The Malaysian team chose to field experienced Jarno Trulli and Heikki Kovalainen in Sunday's Indian GP and termed the decision as "pragmatic" as it aims to finish 10th in the constructors' championship.
It means that Narain Karthikeyan, who races for Hispania, will be the only Indian driver in the inaugural F1 race in the country.
Chandhok, who is India's second Formula One driver, had joined the side as a reserve driver for the 2011 season but had a chance to race at German Grand Prix in place of Trulli.
Lotus are 10th in the team standings, ahead of Hispania and Virgin. All three teams are yet to score a point this season.
Lotus Team Principal Tony Fernandes said fielding an under-prepared Chandhok would not be in the interest of the side.
"While all the emotional reasons for him driving were right, we were conscious that the limited running he has had in the car this season, largely due to the weather conditions that have hit most of his FP1 sessions, has not given him the best preparation for this race. So we have taken the very difficult decision not to run him in this weekend," Fernandes said.