Unleashing India's Online Gaming Potential Through Smart Regulation
India stands at a crossroads in the ever-evolving landscape of online gaming regulation. The country needs to chart a clear and progressive course for its governance to emerge as a major player in this sunrise industry. What is needed is a comprehensive and forward-thinking approach towards online gaming and a clear perspective on the path forward for the industry.
India, a nation of 1.4 billion people, boasts a remarkable demographic advantage. With approximately 1.2 billion mobile phones, of which a staggering 750 million are smartphones, the country is witnessing an extraordinary shift from basic mobiles to smart devices. This transformation is happening at an exponential rate, and it is opening up new horizons, particularly in the realm of gaming.
One of India's most significant assets is its demographic profile, with 25 per cent of the population under the age of 15 and a substantial 65% under the age of 60. This youth bulge, coupled with the rapid spread of the internet, presents a tremendous market opportunity for the gaming industry. Furthermore, India boasts a technically adept population, and its policy environment is conducive to startups and innovation, particularly in the field of information technology.
The transition from traditional console gaming to mobile gaming has been a game-changer. It has not only expanded the reach of gaming but has also fostered innovation by providing easy access to gaming platforms. However, it is worth noting that even online gaming in India is currently regulated under the archaic Public Gambling Act of 1857, primarily when wagering or betting is involved.
Gaming regulation: Reinventing the wheel
There are several parallels between India's regulatory challenges and the historical trajectory of Daily Fantasy Sports and Sports Betting in the United States. While recognising these comparisons, it is crucial to stress that India's unique demographic and legal context necessitates a tailored approach.
In the United States, the evolution of fantasy sports and sports betting regulations has largely been a state-level affair. However, India’s diverse legal and cultural landscape necessitates oversight by the Union government and relevant authorities. This approach ensures uniformity and consistency across the nation, avoiding a patchwork of state-level regulations.
Denmark as an exemplary model, where a licence is mandated for all activities involving wagering on future outcomes including daily fantasy sports as they classify payment in order to back a league selection or portfolio, within the ambit of betting activity, permitted under a license . This approach brings much-needed transparency and accountability to the industry.
In the Indian context, this licensing regime should not only focus on revenue generation but also on maintaining the integrity of gaming activities. By introducing stringent licensing requirements, India can filter out illegitimate operators while fostering an environment conducive to innovation and competition.
India integrated E-Sports with traditional sports in December 2022 and recognised them as part of multi-sport events under the ministry of sports and youth affairs. However, due to its reliance on internet platforms, the government has placed rulemaking under the ministry of information technology (MeitY). An inter-ministerial group has been formed to address concerns from various ministries.
MeitY's online gaming rules stipulate that only permissible online games can be hosted and offered to Indian users. Rule 3(1)(b) places the onus on intermediaries, such as gaming platforms, to make reasonable efforts to ensure that harmful or impermissible games are not hosted, published, or shared. Verification of these games falls under the purview of self-regulatory bodies (SRBs). This approach encourages constructive dialogue among stakeholders to define the parameters distinguishing games of skill from games of chance. It is a work in progress aimed at safeguarding against addiction or misuse, with provisions for age restrictions and permissible spending limits, alongside monitoring objectionable content.
The Make in India and Digital India initiatives have been instrumental in bringing about a digital revolution within the country. These campaigns not only promote indigenous innovation but also drive employment and revenue generation. In this light, the gaming industry offers immense potential. By providing creators and developers with a well-regulated space to operate, India can tap into the growing global gaming market. This move aligns with the broader vision of economic growth and technological advancement.
The blurred line: Fantasy sports vs. prediction in sports
In India, regulation of online gaming has been affected by the confusion between fantasy sports and prediction in sports. Despite both activities involving wagering on future outcomes.
