External Affairs Minister Sushma Swaraj received Mr Oli, accompanied by a 77-member delegation, at the airport, reflecting importance India attaches to the visit.
Mr Oli and Prime Minister Narendra Modi will hold extensive talks on a range of issues tomorrow following which both sides are expected to sign a number of pacts to step up cooperation in several key sectors.
It is expected that India will ask Nepal to complete the "unfinished task" of making the Constitution more inclusive to address the concerns of the Madhesi community which share close family and cultural ties with Indians.
Ties between the two countries had soured in the wake of agitation by the Madhesi community opposing Nepal's Constitution, saying it failed to address their concerns over representation and homeland.
The agitators had blocked the trading points for almost four months crippling supply of petroleum products, medicines and other commodities by India to that country. The blockade was lifted this month.
It is the first bilateral visit by a Nepalese Prime Minister after the trip by the then premier Baburam Bhattarai in October 2011. Mr Oli's predecessor Sushil Koirala had attended Mr Modi's swearing-in ceremony in May 2014.
"Welcoming our Northern guest. EAM @SushmaSwaraj receives Nepal's PM KP Sharma Oli on his State visit to India," External Affairs Ministry Spokesperson Vikas Swarup tweeted along with photographs of Ms Swaraj receiving him.
Mr Oli is accompanied by wife Radhika Shakya, Deputy Prime Minister and Foreign Minister Kamal Thapa, Finance Minister Bishnu Poudyal, Energy Minister Top Bahadur Rayamaji and Home Minister Shakti Basnet among others.
The Nepalese Prime Minister will stay at the Rashtrapati Bhavan.
PM Modi had paid a bilateral visit to Nepal in August 2014 which was the first such trip by an Indian Prime Minister to the neighbouring country in 17 years. PM Modi had gone to Nepal again in November 2014 for the SAARC Summit.
Ms Swaraj, Home Minister Rajnath Singh and Finance Minister Arun Jaitley will be among those who will call on the Nepalese Prime Minister. Oli will also call on President Pranab Mukherjee and Vice President Hamid Ansari.
He will visit Dehradun on Sunday to inspect the Tehri hydel power project and will return to New Delhi in the evening.
On Monday, he will address the Indian Council for World Affairs and attend a business meeting.
He will leave for Bhuj in Gujarat on Tuesday to have a first-hand experience of the earthquake reconstruction work there. Nepal was struck by a devastating quake in April last year and is currently in the process of carrying out reconstruction work.
The same day he will leave for Mumbai from Gujarat and will meet Maharashtra Governor. He will leave for Nepal from Mumbai on February 24.