The rapid integration of artificial intelligence (AI) into the global economy is catalyzing profound structural changes in employment opportunities, a phenomenon that holds particular significance for developing economies like India. As a nation characterized by a massive labor force and a heavy reliance on both the information technology service sector and the informal economy, India faces unique vulnerabilities and opportunities in the wake of algorithmic automation. This paper presents an economic study investigating how the increasing use of AI systems is reshaping sectoral employment dynamics, altering demand and supply curves for human capital, and redefining traditional paradigms of rational choice in the labor market. Drawing upon updated economic theories that account for computational intelligence, we propose a dynamic simulation methodology utilizing Markov Decision Processes (MDP) to model the complex transitions of workers between economic sectors. Because empirical longitudinal data on AI-driven displacement in India remains sparse, we outline a hypothetical evaluation plan designed to test various policy interventions, such as state-sponsored reskilling programs and targeted tax subsidies. The study explicitly integrates ethical considerations and the necessity of explainable AI to ensure that algorithmic labor management remains transparent and equitable. Ultimately, this paper provides a robust theoretical and methodological foundation for policymakers and economists to simulate, anticipate, and manage the macroeconomic shocks associated with AI, ensuring that India's demographic dividend is preserved rather than rendered obsolete by intelligent automation.By leveraging contemporary advances in artificial intelligence, it becomes possible to revisit and update traditional economic theories to account for algorithmic participation in marketudy of algorithmic agents requires updating classical theories like supply-demand, rational expectations, and mechanism design to incorporate the evolving role and impact of artificial intelligence on markets and decision-making processes(Marwala & Hurwitz, 2017).