Hello Sathwik,
You are quite right. I believe this is by design - Google now bundles Wi-Fi and Bluetooth scanning with GPS in the "location" permission. There's only one user-permission to enable location and it controls all these functions.
The Android argument is for user-privacy. An app with access to Wi-Fi scans can find the device's location from the list of BSSIDs: similar to GPS in this regard.
There's nothing I can do in the app to change this, unfortunately - if you want Wi-Fi scanning to work, you have to enable GPS.
Peter