How India Can Become An Online Gaming Hub

We all remember the Indian gaming “scene” when we were kids, don’t we?

We played video games like Mario and Contra in gaming parlours after school and tested our skills. From here, we moved to handheld consoles, which used to connect to our black-and-white televisions.

Then came the mobile-phone revolution, and soon online gaming became a mainstream source of entertainment. Over time, it has gained increasing acceptance in India, with a massive growth in the number of online gamers.

The online gaming industry in India has grown significantly in recent years, with the proliferation of internet access and the increasing adoption of smartphones.

Not many are aware that India is the world’s largest mobile-gaming market in terms of mobile application (“app”) downloads. 

The revenue from online gaming grew 28 per cent in 2021 to $1.2 billion, and is expected to reach $1.9 billion by 2024.

As per various research reports, the gaming industry is at the cusp of exponential growth. It is on course to grow by 20-30 per cent by fiscal year 2023 (FY23) and expected to reach Rs 380 billion by 2026.

Online skill gaming can be broadly divided into three categories: a) online card-based games, b) fantasy sports, and c) casual gaming. These games can be played for free or for a price.

Interestingly, India is the largest fantasy sports market, with a user base of approximately 130 million, which is actually more than the population of many countries in Europe.

According to industry research and surveys, India’s percentage of new paying users (NPUs) in gaming has been the fastest-growing in the world for two consecutive years, at 40 per cent in 2020 and 50 per cent in 2021.

Between January and September 2021, $1.6 billion were received in funding and mergers and acquisition, and nearly the same in FY22 as well, with real money games attracting approximately $700 million.

India has three large gaming unicorns till date — Dream11, Games24x7, and Mobile Premier League — and also boasts of a listed company in Nazara Technologies. Together, these gaming giants employ thousands of skilled engineers.

In addition, India has around 600,000 e-sports players, 100,000 e-sports teams, 400 million gamers, and more than 500 gaming studios.

Over 50 per cent of India’s population is below the age of 25 years, and 60 per cent of the nation’s gamers are under 25 years of age too.

In FY22, India had over 50.7 crore gamers, of which almost 12 crore were reportedly paying users. During the last FY, the total number of gamers rose by 12 per cent, which is over 5.7 crore new users.

In FY22, mid-core games, which require time, effort, and skill, made up the fastest-growing gaming category, achieving a growth of 32 per cent, and generated combined revenues of $550 million, as reported by Lumikai, a gaming and interactive media fund.

With 5G being slowly rolled out, and bigger and better hardware being innovated, the numbers are only going to go upwards hereon.

Personally, I have had extreme fun, frolic, happiness, and joy while playing games with my brothers and friends since childhood. I would want my son to experience the same joy when he grows up in a digital world.

However, given the nature of the internet, there are concerns such as privacy, security, and addiction, all of which need to be addressed while the industry grows.

This is one of the motivations for my article, my overall interest, and focus on this industry, and I hope that it's yours too. Let's give ourselves something better in the coming future, and we have an opportunity to do so... right now. I will expand on this aspect hereinafter.

The Industry and the Government

Like I explained earlier, the industry is massive, and it has not lost any attention and focus from the government either. In India, the online gaming industry is regulated by the central government through the Ministry of Electronics and Information Technology (MeitY).

The current rules and regulations for online gaming in India are issued under the Information Technology Act, 2000 (IT Act). The IT Act provides the legal framework for it.

The government has taken tremendous efforts to bring in balanced regulation that addresses the concerns of users, citizens, public representatives, parents, investors, and platforms; after all, most of the operators in this sphere are young startups and fully homegrown companies.

So, you may ask, what is the issue in all this, then?

I will try to summarise the issues in a simple way, but before I explain them, certain basics are in order:

• Nearly every Indian state has its own laws to tackle “gambling and betting.” The Constitution of India empowers states to regulate these sectors.

• Gambling and betting are not games of skill, but games of chance or luck.

• In 1957, the Supreme Court had held that games of skill are protected under the Constitution and cannot be banned.

• A few formats of rummy and fantasy sports have been held by the courts to be “games of skill,” and bans on them imposed by various states have been overruled. Other games have been untested so far.

• Take the example of Nagaland; it has a list of games that the state treats as “games of skill,” but there is no mechanism or standard or definition to test whether it is correct.

