"Unfolding Inflation-Unemployment relation in IndiaIndian economy is facing the twin problem of inflation and alarming unemploymentrates. According to Phillips and Keynes there exists inverse relationship between the rates ofthese two. However, history has experienced that there can be positive relation among them aswell. This has happened during the decades of 1971-1991, when US economy was facing supplyshocks in terms of increased oil prices, which resulted in the increase in cost of production,leading to decline in the output, employment and increase in the price level. Thus, it is not wrongto say that the relation between the rates of inflation and unemployment is dependent upon thetype of inflation existing in the economy or the policy makers wants to adopt to reduce theunemployment rates.If there is demand- pull inflation and economy is producing below fullemployment level, it will increase the output level and in turn the employment levelaccompanied with the increase in the price level. On the other hand, due to cost-push inflation, the aggregate supply will reduceaccompanied with increasing unemployment and price level. Thus, there is inverse relationshipbetween the inflation and unemployment rates in case of demand-pull inflation and positiverelation if there is cost-push inflation.Therefore, in order to understand the type of relation between the two in India, it is important tofirst scrutinize the nature of inflation existing in India. 12 million people enters India’sworkforce every year, this accompanied with increase in imported capital goods; both quantityand price. Further, increasing number of unskilled labor force leading to increasing marginalcost. These factors combine together and lead to cost push inflation. Along with it, due tomultifold increase in population, there is increase in the aggregate demand which should increasethe price level but reduce the unemployment rate. But this excess demand is accompanied withshortage of capital which leads to further increase in the price level and wipe out the excessdemand. Hence, the positive impact of the demand pull inflation is crowded out due to cost pushinflation. Thus, India is grappling with the high rates of unemployment and inflation. Even ifIndia accepts a higher inflation rate, it will not be able to reduce the unemployment rates in thecurrent scenario. It should be taken as a wakeup call to first encounter the factors leading to costpush inflation, so that excess demand can lead to increase in the output and reduction inunemployment rate. Thereafter, focus should be on the reduction of demand pull inflation afterachieving the full employment level of output. "