Engineering is basically application of Physics and Mathematics. Removing these two subjects from the compulsory list and making it optional is like removing the foundation stone of a multistorey building. In engineering curriculum we already have three to four courses on Physics and Mathematics. If a student has to do a lot of Math courses in the first year itself, it will be an extra burden on the student. It will be like diverting the traffic from a less congested road to a more congested road.
Engineering is about application of Mathematics and Physics to real life practical problems. So in Engineering, a good college focuses more on application of these subjects for problem solving rather than just teaching these subjects.
All institutes like IIT's and NIT's currently have their exclusive entrance examination, which comprises of Physics, Chemistry and Mathematics. I have my own doubts on whether these premier institutions of national importance will even consider the thought of changing their selection criterion to suit the whims and fancies of the National Education Policy or the AICTE.
Earlier as well, we have seen that when the HRD ministry tried to dilute the IIT entrance examination, the IIT's refused to do so. So even if a student chooses subjects other than Physics and Mathematics as subjects for 12th Board exams, they will be forced to study these subjects to clear the entrance exams, which makes this change in approach by AICTE extremely surprising.
Going further, we even see that Physics is a compulsory subject for the NEET exam as well. This makes sense because with advancement of technology and interdisciplinary courses at higher level, the knowledge of Physics is mandatory. All modern equipments used in medical science are basically application of Physics, whether they are optical based or electromagnetic radiation based or any other such.
All said and done, this move by the AICTE will be forced by the academic fraternity to be re-visited and the AICTE will need to come up with a more practical solution to whatever (invisible) problem they seem to be facing with the current system and how they want the new approach to gel with the revised National Education Policy and the 5+3+3+4 system.