This is something I suggested to Durk as a solution to my view that the Republic becomes very powerful after forming the Popular Army.
A '36 infantry unit with poor stats would reflect the fact that the Popular Army suffered its shortages of equipment at it's formation, as well as the inherent problems of trying to reorganize a militia force into a regular army.
One other suggestion I have would be to limit the creation of armies for the Republicans in the months following the Popular Army decision. One army should be formable at the start of the game, and another following the Popular Army decision, with one more army being formable for each month that passes following the decision.
Right now it feels that the Republic merely has to hold on until it can create the Popular Army, at which point most of it's problems (poor troops and lack of leaders) simply disappear, and the arrival of the Internationalists swings the tide firmly against the Nationalists. The Italians, from what I've seen, tend to arrive too late to redress the balance for the Nationalists.