ASP.Net Core MVC needs <environmentVariables> in web.config to work

I am publishing my ASP.Net Core 3.1 MVC project to IIS. The project includes a web api controller along with mvc controllers. It generates a web.config file as below. Once published, the app shows the page but the web api doesn't work unless I add the < environmentVariables > pointing to Development. If I put Production instead, it doesn't work.

Web.config Generated

<?xml version="1.0" encoding="utf-8"?>
<configuration>
  <location path="." inheritInChildApplications="false">
    <system.webServer>
      <handlers>
        <add name="aspNetCore" path="*" verb="*" modules="AspNetCoreModuleV2" resourceType="Unspecified" />
      </handlers>
      <aspNetCore processPath=".\MyApp.exe" stdoutLogEnabled="false" stdoutLogFile=".\logs\stdout" hostingModel="inprocess" />
    </system.webServer>
  </location>
</configuration>

Web.config Modified:

<?xml version="1.0" encoding="utf-8"?>
<configuration>
  <location path="." inheritInChildApplications="false">
    <system.webServer>
      <handlers>
        <add name="aspNetCore" path="*" verb="*" modules="AspNetCoreModuleV2" resourceType="Unspecified" />
      </handlers>
      <aspNetCore processPath=".\MyApp.exe" stdoutLogEnabled="false" stdoutLogFile=".\logs\stdout" hostingModel="inprocess">
        <environmentVariables>
            <environmentVariable name="ASPNETCORE_ENVIRONMENT" value="Development" />
        </environmentVariables>
      </aspNetCore>   
    </system.webServer>
  </location>
</configuration>

Modified portion of web.config

<environmentVariables>
    <environmentVariable name="ASPNETCORE_ENVIRONMENT" value="Development" />
<environmentVariables>