Interesting thoughts, but we have to factor in a few things.
The costs you've highlighted might matter from a fiscal standpoint, but not necessarily as much from a monetary viewpoint. Most of our defence procurement involves imports, which is where the strength of the PKR in relation to USD, GBP and Euro matters. In turn, we'd need a strong export regime to keep our foreign currency stocks up (and in turn, give PKR real value). As that weakens, so does our procurement ability (unless we indigenize fully).
Basically, if you do manage to cut into the fiscal costs of the Army a bit, how much of an impact will that have from a monetary standpoint? Probably not much, at least relative to the potential loss of utility of cutting manpower.
One thing I'd like folks to think about is that while we might not have the means to 'modernize-to-ideal' every single soldier, how many would it take to actually make a difference in South Asia? So, let's say we retain our 600K army, if we invest in raising 100 K to top standards at all levels, could that force make a difference in our region?