'We are surrounded by countries with uncontrolled outbreaks in poultry and birds,' federal Health secretary said in an interview Tuesday, referring to Myanmar and Bangladesh.
'And further, there is Vietnam and Indonesia,' he noted.
Indonesia and Vietnam -- both within a couple of hours flying distance from some Indian cities -- have reported human deaths from bird flu this year.
Indonesia says it has 83 confirmed bird flu deaths since 2003, the highest for any nation.
'Worldwide, human-to-human transmission is feared. We have to be able to tackle that if, God forbid, it starts,' Dayal said.
Globally, there have been more than 300 confirmed human cases of bird flu since 2003 due to the H5N1 strain and nearly 200 deaths, according to the World Health Organisation.
The H5N1 virus remains mainly a disease affecting birds, but experts worry it may mutate into a form easily transmitted from person to person.
India this month managed to contain an outbreak of bird flu in chickens in its remote Manipur state bordering Myanmar, which had two flare-ups in poultry in July alone.
India has stepped up vigil on its borders with Myanmar as well as Bangladesh, said Dayal, adding that New Delhi had offered to help its two neighbours fight the disease.
'We are willing to provide help to Bangladesh. It is also in our own interest,' he said, adding India was also ready to help Myanmar fight the virus if requested.
New Delhi has reported no human case from its three major outbreaks in poultry since 2006, but health officials are worried about its northeast region, which also borders China, where 16 human deaths have been reported since 2003.
Authorities are increasing the number of laboratories that can test for bird flu in humans.
Besides the three existing facilities, New Delhi will set up a new laboratory in Assam as well as Kolkata, Dayal said.
India has an emergency stock of 900,000 anti-viral Tamiflu tablets and has prevented its sale at retail outlets to ensure no one self-medicates and develops resistance to the drug.
Dayal said more 'regional response teams' were being trained to react quickly to deal with any suspected human cases, a crucial need in a densely populated country where the state medical infrastructure is overstretched and of poor quality.
'We will have to react fast but there is no need for panic,' he said.