Below normal monsoon rains have been responsible for the drought
More than a quarter of India's districts have been affected by drought, the country's finance minister Pranab Mukherjee has said.
But the minister insisted that the government had a contingency plan and said there was "no point in pressing the panic button."
Officials say that 161 of out of approximately 600 districts in India have been declared drought-affected.
Lower monsoon rainfall than normal is responsible for the drought.
Northern Bihar and Haryana are the worst affected states, reports say.
The deficient rainfall is likely to result in a 20% drop in the sowing of summer crops, Mr Mukherjee said.
"This country managed the century's worst drought in 1987. We transported drinking water through the railways. We organised fodder for the cattle," he said.
"This country has the experience of handling the situation and I will advise not to press the panic button".
Mr Mukherjee insisted that the economy would grow by more than 6% despite the drought.
Though many of the affected districts are not major crop-producing areas, the drought is likely to hit farm output and lead to food inflation, analysts say.
Reports say Prime Minister Manmohan Singh convened a meeting of state chief ministers on Monday to discuss food security in light of the drought.
The leader of a delegation of businessmen who met Mr Singh on Tuesday said the prime minister was confident of containing food inflation.
"He was quite confident that given the buffer stock, it would be able to handle the food inflation," Amit Mitra told reporters.
Monsoon rains are critical to India's farm prospects, which account for a sixth of its economic output.
Up to 70% of Indians are dependent on farm incomes, and about 60% of India's farms depend on rains. Irrigation networks are dismissed by critics as inadequate.
The summer rains are crucial to crops such as rice, soybean, sugarcane and cotton.