The PM also inaugurated Air Odisha's flight connecting Ahmedabad with Diu under the Centre's regional connectivity scheme UDAN.
Modi also launched helicopter services between Daman and Diu - to be operated by Pawan Hans Ltd - at an event here.
"The air connectivity will boost tourism as tourists who want to visit the Somnath temple, Gir forest (in Gujarat) can now go (there) from Diu," Modi said.
Somnath temple and Gir forest are located around 80 km from Diu. Ahmedabad to Diu road journey takes 12 hours and the air connectivity cuts the travel time to just an hour.
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He announced a slew of development programmes for Diu and said VAT on diesel provided to fishermen have been cut to zero. "Daman and Diu have now joined the mainstream of development".
Praising cleanliness drive undertaken by the local administration, Modi said, "Daman has, in a way, become an attractive tourist destination with its cleanliness drive. If tourist inflow increases, jobs for locals will be created".
Modi praised the local administration for making Daman open defecation free (ODF) and initiatives like providing subsidised e-rickshaws to women and a housing scheme for industrial labourers under public private partnership (PPP).
Modi launched housing and food schemes for industrial labourers of this industrialised town.
The prime minister said labourers getting affordable food and shelter will work hard and help increase profit of their factory owners. "If labourers get these facilities, they will work hard and will increase your profit in one year".
He praised a programme launched by the administration to provide nutritious food to lactating women.
Modi said under the Centre's 'blue revolution' programme, the government is providing long-range fishing boats at subsidised rates and urged fishermen to take benefit of the scheme.
These included projects like sea-front development, lake and market redevelopment and beach-front development for which foundation stones were laid by the PM.
He inaugurated a redeveloped beach and a revamped bird sanctuary in Diu, a coastal town.
Beneficiaries of various welfare programmes of the Centre like PM Awas Yojana, PM Mudra Yojana, PM Jeevan Jyoti Yojana and Suraksha Beema Yojana were given kits at the event.
Projects like a heliport, water pipeline, a pedestrian bridge over the Daman Ganga river, a hostel for girls and a sports complex in Daman, among others, were also inaugurated by the prime minister.