A grand welcome was accorded to him by the Bhutanese government which rolled out a red carpet and gave a ceremonial guard of honour to him.
Modi, accompanied by External Affairs Minister Sushma Swaraj, NSA Ajit Doval and Foreign Secretary Sujatha Singh, was received at the Paro airport by Bhutanese Prime Minister Tshering Tobgay and several of his Cabinet colleagues.
The Prime Minister drove down from Paro to Thimphu, a distance of about 50 kms, traversing through the picturesque mountainous ranges. Common people, including children, in colourful attire lined up most of the road between Paro and Thimphu, waving Indian and Bhutanese flags.
Soon after his arrival, Modi called on Bhutan's King Jigme Khesar Namgyel Wangchuk.
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Before embarking on the two-day visit, Modi said Bhutan was a "natural choice" as his first foreign destination because of the "unique and special relationship".
The fact that the Prime Minister chose Bhutan as his first foreign destination assumes significance since China has lately intensified efforts to woo it and establish full- fledged diplomatic ties with Thimphu.
In his pre-departure statement, Modi said relations with Bhutan will be a key foreign policy priority of his government.
"Our relations with Bhutan are unique and especially warm. Our historical and cultural linkages make us natural friends and partners," Foreign Secretary Singh told a press conference in Delhi.
"Bhutan is one of our most important strategic partners ....It is a very good country to show our policy of good neighbourliness in South Asia and special token of our friendship," she said explaining why Bhutan was chosen as the first foreign destination of Modi.
He will also address the joint session of the Parliament of Bhutan. He will also inaugurate one of India's assistance projects - the building of the Supreme Court of Bhutan.