"Based on mutual contracts, the development of Chabahar (southeast) and its infrastructure, and allocating $500 million of credit from India in this regard, will be the cornerstone of this major action," Modi said at a televised news conference with Iranian President Hassan Rouhani.
"Undoubtedly, this deal will lead to economic progress and growth of the region," he said. "We are determined to make these contracts operational as soon as possible."
Afghan President Ashraf Ghani also flew in to Tehran on Monday for the signing of a tripartite agreement between Iran, India and his country to turn Chabahar into a transit hub between the three countries, bypassing Pakistan.
Rouhani said Iran and India had decided to transform their trading links to the level of "comprehensive economic relations".
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He and Modi witnessed the signing of 12 memorandums of understanding, two of them on Chabahar port, on the Gulf of Oman.
They include a deal between Iran's Maritime and Ports Organisation and India's EXIM bank to work out the details of a line of credit to develop Chabahar.
"With India's investment in the development and equipping of Chabahar port and also the credits intended from this country for Chabahar, this port can turn into a great symbol of cooperation between Iran and India," Rouhani said.
Modi arrived in Iran on Sunday on a visit aimed at boosting trade following the lifting of international sanctions under Tehran's nuclear deal with world powers.
He is also set to meet the Islamic republic's supreme leader, Ayatollah Ali Khamenei.