A trilateral agreement on developing the Chabahar port, which will open up access to central Asia, was signed after a meeting Prime Minister Narendra Modi held in Iran with President Hassan Rouhani and Afghan president Ashraf Ghani.
After a ceremonial welcome this morning, PM Modi and the Iran President held talks at what was described by the foreign ministry as a restricted tete-a-tete. PM Modi will also hold talks with the country's supreme religious and political leader Ayatollah Khamenei.
Afghan president Ashraf Ghani the joined PM Modi and President Rouhani for the signing of the agreement on Chabahar, a strategic port in the Gulf of Oman on Iran's southern coast with Afghanistan.
The port in southeast Iran will allow India to bypass Pakistan to transport goods to Afghanistan and central Asia using a sea-land route.
India will help develop the port and invest in the first phase around $200 million to develop terminals and cargo berths at Chabahar. In the next phase, India plans to build a 500-km railway line between Chabahar and Zahedan.
Pakistan does not allow India to send goods through its territory to Afghanistan and has only recently begun to allow a trickle of Afghan exports to cross through to India.
India's move is also being seen as a balance to China's influence in Pakistan. India wants to develop the port as a counter to Pakistan's Gwadar port, which was built with Chinese assistance and is 72 km from Chabahar.
PM Modi's visit -- the first by Indian Prime Minister in 15 years -- comes four months after the sanctions on Iran were lifted and the international community is re-engaging with the nation.
Connectivity, energy security and bilateral trade are on top of PM Modi's agenda. He will also inaugurate an Indian cultural festival in Iran.
After arriving in Tehran last evening, the PM tweeted in Persian, "Reached Iran, a land with whom India shares civilisational ties. Hope to enhance economic partnership between our nations." On Sunday evening, PM Modi addressed the Indian community and visited a Gurdwara in Tehran.
Before the visit, India has cleared part of its $6.4 billion oil dues to Iran.