, like much else about Kashmir, mired in controversy (though in these matters, such controversies are not necessarily a bad thing). Perhaps one of the best ways to approach this question here (on a website which expects to acquaint the reader with Kashmiri literature, rather than linguistic controversies about the origins of the language) is to quote some of the scholarship on Kashmiri:
Braj B Kachru“…Kashmir provides a unique case of language convergence and language contacts, since it is surrounded by Sina (a Dardic language in the north, Tibeto-Burman languages (e-g Balti, Ladakhi in the east, Pahari and Punjabi dialects in the west, and Dogri and other Pahari dialects in the south. A non-native language, Indian or foreign, has always played an important role as the language of prestige and elitism; Sanskrit and Persian earlier served such a purpose, and subsequently Urdu, English, and Hindi, have done so. “ Braj B Kachru, Kashmiri Literature. For a more detailed account of the origins and linguistic affinity of Kashmir, please see pp. 4-7 of Braj B. Kachru, Kashmiri Literature.
Suniti Kumar Chatterjee: “As a language, Kashmiri, at least in its basic stratum, belongs to the Dardic Section of Aryan or Indo-Iranian. Possibly one section of the Aryans who came to India before 1000 B.C. and who spoke dialects very much like the language of the Rig-Veda but with certain special characteristics (which later gave rise to the Dardic branch of Aryan) became established in the valley of Kashmir, and in the surrounding mountainous tracts; and very early, possibly from after the Vedic Age, Brahmanical Aryans with their Indo-Aryan 'spoken' Sanskrit (and subsequently with the Prakrits) came and settled in Kashmir and other Himalayan areas. Following the Brahmans, the Buddhists also came to Kashmir, and Kashmir formed a part of the Maurya Empire of Asoka; and beyond Kashmir, speakers of the Indo-Aryan dialect from North-Western India settled round about what is now Khotan (Kustana in Sanskrit). In this way, Kashmir, inspite of a Dardic substratum in its people and in its speech, became a part of the Sanskritic culture world of India. The Indo-Aryan Prakrits and Apabhramsa from the Midland and from Northern Panjab profoundly modified the Dardic bases of Kashmiri, so that one might say that the Kashmiri language is a result of a very large over-laying of a Dardic base with Indo-Aryan elements.”
A good overview of a rather pointless linguistic controversy (except, of course, for the science of linguistics) by Omkar Nath Kaul: “There is no consensus of opinion regarding the origin or genealogical classification of Kashmiri. There are basically two schools of thought one places Kashmiri under the Dardic group of languages and the other places it under the Indo-Aryan group of languages. Grierson has placed Kashmiri under the 'Dardic or Pisacha' family of languages. He has classified the Dardic language under three major groups:
1. The Kafir Group,
2. The Khowar or Chitrali Group and
3. The Dard Group.
According to his classification the Dard Group includes Shina, Kashmiri, Kashtawari, Poguli, Siraji, Rambani, and Kohistani- the last comprising Garwi, Torwali and Maiya.
Grierson considered the Dardic language a subfamily of the Aryan languages "neither of Indian nor of Iranian origin, but (forming) a third branch of the Aryan stock, which separated from the parent stem after the branching forth of the original of the Indian languages, but before the Eranian language had developed all their peculiar characteristics". He has further observed that"Dardic" was only a geographical convention. Morgenstierne also places Kashmiri under the Dardic Group of languages along with Kashtawari and other dialects which are strongly influenced by Dogri. Fussman has based his work on Morgenstierne's classification. He has also emphasised that the Dardic is a geographic and not a linguistic expression. It is only in the absence of reliable comparative data about Dardic languages, a geographic or ethnographic label is frequently applied to a group of languages or dialects.
According to Chatterjee, Kashmiri has developed like other Indo-Aryan languages out of the Indo-European family of languages and is to be considered as a branch of Indo-Aryan like Hindi, Punjabi etc.
The classification of Dardic language has been reviewed in some works with different purposes in mind. Kachru laid stress on the linguistic characteristics of Kashmiri. Strand presents his observations on Kafir languages. Koul and Schmidt have reviewed the literature on the classification of Dardic languages and have investigated the linguistic characteristics or features of these languages with special references to Kashmiri and Shina. The classification of Kashmir under the Dardic group of languages needs further elaborate investigation.”