"It (India) can make a big contribution if it opens up its economy, encourages foreign trade and investments, and participate actively in regional cooperation, for example through the East Asia Summit and the Regional Economic Comprehensive Partnership," Lee said addressing the annual Shangri-La Dialogue.
"The (Narendra) Modi government has set a new tone in India, and the (East Asian) region looks forward to deepening our partnership with India," Lee told defence chiefs from 26 nations at the meet organised by the International Institute for Security Studies (IISS) here.
Lee, however, stressed the need to balance the Asian region, especially a conflict-free South China Sea.
He called on China and the Association of South East Asian Nations (ASEAN) to conclude a Code of Conduct on the South China Sea and not let disputes sour the broader relationships.
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The territorial disputes in the South China Sea can be contained and managed, the Singaporean Prime Minister said.
Several countries and region like China, Taiwan, Vietnam and the Philippines lay claim to areas in the South China Sea.
"If a physical clash occurs, which escalates into wider tension or conflict, either by design or more likely by accident, that would be very bad. But even if we avoid a physical clash, if the outcome is determined on the basis of might, it will set a bad precedent," Lee said.
"It may not lead immediately to a hot conflict, but it will be an unhappier and less sustainable position. Because in the long run, a stable regional order cannot be maintained by force alone, but requires consent and legitimacy in the international community, together with a balance of power."
He said that China's rise has been peaceful so far, and within the established international order, and that the key to this continuing will be its relationship with the US.
"The US-China relationship is fundamentally different from the US-Soviet relationship of old. It is not a zero-sum game. There are some elements of competition, but many inter- dependencies and opportunities for mutual benefit," he said.
No country wants to choose sides between the US or China, Lee said.
"We are glad that both the US Administration and the Chinese government have engaged, worked together and managed the problems that have come up, despite nationalistic pressures on both sides, and inevitable tensions from time to time," he said.