India Online Gaming Sector
India’s Online Gaming Sector has received renewed attention, with the Prime Minister’s recent engagement with seven of the top gamers in the country. The Prime Minister has the vision of establishing India as a prominent global gaming hub. The recent interaction also focussed on the nuanced distinction between skill gaming and gambling (game of chance). This holistic discussion could pave the way for a more conducive and forward-looking regulatory environment for India’s Online Gaming Sector.
What Online Gaming? What is the extent of India’s Online Gaming Sector?
Online Gaming- It refers to mobile games or video games that are played over the internet through various devices. It involves collaborative gameplay in which player connections are facilitated through internet.
Types of Online Games- There are several types of Online Games played in India.
Types of Online Games which are legal in India
a. E-sports- It includes organised electronic sports which include professional players. For ex- BGMI, PUBG, Call of Duty, Tekken 7, DOTA 2, and FIFA.
b. Fantasy Sports- This sports involves choosing real life sports players and win points based on players’ performance. For ex- Dream 11 and My Fantasy 11.
c. Skill Based- Skill based online games are based on mental skill set like Online Chess Games.
Types of Online Games which are illegal in India
a. Games of chance- These games are based on luck, such as roulette, blackjack, and craps.
b. Sports betting- This is the act of betting on the outcome of a sporting event.
Extent of India’s Online Gaming Industry
| Revenue of the Online Gaming Industry | India is one of the largest gaming markets in the world. The Indian gaming industry’s revenue stands at 3.1 billion dollars in the financial year 2023. |
| Growth of India’s Online Gaming Industry | The industry in India has expanded at 28% CAGR between FY20 and FY23. |
| Number of Online Gamers | According to a survey by the U.S.-based Limelight Networks conducted in 2019, India had the second-largest number of gamers after South Korea. |
| Projected size of Online Gaming Sector | The gaming Sector in India is projected to grow to ₹33,243 crore by FY28, with a sustained 15% CAGR. |
What is the significance of India’s Online Gaming Sector?
1. Enormous Growth Potential- The size of the global gaming industry has crossed $300 billion in 2021, which is more than the combined market size of the movie and music industry. With the Indian Online gaming revenue just constituting 1.1% of the global Online gaming revenue, there is enormous growth potential for its growth and development.
2. Goal of $1 trillion digital economy- The Indian online gaming industry is an important part of ‘India Techade‘ and provides a multi-billion opportunity for Indian start-ups. These tech startups will contribute to the goal of $1 trillion digital economy.
3. Connect with Local Culture- The increasing number of games based on Indian mythology provides an opportunity for the promotion of Indian Culture and engagement of Indian youth with their Cultural and Mythological traditions.
4. Gaming as a career- The evolution of gaming as a career opportunity will benefit India by providing a growing pool of talented individuals who will drive innovation and push boundaries in the gaming landscape.
What are the Government initiatives for the regulation of India’s Online gaming sector?
Regulations for Online Gaming in India
Legal Jurisdiction- Entry No. 34 of List II (State List), gives the state legislators the exclusive power to make laws relating to Gaming, Betting and Gambling.
Most Indian states regulate gaming on the basis of a distinction in law between ‘games of skill’ and ‘games of chance’. For ex- Meghalaya and Nagaland Legislations
Other Acts regulating Gaming in India
| Public Gambling Act, 1867 | The Public Gambling Act, 1867 is the central law governing gambling in all its forms. However, it is an old and ill-equipped law which is incapable to handle the challenges of digital casinos, online gambling and gaming. |
| The Lotteries Regulation Act, 1998 | The lottery is considered legal in India, provided that the lottery is organised by the state government and the place of Draw is in that particular state. |
| Foreign Exchange Management Act (FEMA), 1999 | Remittance of the income generated from lottery winning, and racing/riding is prohibited under FEMA Act,1999. |
SC Judgement on Game of Skill Vs Game of Chance
The Supreme Court of India in the State of Andhra Pradesh v. K. Satyanarayana & Ors. has ruled that games of skill are not gambling. However, the definition of a game of skill is still being debated.
