The Prime Minister 's Office (PMO) said the controversy was "unnecessary" as "there is no rule in KVIC that it's diary and calendar should have only Gandhiji's photo."
KVIC chairman V K Saxena defended the move, saying there is "no rule or tradition" that only Mahatma Gandhi's picture can be published on these items.
"The Mangalayaan effect," Congress vice president Rahul Gandhi tweeted, implying that Modi was trying to take credit for promotion of KVIC like he had allegedly done after India's spacecraft Mangalayaan landed on the Mars.
At the AICC briefing, party spokesman Abhishek Singhvi said "Gandhiji is too great to be replaced by any one".
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Sharply critical of Modi, he said while the RSS ideology killed Gandhiji, "a former RSS pracharak" has replaced him on diary and calendar of the KVIC on which the Mahatma has left a "unique stamp".
West Bengal Chief Minister Mamata Banerjee said, "The great symbol of 'charka' (wheel) and Mahatma Gandhi now gets replaced by Modi babu. In the calendar and diary of Khadi (KVIC) 2017, Modi replaced Mahatma Gandhiji. Gandhiji is the Father of the Nation. Modiji what???"
He demanded Saxena's sacking for the "tuglakhi' decision.
Reacting to the controversy, PMO sources said in the past also, there was no picture of Mahatma Gandhi on such KVIC material.
"In the calendars and diaries of 1996, 2002, 2005, 2011, 2012, 2013, 2016, there was no picture of Gandhi. So there is no question of Modi replacing Gandhiji's picture," the sources said.
The PMO said "Modi is an icon of the youth and the growing popularity of khadi in the world is testimony to this."
The PMO said the KVIC diary and calendar has photographs of Modi distributing charkha among poor women.