The recent government decision to impose the highest GST band of 28% on online gaming with its classification of all online gaming without differentiation between skill games and games of chance, being considered at par alongwith casino gaming, has created its own set of issues.. Historically, regulation has been the prerogative of individual states, governed by the archaic Public Gambling Act of 1867. While this legislation has been effective for a long period since its inception, the evolving landscape of online gaming, technological advancements, internet accessibility, and smartphone penetration has necessitated a significant overhaul in the regulatory framework.
In India, this lack of legal distinction has made evaluating the online fantasy sports market under existing legislation challenging. A substantial portion of operators operates under the guise of fantasy sports while deviating from the typical fantasy sports offering, which was traditionally a season long game but has evolved into daily fantasy games operations. As India's gaming landscape evolves, it is essential to address these distinctions to provide operators and users with a clear understanding of the rules and expectations.
The emergence of Daily Fantasy Sports has highlighted the shortcomings of the existing legal framework. The success of fantasy sports hinges on the distinction between games of skill and games of chance. If classified as a game of skill, it can operate within the boundaries of states that have adopted the Public Gambling Act's provisions. Unfortunately, this distinction is not uniform across states, with some opting to ban games of skill while some others have imposed licensing regimes. In addition what amounts to fantasy sports is not clear? Essentially a daily fantasy sport amounts to staking or putting money on formulating a team and trying to predict an outcome of a sport competition, in order to win. Therefore when the underlying activity of predicting on an outcome of a sport competition to win a prize has been determined to be a game of skill, which aligns with the principle laid down by the Supreme Court that even predicting the outcome of a horse race is a game of skill, then the ambiguity of law pertaining to legality of prediction in sports is a contradistinction.
Embracing the future
The games involving predictions in sports can act as a bridge between the gaming industry and the taboo status associated with betting. This approach harmonises with the changing global perceptions of prediction in sports as a legitimate and regulated activity.
Incorporating such activities within a well-structured legal framework, not only bolsters the gaming industry, but also opens doors to new revenue streams and foreign investments. As sports occupy a central place in Indian culture, encouraging operators to develop games that engage global audiences through development of indigenous leagues, is an enticing prospect.
The regulatory roadmap
To address these issues comprehensively, a well-thought-out regulatory roadmap is essential. If we were to suggest a roadmap for governance in fantasy sports and games involving predictions in sports, here are the measures recommended for implementation by the government of India:
A centralised authority: Establishing a Skill Gaming Commission can provide a dedicated body to oversee the industry’s evolving needs. This commission should be tasked with continuous evaluation and revision of industry developed regulations by the self-regulatory bodies, to keep pace with changing dynamics.
Clear Definitions: Define gaming, gambling, and betting, along with various types of games to eliminate ambiguity. This step will empower both operators and regulators with a clear understanding of the legal framework.
Licensing regime: Introduce a licensing system that scrutinises the mechanics of a game and grants licences based on the degree of skill and chance involved. This approach ensures that legitimate operators can enter the Indian market while ensuring strict oversight and revenue collection.
Self-regulatory organisations: Incorporate SRBs into the regulatory framework, not as final decision-makers but as peer-review mechanisms that offer transparency and industry expertise. SRBs can play a pivotal role in moderating discussions between operators and the proposed Skill Gaming Commission.
Dispute resolution: Utilise SRBs for mediating disputes between operators and regulators, providing a fair and efficient means of addressing compliance issues. This approach promotes an industry friendly environment that encourages growth.
A comprehensive overhaul
The gaming industry in India is on the brink of substantial growth, and regulatory clarity is the key to fostering a thriving ecosystem. Rather than resorting to prohibition, adopting a balanced and forward-looking approach is imperative.
These are some suggestions for the regulation of online gaming industry for ensuring integrity, transparency, and continued success. Indian legislators need to make informed decisions, securing a win for the industry and its stakeholders. As the gaming industry continues to evolve globally, India can position itself as a frontrunner in creating a conducive regulatory environment that fosters innovation and responsible gaming.
(This article is the edited excerpt of a report on regulation of online gaming in India, published by the authors.)
