Enormous Economic Potential can be Unlocked by Regulation

A recently published opinion article by prominent civil servant Dhanendra Kumar highlights the enormous economic potential of the Indian online gaming industry and the need of a comprehensive regulatory framework housed under a nodal central ministry for the sector to realize this potential. Kumar was the first Chairman of the Competition Commission of India (CCI) and a former Executive Director for India at the World Bank.

“The biggest problem is that the industry suffers from lack of regulatory eco-system, with blurred jurisdictions between centre and states, resulting in confusion and loss of revenue to both,” Dhanendra Kumar points out.

The High Potential of India’s Sunrise Online Gaming Industry

The unofficial term “sunrise industry” is used to denote a sector of the economy, usually in an early stage of development, that shows promises for a rapid boom and typically has high growth rates, generates the creation of numerous startups, and attracts massive venture capital funding. The Indian online gaming sector with its huge potential is a prime example of such a sunrise industry.

In his article, Dhanendra Kumar quotes figures from several industry studies, all pointing to the exciting perspectives of online gaming in India driven by the country’s young demographics, the rapid penetration of affordable smartphones and cheap mobile data plans, and the development of new genres of gaming.

With 43 crores of desi gaming app users and the highest number of game downloads in the world, estimated at 76.1 crore by Sensor Tower Research, online gaming in India is poised for further growth. KPMG evaluates the industry at ₹13,600 crore in FY 2020-21 and projects its size to reach ₹29,000 crore (roughly $3.8 billion) by 2025. Another report by BCG and Sequoia forecasts an even higher growth to ₹38,200 crore ($5 billion) by the same year.

In her budget speech for FY 2022-23, Union Finance Minister Nirmala Sitharaman announced the creation of the Animation, Visual Effects, Gaming, and Comics (AVGC) task force aimed to promote the sector. According to data quoted by Kumar, India holds 10 percent of the current global AVGC market and is poised to reach a share of 25 percent by 2027.

Regulatory Architecture can Make Online Gaming a Significant Contributor for the $5 Trillion Economy Quest

In order for the enormous potential of online gaming to be realized and the forecasts for high growth to be fulfilled, however, India must move on from the current legal environment of regulatory uncertainty, ambiguity, confusion, inconsistency between states, and numerous litigations in the court system. Оnline gaming and esports are “urgently in need of a regulatory architecture, and can contribute significantly in creation of new jobs and exports, augmenting India’s quest for a $5 trillion economy,” Dhanendra Kumar argues.

On April 1, the Online Gaming (Regulation) Bill, 2022, was introduced at the Lok Sabha as a private bill. This national-level draft aims to regulate the entirety of the country’s cyber gaming space involving real money ranging from online casino India games to fantasy and electronic sports abolishing the traditional distinction between games of skill and games of chance.

The proposed bill envisages the establishment of the Online Gaming Commission which is to be vested with powers to oversee the sector, devise rules, and grant, suspend or revoke licenses for operators of gaming websites and servers.

If passed by parliament, the Bill may solve a great deal of the problems currently faced by the online gaming industry, but it is difficult to say if the Lok Sabha would proceed with the Bill.

Another approach, propagated by a number of stakeholders, would consist of a self-regulation system adopted by the gaming industry combined with proactive educational efforts by gaming companies teaching users how to protect themselves from cheating and abuse.

Such a system may include KYC and age-restriction mechanisms based on Aadhaar cards, bans on in-app purchases and in-game chats without parental consent, and other measures. Nevertheless, Dhanendra Kumar advises online gaming regulation to be placed under a nodal ministry, and not delegated to a self-regulatory organization, in order to “instill confidence and credibility”.

For the elaboration of a comprehensive regulatory framework over online gaming, India can use help from the numerous examples of successful legal practices in the field from around the world. Many countries, including the UK, France, Denmark, Sweden, Spain, and others have regulated online gaming in order to raise tax collection and protect the public from the various risks associated with gambling and betting.

The measures adopted by these countries include the introduction of a national self-exclusion system, which allows players to press a button and immediately get excluded from gaming on any site in the country, and robust responsible gaming requirements that operators must follow.

Bans on gaming on credit, introduction of spending limits, elimination of fast-play on slot games, VIP and loyalty programs, marketing and advertising restrictions, are among the rules that Indian legislators can copy from the global regulatory practice and implement.