When an app asks for permissions, the OS should not only let you answer yes or no. Every category should have a "yes, but feed the app fake data" option.

This is the way (non-ironic, non-meme statement). We are beyond being able to preserve privacy, the best we can do is feed them shit until they are no longer able to discern user data from complete garbage. Drown all the tracking data in a sea of irrelevant garbage. Make the algoritmh think you're an 11 year old PhD from Sentinel Island with a penchant for nordic paganism, that revels in discovering post-jazz and regularly eats fajitas at a cozy little place in Antarctica.

GrapheneOS does this- contacts and storage have scopes such that you can fake out the app into thinking it has access but really quarantine it to a specific folder. I use this for things like applications where I want it to have file access for photos, but only the photos I send to that folder.

I use e os, i think it breaks most apps trying to access too much and does not support the google services. sadly cant say if it feeds fake data or not

This is why I use TrackMeNot on desktop, but I'm not sure it's available for Android, though there's probably a workaround