Addressing the nation from Red Fort, he said the 64-year old Planning Commission, a vestige of socialist era, would be soon replaced with a new institution to address the current economic challenges and strengthen the federal structure.
"We need a new body with a new soul... We will have to think about giving a new shape to the Planning Commission... Very soon this new institute will start working in place of Planning Commission," Modi said.
Seeking to integrate poor into formal banking channel, he announced 'Pradhan Mantri Jan Dhan Yojana' under which they will be provided a bank account with the facility of a debit card and a built-in insurance cover of Rs 1 lakh.
Modi invited the global business community to set up manufacturing facilities in India giving the slogan 'Come, Make in India'. He exhorted youth to become entrepreneurs and manufacture 'zero-defect' goods with a view to make the country a global export hub.
Announcing the abolition of Planning Commission, Modi said it was set up to cater to the needs of earlier times and has participated in its own way in the development of the country.
"The internal situation of the country has changed, global environment has changed.
Government is no longer the centre of economic development. Economy is much more broadbased now. State government is also a centre of development. I feel it is a good sign. If we have to take India forward, then states have to be taken forward," Modi said.
Justifying the need to replace the Commission, Modi said: "Sometime it becomes necessary to repair a house. It costs a lot of money. But it does not give us satisfaction. Then we feel it is better to make a new house".
The Prime Minister said: "We need an institution of creative thinking and for optimum utilisation of youth capability".
The Planning Commission was set up in March 1950 by India's first Prime Minister Jawaharlal Nehru to promote a rapid rise in the standard of living of the people by efficient exploitation of the resources of the country, increasing production and offering opportunities to all for employment in the service of the community.
Welcoming the decision, former Planning Commission member Bimal Jalan said: "It is very good idea. Planning has become outdated concept now. There is a need to modernise it. We have to see the blueprint of the new concept. But change was very much required".
Further Modi said India's young population have skill and talent which will help India in making the country a export hub of the world.
Asserting that focus on manufacturing sector would help in creating employment for people besides maintaining balance in exports and imports, he added.
"From ramparts of the Red Fort, I would like to call people of the world to 'come, make in India'. Come here and manufacture in India. Sell the products anywhere in the world but manufacture here...we have the power, come I am inviting you," he said.
Industry chambers too welcomed the announcements and said the Prime Minister gave clear signals to domestic and global investors to make India an international manufacturing and export hub.
Expressing the government's resolve to move towards the goal of 'Digital India', the Prime Minister underlined the need for using information technology to improve governance and spread education and medical facilities.