Online gaming rules: MeitY to allow multiple SROs to determine whether a real-money game is permitted or not

India's gaming sector has seen unprecedented growth in terms of app downloads and revenue as a result of pandemic-induced home confinement in recent years, which has led to Indian consumers becoming more comfortable spending money on mobile games.

The Ministry of Electronics and Information Technology (MeitY) will allow multiple self-regulatory organisations (SROs) that will determine whether a real-money game is permitted to operate in India or not, as the ministry notifies the draft online gaming rules on April 6.

These rules, which are expected to shape the future of the nascent but growing sector in the country, come after MeitY held a public consultation in January 2023, as well as discussions with stakeholders, including gaming companies, industry bodies, players, and lawyers, among others, in recent months.

“These rules don't deal with all the sophistication into what is game of chance or game of skill,” Union Minister of State for Electronics and IT Rajeev Chandrasekhar said in a press briefing on April 6 "We are bypassing that and laying out a basic principle that the moment an online game trespasses into involving betting and wagering, regardless of its core content, then it falls afoul of these rules"

“You don't have to go to SRO if you are only a gaming company, but only when there is money involved in the game,” he said.

The union minister said they have seen over the last few months that many startups have been running afoul of state laws, state rules and state regulations, having to deal with ambiguous and often confusing legal framework.

"We hope that these rules will create a much more stable, consistent and predictable framework for all those startups that are interested in the online gaming ecosystem” he said "We consider this a multi-billion dollar opportunity for our digital economy"

The government will initially start by notifying three SROs with more to be notified later, the junior IT minister said.

"We will let SRO decide what is addictive, what constitutes user harm. We are not going to prescribe any of it as it will evolve," he said.

The draft regulation

On January 2, 2023, MeitY proposed a self-regulatory mechanism, mandatory verification of players through Know-Your-Customer (KYC) norms and grievance redressal methods as draft amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 with the aim of safeguarding users against potential harm from skill-based games and also ensure these games conform with Indian laws.

These rules are likely the first step towards forming a central law to regulate India’s online gaming sector. On February 8, Union Minister of Electronics and Information Technology Ashwini Vaishnaw said in the Lok Sabha that India should have a central law to regulate the online gaming sector.

“We as responsible lawmakers should come with a central act, which basically has been drafted in consultation with everybody and that act should be effectively regulating the online games and online gambling,” he said.

Industry executives previously told Moneycontrol that a central regulation is crucial to fight the menace of illegal offshore gaming operators since a state law cannot be enforced against a foreign operator.

In January 2022, Union Minister of State for Electronics and IT Rajeev Chandrasekhar mentioned that the draft rules prohibit games that allow any form of betting or wagering on the outcome.

India’s burgeoning gaming market

These regulations come at a time when India's gaming sector has seen unprecedented growth in terms of app downloads and revenue as a result of pandemic-induced home confinement in recent years, which has led to Indian consumers becoming more comfortable spending money on mobile games.

Revenue in the country's gaming sector increased from $2 billion in FY21 to $2.6 billion in FY22 and is expected to expand at a compound annual growth rate of 27 percent to $8.6 billion in FY27, according to a report by gaming and interactive media venture fund Lumikai.

Skill-based real money gaming, which accounts for more than half of the industry's revenue, however, has come under fire from several state governments, including Tamil Nadu, Andhra Pradesh, Telangana, Kerala, and Karnataka, which have banned or tried to ban it because gambling is a state subject.

Many of these bans were later challenged in state courts by skill gaming startups and industry associations, and the suspensions were overturned. In July 2021, the Supreme Court upheld fantasy sports as a skill-based game.

"We believe this is a decisive first step for comprehensive regulation for online gaming and, will propel the industry to compete globally, as envisioned by the Hon’ble Prime Minister" said All India Gaming Federation (AIGF) CEO Roland Landers in a statement.

"We are grateful that the government recognised the industry demands and provided light touch, but comprehensive regulations, which will support innovation, boost Create in India and Brand India, and propel India’s Techade" he said.

Landers mentioned that these regulations will also go a long way in promoting consumer interest while helping the industry grow responsibly and transparently. "It will also help in curbing the menace of anti-national and illegal offshore gambling sites, which have been proliferating in the last few years" he said.

Nazara Technologies chief executive Nitish Mittersain said the notified rules will immensely help the gaming industry and provide lot of clarity on the sector.

Harsh Jain, co-founder and CEO of Dream Sports that owns India's largest fantasy sports platform Dream11, also welcomed the regulations stating that they will "unlock the potential for our $20 billion Indian online gaming industry to significantly contribute to our Hon. Prime Minister’s vision of a trillion dollar digital economy."

Mobile Premier League (MPL) co-founder Sai Srinivas termed it as a "watershed moment for the industry" as the rules recognises online gaming intermediaries and distinguishes them from gambling.

The uniform legal framework provided by these rules will also boost investor confidence, Srinivas said.

"We anticipate that this will also help reduce regulatory fragmentation at the state level as also mentioned by the Hon’ble Minister, create a more stable business environment and weed out gambling platforms" he said.