Dunno if I agree with this. He's still part of future plans, think it'd be naive to not think so. Still fairly young, talented, with international experience. On the other hand is it right to give a player a contract even if he can't meet fitness standards. Fitness is his own responsibility.
I would probably have had him included on the provision that he improves his fitness. The moment his fitness is deemed good enough and he passes the fitness tests, he gets the contract. Gives him something to strive for. If his fitness improves to the point where he passes the fitness test, difficult to argue he doesn't deserve a C contract given the names on that list.
We still have a lack of players like him in ODIs. In fact we have no mid/lower batsmen for the future, Hafeez and Malik on their last legs most likely. Sarfraz is good, but he needs support. He's one of the few hard hitting batsmen, who easily rotates strike, we don't have many players in that mold.
It's funny umar akmal used to be pretty fit, and was one of the best fielders (for a period considered the best) in our side.