The Phillips Curve: Evolution and Relevance in Indian Policymaking

Abstract

Aims: This paper examines how the Phillips Curve has progressed while evaluating its usefulness for Indian economic analysis. The study bases its analysis on empirical studies and policy implications to establish a complete framework of the Phillips Curve's value for India's macroeconomic policy. Study Design: The paper brings in historical perspective, theoretical models, and empirical studies concerning the Phillips Curve in India and investigates the impacts of the main structural reforms and policy changes, such as economic liberalization, demonetization, and GST implementation. Place and Duration of Study: The study considers India's economic dynamics across different stages of time, including the early-to-mid 20th century and contemporary times. It examines vital changes in structure and policy alongside adjusting macroeconomic trends affecting inflation and employment trends. Methodology: The paper employs a systematic review of academic literature along with a comparative analysis of the evolution of the Philips Curve equation. The review adopts theoretical analysis to study the Phillips Curve while reviewing its historical developments vis-a-vis Indian economic scenarios. It also investigates how economic liberalization, demonetization and GST implementation affect the relationship between inflation and unemployment rates. Results: It was observed that multiple structural elements of the Indian economy such as the vast informal sector together with geographic inequalities and labor force shifts make the traditional Phillips Curve inconsistent. Major structural reforms in the economy have modified how inflation interacts with unemployment defying several macroeconomic fundamentals. Conclusion: To apply the Phillips Curve effectively for India requires extensive modification of its form. The RBI needs improved unemployment-inflation understanding as part of Flexible Inflation Targeting by examining wage responses across industries and production disturbances. Econometric methods at an advanced level should be employed to create superior economic models that will assist authorities in creating proper policies for India's evolving complex landscape.