The spirit of India is alive across Melbourne, Mr Modi told the 30,000 - mostly Indian diaspora - attendees at Melbourne's Marvel Stadium on Thursday night.
"The Indianness within you has always endured and been kept alive," he said.
Mr Modi pointed to community markets across Melbourne and Australia being alive with the colour and spirit of India.
"We Indians are like that - just as when sugar is added to milk, it makes the milk much sweeter," he said.
"The milk is bought from Australia, however the tea is made the Indian way."
Prime Minister Anthony Albanese joined the event, welcoming Mr Modi as "a very dear friend".
Mr Albanese also thanked the largely Indian diaspora crowd, saying about one million Australians can trace their roots back to India.
"Australians of all backgrounds have been enriched by you bringing your culture here and adding it to our multicultural character," he said.
Mr Albanese told the crowd he spent six weeks backpacking in India in 1991 where he experienced the generosity and warmth of its people.
"I learned there something very simple and clear … if you want to understand India, get on a train," he said.
Ranjai Raghu, who moved to Australia from India about 20 years ago compared the atmosphere in the stadium during Modi's visit to a cricket match, saying she felt opinions on Mr Modi among the diaspora were mostly positive.
"There's been a very big change in India and India's relationships with other countries during his term," she told AAP.
"We support that co-operation."
Mr Modi is due to depart Australia on Friday following a tour of the Melbourne Cricket Ground, were he and Mr Albanese will meet Cricket Australia and AFL heads.
Earlier in the trip the pair signed a swathe of deals, including to restart shipments of uranium from Australia to India, ending more than a decade of delays to regular shipments of the fuel.
Minerals Council of Australia chief executive Tania Constable said the deal represents an immense opportunity.
Ms Constable pointed to plans by India to expand its nuclear fleet, which she said meeting demand for by even half would double Australia's current uranium export volumes.
Victorian Premier Jacinta Allan opened Thursday evening's event, saying her state is home to more Indians than anywhere else in the world.
"Victoria respects India, we value your people," she said.
"We welcome your students, your businesses, your families, your ideas.
"In Victoria the Indian community is not just accepted, they are part of who we are."
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