It most definitely can, only out of necessity however, not because it’s a modern machine.
See the Pakistan-india theatre is much different from say Ukraine or something we’d think of in the west. It’s a game of numbers more than anything, the borders, especially deserts and plains are very tank friendly, and historically wars here have been More drawn out geographically.
In an ideal scenario the only MBTs serving in PA right now would be the 3rd Generation tanks, T80 and beyond, but the doctrine and terrain of both sides does not allow that. The Al-Zarrar is outdated, especially when it comes to protection, and that’s on top of the fact that PA still uses a good number of even older and even more hopelessly outdated Type 59s and Type 69s. But when you mention that the enemy uses modern ATGMs and AT weapons, you should also remember that they also use thousands of obsolete tanks. India has over 1000 T72M and M1s in service and reserve, don’t let the designation fool you, M1 means it’s the original tank from the 70s, they’re very basic much like our Type 59s, they’re not even equivalent to an Al-Zarrar (they probably have better protection, but the AZ is supposed to be like a glass cannon, it’s firepower and Combat range is on Par with tanks like T90S, it considerably outranges T72). Just like PA modernizes thousands of its older tanks, Type 59s and 85s, to keep them in service, so too does india, with its Combat Improved Ajeya Project where it modernized over 900 T72s.
In an ideal scenario, both countries would have retired these old machines over a decade ago, but once again, they need the numbers, if tomorrow Indian decides to downsize its tank fleet to modernize it faster, PA would happily follow suit, and Vice versa, but until one does it, the other can’t either, PAs tank fleet is already considerably smaller than IAs after all.
Where PA does make up is in its top-end, Indian T90S is only comparable to the older versions of the Al-Khalid, and even the Al-Zarrar can match it in firepower because IA has refused to upgrade its T90S with modern ammo, unlike the Al-Zarrar which can use the same ammo VT4 can.
Keep in mind, none of this makes the Al-Zarrar an objectively good tank, it’s still outdated, and to the crews that operate it, it is still a death trap if it gets hit by any modern AT weapon, even an RPG-7, that’s why I’ve always been a proponent of retiring and downsizing, but all the factors I mentioned above are basically the justification army planners can use to keep them in service on both sides.
That being said, the induction of modern ATGMs and Drones doesn’t mean tanks are going to become irrelevant, they’re more relevant than ever, especially in the indo-Pak region, however they most definitely need to evolve, hence the emphasis on APS systems from both sides recently. Moreover, it’s not a tanks job to fight UAVs and ATGMs, a tanks role is infantry support, it’s supposed to take out threats that the infantry might not be able to, meanwhile the infantry and Air-support and AD and artillery are supposed to make sure that tanks are kept safe from the things that they can’t engage, i.e. UAVs and ATGMs, that’s the entire idea behind combined arms warfare, whenever there’s An advancement that threatens one aspect of combined arms warfare, all the supporting elements must evolve accordingly to not let a single element fall behind, otherwise the entire system collapses.
India has more advanced and more numerous ATGMs than PA, that’s a fact, and PA can’t hope to counter that directly, it doesn’t have the funds, so the indirect counter is to train your troops and prepare your doctrine in such a way that you can use the advantages you do have to cover your deficiencies.
Also keep in mind that the atgm discussion isn’t limited To Al-Zarrar, any modern atgm would take out any PA tank just the same, VT-4, AK, AZ, they’re all one Top-Attack ATGM hit away from being dead, none of them have APS systems yet. Yes the crew might have a higher chance of surviving in the newer models, but even then it’s not a given. The same goes for the other side, no Indian tank is surviving a Hit from a TOW missile. Be it a T90 or a T72. That’s not the point, the point is to not get hit, the infantry has to make sure it’s tanks don’t get hit, the APS is a last resort if the infantry has failed to protect their tanks.
You can see this discussion can basically go on in circles if needed, each element has some deficiencies and some strengths that needs to be covered by the other, but to come back to yoir original question, yes, the Al-Zarrar is still useful. Should it still be in service? Absolutely not. But will it serve for another decade? Probably. PA is inducting VT4s as fast as it can to replace its legacy tanks, but with thousands of tanks to replace and a really weak economy, that’s not easy to do, hence you have to take stop-gap measures like upgrading AZs to keep them relevant until you can finally retire them.