Addressing an audience in the US through video conferencing, Modi said the country is being ruled by weak leaders.
"I know what damage it can cause, when rulers of a country are weak. You should look at the incidents of the past one month," Modi said.
"The biggest problem in the country is the lack of confidence. The actions of people in the top posts have resulted in erosion of trust. We have to bring back confidence in the system, the processes, intentions, policies and morality. This is the biggest challenge before the country," he said.
Modi, faced with a controversy over the communal riots of 2002 in Gujarat, said development should be "inclusive".
He also slammed the central government over its international policies, referring to the recent incursion of Chinese troops into Indian territory and the beheading of an Indian soldier by Pakistani soldiers.
"They (Pakistan) behead our soldiers, and after a few days, the prime minister of that country is treated with chicken biryani... Then China comes and knocks on our doors. I understand when China withdrew their soldiers, but did not understand why India withdrew its soldiers from its own land. This raises questions in the minds of common people," Modi said in his address to NRIs across several cities in the US on the occasion of Gujarat Day.
Modi has, in the past, been denied a visa to the US. Two months ago, his address at the Wharton India Economic Forum was cancelled.