Being locked in a Nash equilibrium is an interesting way to look at this. That perspective however is based on the idea that both parties (polluters and the entity responsible for controlling the pollution, say the government) are doing the best they can.
Without having experienced/researched it, it is not easy to appreciate the extent of apathy the governing structure in India exhibits towards its people. From the perspective of someone living in a developed country, its tempting to view this as a reasoned and logically approachable problem between different interest groups. That approach works well when the underlying institutions and the people embodying them are functioning well and functionally logically. When the people responsible for governing are simply not, well governing, then we don't need to go much further in unravelling why there is status quo. The status quo here is not because of a strategic/organic deadlock between two parties but rather because one of the parties is not doing its job.
Why isn't the government doing its job? I think it takes time for large democracies to come to age. I was talking about this to a friend who made the same point and asked me to read http://en.wikipedia.org/wiki/Gilded_Age#Politics to get a sense for life in the US during a similar stage of its economic development as India is in today. The section Politics is especially resonant.
In America the democratic governing institutions have had time to mature over 237 years. Even with its flaws, it is the best governance humanity has been able to achieve at scale. It has had its rite of passage, from the early days of Indian removal, slavery, the mexican war, expansion, the civil war and many other wars plus thing like Women's suffrage. Indian government is merely 66 years old. And its not starting afresh in a "new land". Its trying to govern huge masses of people whose separate histories go back a long long time. India needs to go through its rite of passage and I guess one of those alleys is full of shit.