The Himalayan nation has enough water to be a hydro powerhouse but it has so far harnessed less than two percent of its hydro potential, according to estimates.
"Today's welcome in Nepal shows the affection the people of Nepal have towards the people of India", Modi told the gathering.
"India and Nepal are two nations who are tied by a history spanning eras".
Analysts say it is meant to counter China's influence with Nepal.
Hundreds of Nepalese have taken to social media calling on Modi to apologize for the five-month blockade, which was imposed in September 2015. Three helipads were constructed at the Janakpur Airport for landing of Modi's helicopter.
Later, Prime Minister Modi will be accorded a civic reception by the Janakpur Sub-Metropolitan City at Barhabigha ground. Modi spent around 45 minutes in the temple.
This worship ceremony - with sixteen ritualistic services including tantric mantra recitation - is carried out only by special guests at the Janaki Temple.
"Raja Janak and Raja Dasharatha did not just connect Ayodhya and Janapur but tied India and Nepal in bond of friendship". He said, "I am visiting Nepal at a very special time, when elections have been successfully conducted here at federal, provincial, and local levels. We have been there for each other in the most hard of times", said Modi, whose voice appeared hoarse apparently due to his hectic campaign for Karnataka assembly elections.
The Prime Minister flagged off the bus service after offering prayers at the Janaki temple, dedicated it to Hindu goddess Sita. The circuit itself is part of the "Swadesh Darshan Scheme", which proposes the development of 13 theme-based tourism circuits. The Ramayan Circuit is one among the 13 tourist circuits under the "Swadesh Darshan Scheme" of India.
On Saturday, Modi is slated to visit Muktinath.
Modi said India will build a railway link between Raxaul in Bihar and Kathmandu to facilitate people-to-people contact and movement of goods.
Before meeting the president, Prime Minister Modi called on Vice President Pun and discussed the issues of mutual interest. He said he would extend support to Prime Minister KP Sharma Oli's "Happy Nepali: Prosperous Nepal" campaign. That will be his next visit for the country as Prime Minister.
Project officials say they are in the final stages of agreement with the State Bank of India for investment of about 36 billion rupees ($535 million) for the Arun 3 project, with the rest coming from SJVN.