Questions To Address

a. How will games be certified by the self-regulatory organisations (SROs) as not amounting to gambling and betting?

b. What frameworks will SROs evolve for regulation?

c. What about cross-border entities and who can regulate or control them?

Broadly, the industry is marred by the lack of clear and concise regulations. Some states arbitrarily pass laws or rules to ban gaming and enforce unreasonable restrictions, thus affecting the overall growth of the industry.

The issue is not about banning illegal activities; that is obviously needed. But due to unaddressed confusion, even legitimate businesses are unfairly painted with the same brush.

Biggest Issue — Games of Skill Vs Games of Chance

Under the IT Act, online gaming is classified into two categories: games of skill, such as online rummy and fantasy sports, and games of chance, which include betting and gambling.

Drawing a distinction between the two categories is important because, while games of skill are legal in India, games of chance are illegal. The IT rules specifically state that the government will only permit games that are not betting and gambling, which means they have to be games of skill to be permitted.

There have been debates as well as legal challenges about the distinction between games of skill and games of chance in India. However, the courts have clearly laid out the principles for games of skill, which, even when played for money, will not amount to gambling and betting.

Various Supreme Court and High Court judgements exist today for fantasy sports and rummy, which can be used to lay out the principles for certification of games.

In addition to the IT Act, the Indian Penal Code (IPC) contains provisions related to gambling and gaming. Section 294 of the IPC, for instance, prohibits “obscene acts and songs” in public, which includes gambling and playing games of chance.

Despite the legal prohibition on games of chance, illegal online offshore and domestic gambling and betting continues to thrive in India.

One reason for this is the lack of effective enforcement of the laws and regulations governing online gaming in India.

Another reason is the lack of clear definitions and guidelines for determining what constitutes a game of skill and game of chance. This gap has led to confusion and inconsistency in the application of the laws and regulations governing online gaming in India.

Recent Proposed Regulatory Amendments: A Historic Opportunity

To address the issues highlighted earlier, the central government has proposed several measures to regulate online gaming in India.

These measures include the introduction of mandatory registration to operate in India and due diligence for online gaming operators, the implementation of strict security and data protection measures, and the creation of a self-regulatory body to oversee the industry.

The new, proposed guidelines are simple and clear, with a focus on transparency and accountability, and are easy to be implemented and enforced. These are in consonance with the ‘open, safe, trusted, and accountable’ internet philosophy of the Prime Minister. Currently, the proposals are open for public consultation.

Of the questions to address listed earlier, the implementation of new regulations should and will solve a majority of the problems; however, some issues may have to be addressed under the Digital India Act.

With these regulations, it will first be clear who is regulating and what is the compliance expected, addressing user protection and consumer protection. It will also ensure offshore platforms cannot operate without physical presence in India.

However, the issue of which games will be legal and illegal needs to be addressed by the SROs alone. The intent behind the same appears to encourage and promote innovation in gaming, while ensuring an evolving framework for a dynamic and innovative industry like gaming.

New regulations allow for self-regulating bodies to be set up; however, with the roles of states still unclear, any decisions made by these bodies might again go back to judicial forums.

Conclusion

Online gaming is one industry which has already been the showcase for “Aatmanirbhar Bharat (Self-reliant India)” — an ambition that Prime Minister Narendra Modi has spoken about time and again.

India Inc has a big opportunity and is incubating and leveraging this industry, which also means that investors and gaming companies can take a lead role in capital infusion in the time to come.

The difference between skill gaming, and gambling and betting has been outlined clearly by the apex court, and the new draft rules must further reinforce the same. However, some states may continue to mix skill gaming with gambling and betting while regulating this space.

The best way to ensure that discrepancies do not arise is if there is a clear-cut definition in the upcoming guidelines and to provide a mechanism for SROs to consult with the states.

Rules and regulations to govern digital businesses anyway are difficult to implement within state boundaries and, hence, leave room open for rent-seeking behaviour. It is clear that skill-based gaming in a multiplayer, competitive format is the way to go for the online gaming industry.

An enabling regulatory environment, including defined rules for the use of skills as well as proper taxation structure definition, should be part of such a regulatory intervention. Online gaming is pretty much the future of entertainment.

India may not be lagging far behind, given that Indian digital infrastructure has grown by leaps and bounds over the years. Economists generally agree that to become an export powerhouse, a country needs to have a big domestic market. Both these aspects are covered very well in the online gaming industry in India.