The new Gaming Amendments to the Information Technology Rules, 2021, clarify that online games that are purely games of skill are not prohibited. However, it is still illegal to offer online games of chance for real money.
Recent Initiatives taken for regulation of Online Gaming in India
The below mentioned are the recent initiatives have been taken for the regulation of India’s online gaming sector.
| a. Establishment of the Animation, Visual Effects, Gaming, Comic and Extended Reality taskforce by Ministry of Information and Broadcasting for effective regulation of online gaming sector. b. The introduction of a series of regulations through the IT (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 which provide for self-regulation of online gaming. c. Clarification around the ambiguity concerning tax deduction at source on winnings. |
What are the Challenges with India’s Online Gaming Sector which necessitate regulation?
1. Gaming addiction- Gaming addiction has been destroying lives and devastating families. The Compulsive gaming by children is affecting their performance in schools and impacting their social lives & relationships with family members.
2. Negative Impact on Physical and Mental Health – The rise in online gaming has negatively impacted physical health by causing health challenges like insomnia, near-sightedness, obesity.
Also, the rise of these online games has brought mental illness issues, and have even driven individuals to commit suicide. World Health Organization (WHO) categorised gaming disorder as a mental health condition in 2018. For ex- Suicides due to Blue Whale Challenge Game.
3. Offshore gambling leading to tax evasion- Online Betting in India which is done through off-shore websites like Betaway, Bet365 and DafaBet, which are headquartered in tax havens like Malta, Cyprus and Gibraltar. For ex- India loses approximately $45 billion annually in potential taxation due to offshore gambling.
4. National Security and Money Laundering- According to Parliamentary Standing Committee on Finance, the online gaming sector has been a source of security concern and money laundering. For ex- Gaming app like ‘Dani Data‘ created by Chinese and ‘Mahadev‘ app were used as instruments for money laundering.
5. Threat to Data privacy- Inadvertent sharing of personal information have been leading to cases of cheating, privacy violations, abuse, and bullying.
6. Regulatory Ambiguity in distinction between Skill-Based Gaming and Gambling- Regulatory ambiguity regarding the lack of clear definitions between skill-based gaming and gambling has sparked ethical debates and diverse interpretations about the nature of these gaming activities. For ex- Online Ludo has created regulatory uncertainties.
7. High GST rates on Online gaming- The highest GST rate of 28% on the total face value of bets, regardless of skill based and luck based game, raises concerns about the industry’s sustainability in the long term and its consequential impact on jobs being created in this sector.
8. Ineffective implementation of IT Rules 2021- The IT rules 2021 provide for the establishment of self-regulating bodies by the gaming industry. However, the delay in their constitution has led to ineffective regulatory vigilance.
9. Challenges with State Bans- Despite some states attempt to ban online gaming, the enforcement of these bans has become difficult due to the cross-border nature of Internet.
What should be the Way Forward?
1. Creation of a Central Gaming Authority- The authority can be made responsible for the gaming industry, monitoring its operations, preventing societal issues, suitably classifying games of skill or chance, overseeing consumer protection, and combatting illegality and crime. For ex- UK’s centralized gaming authority.
2. Regulation of the online gaming hours for Children- India should work towards regulating gaming hours for children as in the case of China where children below 18 years are restricted to just three hours of online games per week. Also, OTP- mechanism which needs parents approval must be made mandatory for minor children.
3. Strengthening of KYC purchase norms- The KYC norms of the online games must be strengthened, and no purchases should be allowed without the consent of parents.
4. Self-regulation on part of the Gaming Industry- The gaming industry must establish self-regulating bodies as part of the IT rules 2021. This will help in enhancement of transparency in their operations and proper grievance redressal mechanism.
5. Prohibition of Offshore betting apps- The proposed Digital India Act can include offshore betting apps in the list of prohibited apps user harms to prevent harm to users.
6. User education and Awareness- The government and Gaming companies should proactively educate users about potential risks of online gaming and identification of the situations of cheating and abuse.
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