Online gaming in India: Experts explain financial, legal and social impacts of a booming industry

By 2025, India's online gaming industry income is predicted to reach $3.5 billion, but the industry's success will depend on the capacity to create a secure and transparent environment for all stakeholders

Online gaming in India has seen phenomenal growth in recent years, and this trend is expected to continue. In FY 2021, India had 433 million online gaming users, resulting in revenues of Rs 136 billion ($1.6 bn), according to a report by KPMG. By 2025, the number of users is anticipated to increase to 657 million, with revenues of Rs 290 billion ($3.5 bn), the report stated.

The government has endorsed the recommendation of experts to establish a centralised regulatory body and legislative framework for online gambling to assure player protection and confidence in the industry. The Ministry of Electronics and Information Technology set up a task force to make recommendations on how to regulate the online gaming industry in India. A comprehensive and supporting regulatory framework can be expected in the coming months once the government gives final clearance to the task force’s findings.

The growing popularity of online gaming
People turned to online gaming in greater numbers as a source of entertainment during the COVID-19 lockdown. Additionally, the affordability of high-speed internet, increased smartphone penetration, a rise in the use of digital payments, and a generation raised on technology have contributed significantly to the increase in the number of individuals playing online games in India.

CEO of Gamitronics, Rajat Ojha said “I think gaming has evolved immensely and during the pandemic time all the more, because people, were not socialising in person, they were socializing within games. And that’s one of the reasons why you see a lot of PUBG night kind of thing, and then the whole boom of the metaverse also in the same space. So, people defined new ways to connect. It actually opened a lot of new avenues and experiments and a lot of new markets.”

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Are online games gambling?
Gambling and gaming have a lot of common ground. In contexts related to gambling, the terms “gaming” and “gambling” are often used interchangeably. Elements of gambling can be found in a variety of online games, and the reverse is also true. In India, the legality of online gaming is still unclear.

Gambling vs online games: What rules apply in India?

In India, gambling falls under the jurisdiction of the state, as specified in List-II of the Seventh Schedule of the Constitution. It means that only the states have the authority to enact laws governing gambling operations inside their respective territories. In India, gambling is legal in Goa, Daman, and Sikkim. The Public Gambling Act of 1867, a central law that governs gaming in the country, forbids all games of chance except for lotteries and games of skill.

However, the definition of a “game of skill” remains unclear. Because of the various state laws that govern online gambling in India, determining which online games are skill games or gambling can be difficult and confusing. While betting and gambling are included in the state list, there is no mention of “online gaming” in any of the lists. The law that governs gambling in the country was enacted in 1867; it makes no reference to online gambling because the Internet did not exist at the time.

Advocate Dr. Mahendra Limaye said, “There has been a long debate on the distinction between online skill gaming formats like online fantasy sports and online rummy on the one hand and games of chance such as betting and gambling on the other. Judicial intervention has been able to delineate the two activities as completely distinct. As early as in 1957, the Supreme Court of India held that competitions that require a preponderance of skill to be successful are not gambling activities.”

“Thereafter, in multiple judgements over the years on rummy and online fantasy sports, the Supreme Court of India has reiterated this view in favour of online skill gaming platforms, categorically stating that they are a legitimate business activity protected as a fundamental right under Article 19 (1) (g) of the Constitution of India. Various High Courts across multiple states have time and again held the same view.”

India’s online gaming scenario
The growth of the online gaming sector in India coincides with growing concerns about games’ potential to cause addiction, risks of financial fraud and affecting business activities by varying state regulations. Additionally, tax officials think that online gaming companies have avoided paying a lot of taxes in the past few years.

In what seems to be a major crackdown on possible tax evasion, the IT department recently sent “show cause” letters to seven online gaming companies, as well as about three dozen high-value players active on those gaming platforms.

