Unemployment is a burning issue in India. In the post-reform period, employment had been more or less stagnant in the organized sector even though average annual growth rates of both GDP and value added of the organized sector at constant prices were quite high. Using a macro model that hopefully captures the salient features of the Indian economy, this paper suggests a way out. It derives the result that the larger the stock of infrastructure capital in the unorganized sector, the larger will be the levels of output and employment in both the sectors. It also shows that, if the government invests in infrastructure in the unorganized sector and finances it by taxing capitalists’ income, employment will go up significantly. The policy will also heap considerable benefits on the poor. However, if the government finances its investment expenditure by imposing indirect taxes, employment and output levels are likely to contract in both the sectors.