Advice on Baby Settlement visa or applying British passport

Hi
me and my wife both are on ILR.we have a baby girl born on 24-Dec-14 in India and have applied for her Indian Passport so that we can apply for baby settlement visa to UK.But came to know now that my baby is directly eligible for British passport without taking Indian passport.
Is there any chance now to surrender baby Indian passport and reapply for British passport?
What is the best route for her to get either settlement visa to UK by holding her Indian Passport or getting British Passport directly?
Do I have to pay Health Insurance Surcharge to my baby if i have to apply for settlement visa to UK by holding her Indian Passport?

Kindly help

But came to know now that my baby is directly eligible for British passport

No she is not. Who told you this? Only if baby was born in the UK would this be correct but as your baby was born in India, she is not automatically British.

You will need to apply for a settlement visa and pay the NHS surcharge (which will be refunded if not required)

Thank you very much

@CR001, given that they are both on ILR, can they not apply for registration at discretion under 3(1)?

Not if the baby is born in India. The baby will need entry clearance.

Besides, a child born abroad only qualifies for BC under 3(1) when one of the other parents is already BC or applying at the same time. Children born abroad are also generally required to hold ILR. A child settlement visa is usually ILE (indefinite leave to enter).

Try asking for a refund of the NHS surcharge if the baby is granted ILE.