Modi's reference was to the Italian government's refusal to send back the two marines to India after they were allowed to travel to Italy to vote in elections.
The marines eventually returned to face trial in India after diplomatic negotiations and after the Supreme Court barred the Italian ambassador from leaving New Delhi.
Without taking his name, the Bharatiya Janata Party leader mocked at former external affairs minister SM Krishna who read out a part of his Portuguese counterpart's speech at the UN in February 2011.
"(This is why) people laugh at us."
Modi said trade relations today mattered in diplomacy and regretted that India had failed to give leadership even to the SAARC grouping on economic issues.
According to him, India was "a small soldier" in most international groupings and this needed to change. India, he said, needed a "proactive" foreign policy.