He was given a warm send off by Prime Minister Tshering Tobgay and several of his Cabinet colleagues at the Paro airport.
Modi drove from Thimphu to Paro airport, 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 Thimphu and Paro, waving Indian and Bhutanese flags.
The Prime Minister stopped at two places and interacted with children, inquiring about their names, schools and other things. He also posed for photographs with them. His motorcade also stopped at a busy market where he interacted with locals and posed for photos with them.
Modi was accompanied by External Affairs Minister Sushma Swaraj, NSA Ajit Doval and Foreign Secretary Sujatha Singh.
During his two-day visit, Modi called on Bhutan's King Jigme Khesar Namgyel Wangchuk and held talks with Prime Minister Tobgay. He also addressed the joint session of the Parliament. He inaugurated one of India's assistance projects - the building of the Supreme Court of Bhutan and laid foundation stone of the 600MW Kholongchu Hydro-electric project, a joint venture between India and Bhutan.
Wrapping up his visit, Modi declared India's commitment to good neighbourly relations and sent out a clear message that a "strong and prosperous" India can help smaller countries in the region.
Modi assured the Himalayan country that all the commitments made by earlier governments would be implemented by his government. He said that change in government will not alter the dynamics of Indo-Bhutan ties, as he vowed to further deepen the relationship through certain new proposals like organising joint sports events between Bhutan and India's northeastern states and setting up a Himalaya University for joint research.
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.