Regulation of the Online Gaming Market in India

In Context

• A task force set up by the Ministry of Electronics and Information Technology (MeitY) has prepared a final report of its recommendations to regulate the online gaming industry in India. 

More about the news

• The task force, set up by MeitY included: 
  • The CEO of government think tank Niti Aayog, and 
  • Secretaries of ministries including IT, Home, Finance, Information and Broadcasting, and Consumer Affairs, among others.
• The task force has suggested:
  • The creation of a central regulatory body for the sector, clearly defining what games of skill and chance are, and 
  • Bringing online gaming under the purview of the Prevention of Money Laundering Act, 2002.

Task force proposals:

• A central-level law:
  • A central-level law for online gaming should apply to real money and free games of skill, including e-sports, online fantasy sports contests, and card games among others. 
  • Casual games with no real money element in the form of stakes may be kept outside the scope of such rules. 
    • Unless they have a high number of users in India, or permit the publication or transmission of information in the nature of any inappropriate content like violence, nudity, addictive content or misleading content.
• Formation of a regulatory body:
  • It has also recommended creating a regulatory body for the online gaming industry.
  • This body will determine what qualifies as a game of skill or chance, and accordingly certify different gaming formats, seek compliance and enforcement.
• Dispute resolution mechanism:
  • A three-tier dispute resolution mechanism, similar to that prescribed under the Information Technology Rules, 2021 for online streaming services, consisting of: 
    • A grievance redressal system at the gaming platform level, 
    • Self regulatory body of the industry, and 
    • An oversight committee led by the government.
• Online gaming platform as a legal entity:
  • Any online gaming platform – domestic or foreign– offering real money online games to Indian users will need to be a legal entity incorporated under Indian law. 
  • These platforms will also be treated as ‘reporting entities’ under the Prevention of Money Laundering Act, 2002.
  • They will be required to report suspicious transactions to the Financial Intelligence Unit-India.
• Ministries:
  • The task force has suggested that MeitY may act as the nodal ministry to regulate online gaming, except for the e-sports category on which the Department of Sports can take the lead. 
  • Certain other aspects of online gaming such as advertisements, code of ethics relating to content classifications etc. could be regulated by the Information and Broadcasting Ministry.
  • The Consumer Affairs Ministry can regulate the sector for unfair trade practices.

How big is the online gaming market in India?

• Revenue of the industry:
  • The revenue of the Indian mobile gaming industry is expected to exceed $1.5 billion in 2022, and is estimated to reach $5 billion in 2025. 
  • Transaction-based games:
    • According to a report by EY and FICCI, transaction-based games’ revenues grew 26% in India, with the number of paying gamers increasing by 17% from 80 million in 2020 to 95 million in 2021.
• Growth potential:
  • The industry in the country grew at a CAGR of 38% between 2017-2020, as opposed to 8% in China and 10% in the US. 
  • It is expected to grow at a CAGR of 15% to reach Rs 153 billion in revenue by 2024. 
• User growth:
  • India’s percentage of new paying users (NPUs) in gaming has been the fastest growing in the world for two consecutive years, at 40% in 2020 and reaching 50% in 2021.

Significance of a central-level law

• State subject:
  • Online gaming so far has been a state subject, but state governments have said they find it extremely difficult to enforce certain rules like geo-blocking certain apps or websites within the territory of their state. 
  • Also, there is a concern that rules passed in one state are not applicable in another, which has caused inconsistency in how the online gaming industry is regulated in the country. 
• Blocking orders:
  • State governments also do not have enough blocking powers like the Centre to issue blocking orders for offshore betting sites.
• Societal concerns:
  • Stakeholders have highlighted a number of societal concerns that can arise from the proliferation of online games in the country. 
  • There have been a number of reported incidents of people losing large sums of money on online games, leading to suicides in various parts of the country. 
• Absence of framework:
  • There is currently no regulatory framework to govern various aspects of online gaming companies such as 
    • Having a grievance redressal mechanism, 
    • Implementing player protection measures, 
    • Protection of data and intellectual property rights, and 
    • Prohibiting misleading advertisements.

Way Forward

• Licensing and Regulation:
  • Regulation of online games may be a better and proportionate solution rather than an outright ban.
  • One could look at licensing and regulating the industry with various checks and balances such as,
    • diligent KYC and anti-money laundering processes, 
    • barring minors from accessing real money games, 
    • placing weekly or monthly limits on the money that can be staked or time that can be spent, 
    • counselling for addictive players and allowing self-exclusion of such players etc.
• Realising the potential of the online gaming sector, the State and the Union Governments should work together in consultation with industry stakeholders to draw out detailed guidelines.

Source: IE