India is the world's second-most populous country behind China with 1.4 billion, and its population is set to surpass its East Asian neighbour by 2024, according to the United Nations.
"It is time to accept the challenges up front... population explosion. It will bring a lot of challenges for the future generations of this country," Modi said in an Independence Day speech in the capital New Delhi.
"We have to think if we can do justice to the aspirations of our children. There is a need to have greater discussion and awareness on population explosion."
The prime minister hailed an "informed section" of Indians who were already having smaller families as "playing a big role in doing good for the country".
India introduced forced sterilisations for men in the 1970s to limit its population growth, but was forced to abandon them due to widespread anger.
The government stopped setting official targets for sterilisations in 1996, but rights activists say the practice persists at a local level.
More than 1.9 million people, mostly women, were sterilised across India in 2017 and 2018, according to the government's National Health Mission.
Even as India battles stuttering growth and high unemployment, Modi said the "fundamentals of our economy are strong" and he was confident the South Asian giant would become a $5 trillion economy in five years.
"Today, the government in India is stable, policy regime is predictable... the world is eager to explore trade with India. We are working to keep prices under check and increase development," he added.
"It took us 70 years to become a $2 trillion economy. From 2014 to 2019, we became a $3 trillion economy. We added $1 trillion in just five years. Now we are looking forward to making the nation a $5 trillion economy."
He pledged to spend $1.4 trillion on infrastructure and $49 billion on a massive project to provide potable water to millions of Indians who lack access.
"India doesn't want just incremental progress," the Indian leader added.
"A high jump is needed, our thought process has to be expanded. We have to keep in mind global best practices and build good systems."