Urbanisation should be viewed as an opportunity and urban centres should be viewed as growth engines, he said launching the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), Smart Cities Mission, and Housing for All (Urban) here.
"Under these schemes we can go ahead and we can do it together (Centre and state). India is rapidly urbanising. Every year Hindustan gives birth to a small country," he said.
While 500 cities will be developed under AMRUT scheme, there would be 100 Smart Cities over five years and Housing for All aims construction of 2 crore houses in urban areas in the next seven years.
Smart City will be selected through a competition among cities while 500 cities are being identified under AMRUT.
Referring to Smart City, Modi said, "For the first time in India, a challenge was being floated, in which the citizens of urban India could contribute in the formulation of development visions of their cities."
Those cities which were able to competitively meet the required parameters would be developed as smart cities.
"This competitive mechanism would end the top-down approach, and lead to people-centric urban development," he said.
"These urban development schemes were not prepared by the Government alone, but involved perhaps the biggest consultation exercise ever taken by the Union Government, involving all stakeholders and examining global best practices," he said.
Stressing that all schemes for urban development should move forward based on people's participation, Modi said, "There is a lack of holistic vision about urban planning, and expansion is driven not by the administrators of a city, but by property developers.
"Through AMRUT, the aim of the Government is to give cities themselves the chance to plan their future growth," he said.
The Prime Minister said the people assembled for the function here had on them the collective responsibility for better quality of life for 40 percent of India's population that either lived in cities, or were dependent on cities for their livelihood.
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