Need for government-backed regulatory body?
The government is reportedly looking into the possibility of establishing a national online gambling regulatory framework, as reported by The Economic Times. The new regulatory framework will clearly define what games of skill and chance and will apply to both free-to-play and pay-to-play skill games.

This would standardise the diverse state and local rules that currently govern this business. Additionally, the central regulator would have the authority to shut unregistered gaming platforms and implement mandatory get to know your customer (KYC) authentication for participants to protect minors, the report added.

In another major move, the ministry of information and broadcasting recently asked private TV channels, digital news publishers, and OTT platforms to stop showing ads for online betting sites and surrogate ads. The ministry stated in a recent advisory that such sites pose major financial and socioeconomic dangers to users, particularly children and adolescents.

Shaping the economy
The booming, multibillion-dollar gaming industry can benefit the economy in addition to providing entertainment and thrills. Online gaming is becoming an opportunity to meet new people, gain a sense of community, and find meaningful employment.

Here’s a look at some of the advantages of online gaming

  • High earnings through tax
    The government stands to gain a substantial amount of money by taxing gaming, and with improved laws, it can control a vast, unreported sector. Such a windfall could completely revamp India’s economy, and it would be easy for the government to put those funds to good use across the board.
    Online gaming is subject to two different rates of GST taxation in India. A 28 per cent GST is levied on games of chance (betting and gambling), while games of skill (not including betting or gambling) attract an 18 per cent GST.
  • Job creation
    Due to the vast selection of games, a substantial sector has sprung up to support the growth of the online gaming infrastructure. This includes game publishers, payment solution providers, smartphone makers, and network service providers. As a result, this may create additional job opportunities and reduce the unemployment rate.
  • Boosting advertising revenues
    According to a report by KPMG, the casual gaming industry’s ad revenues amounted to Rs 3600 crore in FY21, making up 60 per cent of casual gaming revenues, and are forecasted to increase at a CAGR of 29 per cent to Rs 9900 crore in FY 2025
  • Revenues from subscriptions
    With the arrival of 5G and cloud-based gaming, which are supplementary to such models, subscription-based models may acquire market share in the mobile-based casual gaming industries worldwide and in India. The revenue stream from a successful subscription model is more reliable than that from advertising.

The downside of online gaming

Even though online gaming can be entertaining and lucrative, it also has potential drawbacks.

Dr. Nimesh G. Desai, Senior Consultant Psychiatrist and former director of Institute of Human Behaviour and Allied Sciences (IHBAS), says that in addition to financial dangers, extended gaming activities pose risks on other levels. A person’s career might be hampered by neglect, a limited social repertoire, and isolation, all of which have negative effects on relationships and well-being. In addition, bad dietary habits, eyesight problems, and poor posture are detrimental to physical health.

According to Dr. Desai, “All these effects are because of the classical phenomenon of addiction in biological and psychosocial spheres. Addiction is driven by a dopamine-mediated high that creates a feeling of excitement and a “kick,” which later becomes compulsive.”

Dr. Desai also discusses the warning indicators to look out for in a person who is addicted to online gaming. Warning signs include, as he puts it, “Neglect of social and family commitments; extreme sleep deprivation; failure to consume basic nutrition; irritated and unreasonable behaviour when reminded, sometimes accompanied by aggressive and violent behaviour; and total exclusion of any other significant activity that was once a part of that person’s life.”

While concerns are high, Dr. Desai provides guidance on how to combat gaming addiction: “Here, prevention is better than cure. Limiting access to some of the games for children and adolescents, limiting time of use, and supportive monitoring are some of the preventive measures. If required, treatment at a mental health centre can include medicine and behaviour modification. “

Concluding thoughts
The much-anticipated central regulatory agency for online gambling is expected to see the light of day soon, as government officials have initiated preliminary conversations. Gaming is becoming a more popular form of entertainment, and people are willing to spend money on online games. A streamlined policy that protects both consumers and gamers will bring revenues, create jobs, attract FDI, and boost the country’s economy.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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