He was speaking at a closing session of a two-day at the South Asia Diaspora Convention on Friday afternoon at Resorts World Sentosa to more than 300 members of the audience, comprising foreign delegates, academics and business leaders.
While he acknowledged that Singaporeans have concerns over the competition from talented foreigners, Mr Lee noted they also came to set up homes and be citizens of the country.
Emphasizing that more foreign talent would lead to better growth in the society, he reasoned that it would be insufficient for the country to depend solely on the talent of Singaporeans alone.
"And I am a firm believer that the more talent you have in a society, the better the society will grow. If Singapore depends on the talent they can produce out of 3 million people, it's not going to punch above its weight," he said.
If Singapore depends on the talent they can produce out of 3 million people, it's not going to punch above its weight Lee Kuan Yew
"It's because we have been drawing talent from across the globe, South Asia, Northeast Asia, China, India and beyond that -- you have a vibrant economy which is way beyond what three million Singaporeans with the talent they produce can do."
Mr Lee's comments were in response to a question posed by DBS Group Holdings chief executive officer Piyush Gupta, who asked for his views on how to better address the issue of foreigners coming into Singapore.
This, Gupta said, comes after the recent General Election (GE) where there has been "a lot of angst" on the role of foreign talent and the country's ability to absorb it in the future.
The issue was one of the key concerns for Singaporeans in the lead up to the May 7 election which saw the ruling People's Action Party (PAP) winning only 60.1 percent of the votes -- a historic low for the party since independence.
Although there had been some "discomfort" among Singaporeans over the unequal competition for jobs, Mr Lee said that this "cannot be helped" because without foreign talent, there will not be any jobs to begin with.
"So we welcome talent and will continue to welcome talent," he added.
He stressed the importance of considering whether the country prefers a slower growth rate with no input of talent or a faster growth with an inflow of talent, even though some of these top jobs are going to the foreigners.
This, he reiterated, is because there will not be any jobs if there is no growth.
The founding father of modern Singapore also replied disapprovingly when asked whether there are any demerits to meritocracy. "I do not accept that there are any disadvantages to meritocracy," he said.
"Let's remove the foreign element first. There's no better way to run the country than the best man for the most difficult job."
In the case of foreign talent, he said that one has to decide whether accepting them would increase the country's "megabytes" and increase the computer capacity or to reject them, which will then lead to a "slower working computer".
As to Singapore's context, he shared that the nation is successful because of its openness to foreigners.
During the dialogue -- which was moderated by Dean of the Lee Kuan Yew School of Public Policy, Professor Kishore Mahbubani -- Mr Lee also discussed on India-China relations, issues pertaining the growth of South India and the importance of good governance.