The external affairs ministry also said that it was "knocking on all doors" and not just in Iraq to ensure the release of the Indian workers in Mosul.
The announcement followed a meeting Prime Minister Narendra Modi chaired on Iraq. In attendance were Home Minister Rajnath Singh, External Affairs Minister Sushma Swaraj and National Security Advisor Ajit Doval.
External affairs ministry spokesman Syed Akbaruddin told the media that the Iraq issue was "high priority" for the government.
"We are working with Iraqi authorities," he said, but underlined that the situation was not easy.
The spokesman confirmed that one of the Indians had escaped from custody but did not give his present whereabouts.
"No option off the table when lives of our nationals are involved," he said without elaborating.
He added that the land route to Mosul, one of the areas taken over by the Sunni insurgents, was "extremely difficult" and there was no air connectivity either.
"We are knocking on all doors... front doors and trap doors for freeing the 40 Indians. "Knocking on all doors does not just mean doors in Iraq."