This research 'Economics of drought in India' is aimed at taking an overview of the drought in India during 1991-2003. The scope was limited to cover the impacts of drought on agriculture and livestock in the State of Orissa during 1991-2003. The desktop methodology was employed to undertake this research for which secondary data was used. The results show that 2002-2003 drought in Orissa effected agriculture by damaging crop production of 85 million tons. However, it was the livestock which was hit severely by the 1999-2003 droughts. The impact of drought on livestock indicates that 92 million cattle population was affected. The total economic loss to agriculture and livestock was estimated as US$ 31370 million (US$ 510 million loss to agriculture and US$ 30860 million to livestock subsectors). There were also some benefits accrued from this drought in the form of increase in number of tube wells, adoption of efficient irrigation technologies etc. However, monetary value of such benefits was difficult to estimate and may need separate research in future. The research proposes a number of recommendations for mitigation of drought such as Preventive measures by public sectors, preparation of drought mitigation strategies, institutional infrastructure, capacity building and timely emergency relief as a quick response to address immediate concerns (food grains, fodder and medicine for livestock, seed and fertilizers). The long term strategies suggested in this research include developing database, effective monitoring system, and financial, engineering, agronomical and social interventions to minimize the impacts of future droughts.