Regulating India’s Online Gaming
For Prelims: Online Gaming, Real Money Gaming (RMG) Industry, Digital Payment Systems, State List, Foreign Exchange Management Act, 1999 (FEMA).
For Mains: Factors driving the rise of the gaming industry in India, the need for a code of ethics, and deregulating India's online gaming sector.
Why in News?
Experts are raising concerns about the over-regulation of online gaming, highlighting issues like heavy taxation and legal uncertainties, while advocating for greater operational freedom for these platforms.
Additionally, India's real money gaming (RMG) sector has united to establish a code of ethics to promote ethical and transparent business practices.
What is the RMG Industry?
- About: The RMG sector includes platforms like Dream11 and PokerBaazi, where users wager real money with the chance to win or lose funds. The industry generated USD 3.8 billion in revenue during FY 2023-24.
- Need for a Code of Ethics:
- Legal Pressures: States such as Tamil Nadu have attempted to impose stringent regulations, including Aadhaar verification and gameplay restrictions (e.g., midnight to 5 AM blackouts).
- Lack of Central Regulation: The Union government's proposed rules for the RMG sector are still not enforced, leaving companies to self-regulate.
- Industry Image: Self-regulation is crucial for RMG companies to demonstrate responsibility and credibility.
- Competition from Offshore Platforms: International gambling websites, which evade GST and ID verification requirements, are rapidly expanding. Ethical commitments are essential for domestic platforms to stand out.
What is Online Gaming?
- About: Online gaming involves playing video games over the internet, enabling real-time interaction and competition among players across various devices, such as computers, consoles, and smartphones.
- Classification:
- Skill-Based Games: These focus on the player's ability and strategy rather than luck, and they are legal in India (e.g., Dream11, Mobile Premier League).
- Games of Chance: These depend mostly on luck, and are illegal in India (e.g., Roulette).
- Market Size:
- In 2023, India became the largest gaming market globally with 568 million gamers and 9.5 billion app downloads.
- The market, valued at USD 2.2 billion in 2023, is expected to reach USD 8.6 billion by 2028.
- Key Drivers of Growth:
- Young Demographic: Nearly half of India's population is under 25, creating a massive audience for gaming.
- Smartphone Penetration: The number of smartphone users is expected to increase from 468 million in 2017 to 1.2 billion by 2025.
- Internet Accessibility: India has the second-largest internet user base, and is expected to reach 900 million users by 2025.
- Localized Content: Games are being tailored to Indian tastes, with regional language options and festival-themed events.
- Booming IT Sector: The number of online game development companies in India has increased significantly, contributing to global gaming development.
- Digital Payment Adoption: Digital payment systems have expanded, facilitating smooth online transactions.
Side Effects of Online Gaming:
- Addiction: The WHO has officially classified "gaming disorder" as a behavioral addiction under the International Classification of Diseases.
- Emotional Symptoms: These include restlessness, irritability, and social isolation.
- Physical Symptoms: Players may experience fatigue, migraines, and conditions like carpal tunnel syndrome.
Distinguishing Between Games of Skill and Games of Chance
| Aspect | Games of Skill | Games of Chance |
|---|---|---|
| Definition | Outcome depends on knowledge, strategy, and skill. | Outcome mainly determined by randomness and luck. |
| Key Determining Factor | Player skill, decision-making, and practice. | Randomness, probability, and luck. |
| Control Over Outcome | High – Player’s actions influence the results. | Low – Little to no control over results. |
| Examples | Chess, Poker, Fantasy Sports, Esports | Slot Machines, Roulette, Lottery, Scratch Cards |
| Legal Status | Often lightly regulated or exempt from gambling laws. | Strictly regulated due to risk of exploitation. |
How is Online Gaming Regulated in India?
- Legal Provisions:
- State governments have the power to make laws on gaming, betting, and gambling under the Constitution’s State List (Entry 34).
- Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023: Defines terms related to online gaming, online gaming intermediaries, self-regulatory bodies, and permissible games.
- Prize Competitions Act, 1955: Governs prize-based competitions.
- Public Gambling Act, 1867: Exempts skill-based games from penalties.
- FDI Restrictions: India's policy restricts foreign investment in lotteries, gambling, and betting sectors, including technology partnerships.
- Judicial Stance: In the Dr. KR Lakshmanan Case (1996), the Supreme Court ruled horse race betting as a game of skill, exempting it from most gambling restrictions. However, the Geeta Rani Case (2019) is still pending a decision on whether sports betting qualifies as a game of skill.
- Taxation:
- The Central Goods and Services Tax (Amendment) Act, 2023 imposes a 28% tax on the total entry value in online gaming.
- Income Tax Act, 1961: Winnings above Rs 10,000 from any gaming activity are taxed at 30%.
Need for Relaxation of Rules in the Online Gaming Sector
- Economic Growth and Employment: The online gaming sector is a burgeoning industry with an expected market size of USD 8.6 billion by 2028, which can create 2-3 lakh jobs.
- Enhancing Competitive Advantage: India’s gaming market can thrive globally with regulations that foster innovation and minimize legal and tax barriers.
- Ensuring Regulatory Clarity: The Supreme Court's stay on a retrospective GST demand underscores the necessity for clearer and more stable regulations.
- Preventing Capital Flight: High taxation drives businesses to offshore platforms, resulting in lost tax revenue and unregulated gaming activities.
- Encouraging Innovation: Deregulation can allow gaming startups to focus on growth rather than legal battles, attracting investment and technological advancements.
Way Forward:
- Rationalizing Taxation: The government should consider tiered taxation for different types of games to ensure fairness, and reconsider retrospective GST demands.
- Categorizing Gaming Platforms: Differentiating platforms by user base can help implement targeted regulations, such as:
- Children & Teens (Under 18): Parental controls, time limits.
- Young Adults (18-25): Awareness campaigns, spending limits.
- Adults (25+): Betting caps, mental health support.
- Uniform Regulatory Framework: A co-regulatory model involving both industry and government can ensure compliance and foster responsible gaming.
- Responsible Gaming: Platforms should implement awareness campaigns and provide helpline support to prevent addiction, especially in youth. The Tamil Nadu Online Gaming Authority exemplifies efforts to promote responsible gaming.
- Stricter Data Protection Enforcement: User data protection laws should be more rigorously enforced to prevent exploitation.
Drishti Mains Question:
Discuss the key drivers of growth in India’s online gaming industry and the challenges posed by excessive regulation.
UPSC Civil Services Examination, Previous Year Question (PYQ)
-
Prelims:
Q. Which of the following is/are the aim/aims of the "Digital India" plan of the Government of India? (2018)- Formation of India’s own Internet companies like China did.
- Establish a policy framework to encourage overseas multinational corporations that collect Big Data to build their large data centres within our national geographical boundaries.
- Connect many of our villages to the Internet and bring Wi-Fi to many of our schools, public places, and major tourist centres.
Correct Answer: (b) 3 only
-
Mains:
Q. Discuss how emerging technologies and globalisation contribute to money laundering. Elaborate measures to tackle the problem of money laundering both at national and international levels. (2021)
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