A 38-year-old man from rural Maharashtra presents with a 6-month history of progressive back pain, constitutional symptoms (fever, night sweats, weight loss), and recent onset paraparesis. On examination, he has kyphotic deformity at the mid-thoracic spine and positive Lhermitte's sign. Plain radiographs show anterior vertebral body erosion with loss of disc space height at T6–T7. MRI reveals cord compression from granulation tissue and vertebral collapse. What is the most likely diagnosis and what is the primary pathophysiological mechanism of neurological deficit in this patient?