PM Modi faces a raft of serious challenges in his second term in government.

Prime Minister Narendra Modi has hit back at critics of his government's decision to revoke Kashmir's autonomy, saying its special status had only led to terrorism and corruption.

The move will allow Jammu and Kashmir and Ladakh to play a meaningful role in India's development, PM Modi said in his address to the nation on Independence Day from New Delhi's 17th-century Red Fort, before turning to his ambitions for India to become a $5 trillion economy in the next five years.

"Those who supported Article 370, India is asking them -- if this was so important and life changing, why was this article not made permanent," said PM Modi, referring to the part of the constitution that gave Kashmir autonomy. "One Nation, One Constitution -- this spirit has become a reality and India is proud of that."

The constitutional change won't immediately alter the security situation in the Kashmir valley, but will allow the state to carry on with economic development rather than being "held hostage" by the state government in Srinagar, said Brahma Chellaney, professor of strategic studies at Center for Policy Research.

PM Modi faces a raft of serious challenges in his second term in government. He needs to bring back normalcy in the restive Kashmir region, create jobs, reduce hardship among millions of impoverished farmers, continue pushing welfare programs and revive India's slowing economy.

Water Program

He's been under pressure to boost growth after it slipped to a five-year low of 5.8% in the three months to March. Latest high frequency indicators show economic activity is subdued and a recovery is still distant, given a gloomy global outlook exacerbated by U.S.-China trade tensions.

The government plans to spend 3.5 trillion rupees ($49 billion) to bring piped water to households in coming years, PM Modi said Thursday, along with a 100 trillion rupee infrastructure program that was announced in the July budget.

"It is unfortunate, however, that so many people lack access to water even 70 years after independence," said PM Modi, noting half of Indian homes don't have drinking water.

New Position

He also announced a new position of Chief of Defence Staff, saying the move will "sharpen coordination" between the army, navy and air force services and pitched for simultaneous federal and state elections, as well as a national discussion on the country's population explosion.

"India was the only important military power lacking such a position," Mr Chellaney said. "It has been a long standing demand of the armed forces. Creating it is an essential first step to beginning the process of defense reforms."

In the general election that finished in May, PM Modi's Hindu nationalist Bharatiya Janata Party secured a landslide victory, making him the country's first premier to be re-elected with a majority since 1984.