Addressing a meeting of intellectuals in Lucknow, Mr Shah drew parallel between the BJP and the Congress over who will be the next chief of the two parties.
He asked the audience that who will succeed Sonia Gandhi in the Congress, to which the people responded saying Rahul Gandhi.
He then posed the same question about the BJP. "Can anyone tell me who will be the next president of BJP?, No one knows. A person with nirmal charitra (pious character) will head the BJP. The president of BJP is not elected on the basis of dynasty, caste or religion, but on the basis of merit," Mr Shah said.
"Internal democracy provides an opportunity for talent to develop naturally. In the absence of internal democracy in any political party, it ends up being run by gharanas (families).
Among the 1,650 political parties in India, very few have internal democracy, and BJP is one of them," he said.
He said in the absence of internal democracy, a party cannot serve the purpose of democracy and incompetent heirs are chosen to head them.
"...Then these political parties become family-based or caste-based. Talent is not given any importance there, and talented people are sidelined. Parties like the SP and the BSP decide their waaris (heir). Sometimes there is a mistake in deciding the heir as well," the BJP chief said, apparently hinting at the falling out of SP patriarch Mulayam Singh Yadav and his son and former UP Chief Minister Akhilesh Yadav.
He said principles and development should also be two vital characteristics of a political party. "In absence of principles in a political party, casteism and family politics take over," Mr Shah said.
He said the BJP is a party which follows "cultural nationalism", both in letter and spirit, and also believes in Antyodaya - a model which touches all sections of the society, and aims to disseminating the benefits of development to the last strata of the society.
He claimed states without a BJP government have been "taken over by scams, corruption and dynasty politics.
Talking about Uttar Pradesh, he said the BJP will script history in terms of development. "Owing to financial indiscipline, a term Bimaru (laggard) states was coined in the 1980s for Madhya Pradesh, Bihar, Rajasthan and UP. Madhya Pradesh and Rajasthan have come out of the Bimaru bracket. Bihar had shed the tag, when we were in government. There were some roadblocks, but day before yesterday things have moved in the right direction.
"We want to promise that UP will be out of the Bimaru bracket in the next five years. I assure you that under the leadership of Yogi Adityanath, we will script a new story of development of UP and make it the best state," Mr Shah said.
He also claimed that the country's growth came down to 4.4 per cent under the previous Congress-led UPA government.
However, under the leadership of Prime Minister Narendra Modi, it went up to 7 per cent. Taking a jibe at former Prime Minister Manmohan Singh, the BJP chief said his government suffered from "policy paralysis".
"Every minister assumed himself to be the prime minister and no one considered him as the PM. Today under Narendra Modi, the BJP has completed three years in government, but even the rivals could not level allegations of corruption against us," Mr Shah said.
"Wherever the BJP forms the government, it works for the welfare of the people, is transparent and decisive," he said. Chief Minister Yogi Adityanath and his deputy Keshav Prasad Maurya also addressed the meeting.