Drawing a distinction between political interference and intervention, he said while the former will "destroy" the system the latter is "necessary" and "inevitable".
Addressing civil servants, the Prime Minister said bureaucratic temperament and political interference are often talked about as obstacles in moving the democratic process forward.
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"In a democracy, bureaucracy and political intervention go hand in hand. This is the speciality of democracy. If we have to run this country, we do not require political interference. But political intervention is necessary and inevitable otherwise democracy will not work.
"Political intervention is required in democracy as legislators are elected by people. Political interference destroys (the system)," Modi said.
He said there is a need to remove words like obstacle and difficulty from within the bureaucratic system.
"One department is working but it is stopped somewhere. You will ask what has happened? It will say that is the bureaucratic way of functioning. Similarly if some work is stuck somewhere we say it is political interference," Modi said at the Civil Services Day function.
Emphasising on accountability and responsibility, Modi told the bureaucrats that every problem has a solution which has to be found out.
"Accountability, Responsibility and Transparency; this ART is essential for good governance," he said.