If you try and see how HACPL works, you will perhaps change your opinion
HACPL does not have a technical department (as if their products were not enough proof of it). What HACPL does is it studies market trends and sends them to Honda International, specifically, the Honda HQ in Japan. A team of Honda engineers and planners sits down and presents HACPL with fixed packages and options. Since many cars released within a gap of 2-3 years have interchangeable parts, there are many variations available internationally.
HACPL cannot just decide to put in a 1.2L. The car has to be studied and approved by the Japanese before it can even enter the production phase. My guess is, HACPL recommended a smaller engine size with a better tune or CVT, as Toyota Vitz and Passo sell like hot cakes in Pakistan.
Mind you, 89 bhp compared to the 84 bhp the 1.3 GLi used to give us before Yaris was a thing, does not feel underpowered. I understand where you are coming from, but if Honda planned to steal a market (although GM6 was too late for that) they were unsuccessful. Many people still drive 1.3 GLis and XLis and although City does not compare it terms of price, it definitely compares in terms of comfort and power. For someone who is going to keep a car for long and will mainly drive inside the City, 1.2 is a much better option than japanese econoboxes.
Honda pricing literally makes no sense. Totally feel you 
