Speaking at the 10th Civil Services Day awards ceremony, Modi also called for a "spirit of healthy competition" among district administrations to foster an atmosphere conducive for positive change.
"Everyone wants to change life in the villages. So much of money is being spent on MGNREGA," the prime minister said, referring to the Mahatma Gandhi Rural Employment Guarantee Act.
"I know about the drought situation in the country. There is a shortage of water. But it is also true that a good monsoon is predicted.
"Why can't we use the MGNREGA money to run a campaign for harvesting water in the months of April, May and June?
"Why can't we do desilting, dig new ponds and clean canals and use these for water harvesting? This will help in making ends meet even if there is no rain," Modi said.
"Initiatives have succeeded when 'Jan Bhagidari' is embraced. Engaging with civil society is very important," he added.
The government on Tuesday conceded in the Supreme Court that 256 districts with a population of about 33 crore spread over 12 states were affected by drought.
Modi also said: "There should be healthy competition among the district administrations in the country in the discharge of duties.
"If their districts lag behind and don't get noticed for good work, then those heading them must ask themselves why."
The prime minister said the district administrations must try to win the trust of the people and be proactive.
"Only being an administrator and controller is not enough. Everybody at every level has to become an agent of change. Let us create an atmosphere where everyone can contribute. The energy of 125 crore Indians will take the nation ahead," he said.
The prime minister urged people to view every hurdle as an opportunity.
"Only those people will be able to prosper in life who don't get worn out and take every hurdle as an opportunity," said Modi.