India's real-money gaming startup founders and industry associations have welcomed the government's proposed new draft gaming rules, calling them a step in the right direction and ones that would aid growth in the burgeoning sector. Some have raised concerns about increased compliance costs for startups.
"This will boost the legitimate domestic online gaming industry, ensuring greater transparency, consumer protection, and investor confidence," said Trivikraman Thampy, co-founder of Games24x7, a skill-based gaming unicorn.
Thampy said the creation of a self-regulatory body for the industry will pave the way towards creating a larger framework for a responsible gaming environment in the country.
Nazara Technologies chief executive Nitish Mittersain said the draft proposals were a "welcome step, wherein the Central government laid out its referred approach to regulation of the gaming sector, especially skill-based real money gaming"
"There are a number of recommendations which will ensure the safety of players and responsible gaming. In addition, it lays down a process by which the industry will self-regulate itself under the guidance of MeitY (Ministry of Electronics and Information Technology). We believe that the draft recommendations will help to catalyze a lot of growth for the industry, which will in turn result in significant job creation as well as accelerate India's position on the global gaming map," Mittersain said.
The regulations
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. The ministry is now inviting public comments on these draft rules until January 17, 2022.
These draft 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.
As per the draft amendments, self-regulatory bodies should be registered with the ministry and comprise of members including a central government-nominated person who has practical experience in the field of public policy, public administration, law enforcement or public finance; an independent eminent member from the field of online gaming, sports or entertainment; an individual who represents online game players; and a member from the field of psychology, medicine or consumer education.
These bodies will be responsible for certifying what is permitted as an online gaming intermediary in the country, granting memberships, and registering online games from these intermediaries that meet certain criteria.
In addition, they will also resolve user complaints through a grievance-redressal mechanism that have not been resolved by the grievance-redressal mechanism of its members.
Read: India's paid gamer base hits 120 million in FY22; in-app purchases to drive future growth: Report
Additional due-diligence
Online gaming intermediaries, those which offer one or more online games, should display a registration mark on all online games registered by a self-regulatory body and inform their users on policies related to withdrawal or refund of deposits, manner of determination and distribution of winnings, fees and other charges payable, the KYC procedure for user account registration, the risk of financial loss and addiction associated with the online games and the measures taken to protect user deposits.
Games that allow any form of betting or wagering on the outcome are prohibited under these draft rules. Kids under the age of 18 will need parental consent for playing online games, the Union Minister of State for Electronics and IT Rajeev Chandrasekhar said on January 2.
Similar to social media companies that are also regulated under the 2021 IT rules, online gaming platforms should appoint a chief compliance officer who will be responsible for ensuring that the platform is complying with the rules and orders from law enforcement agencies and their officers, a nodal contact person who will coordinate with law enforcement agencies and officers to ensure compliance with their orders and a grievance officer to resolve user complaints. They should also have a physical presence in the country.
Responsible growth
"We are grateful to the Government for acknowledging the long-standing need of the gamers and the online gaming industry. We believe this is a great first step for comprehensive regulation for online gaming and will hopefully reduce the state-wise regulatory fragmentation that was a big challenge for the industry. These rules will go a long way in ensuring consumer interest while helping the industry grow responsibly and transparently. These rules will also be a start in curbing the menace of anti-national and illegal offshore gambling platforms" said All India Gaming Federation (AIGF) CEO Roland Landers in a statement.
Mobile Premier League (MPL) co-founder Sai Srinivas said the rules "balance the speed of innovation with gamer welfare" in the country.
"We have always been of the opinion that regulations bring stability, and stability in turn will boost growth and drive investments. A uniform framework such as this will immensely increase investor confidence. While there has already been a steady inflow of investments within the gaming sector, we expect this to grow manifold in the years to come" Srinivas said.
Echoing a similar sentiment, Saumya Singh Rathore, co-founder of WinZO, a social gaming and interactive entertainment platform, said the gaming industry would significantly benefit from a stable central policy framework that renders clarity on what is permissible and put a pause to the knee-jerk blanket bans by states.
"A more predictable environment would attract increased investments, creating jobs and a new generation of export industry from India" Rathore said.
Sameer Barde, CEO of industry body E-Gaming Federation, said these moves will eventually help the government establish a regulated and sustainable industry. Joy Bhattacharjya, the Director-General of the Federation of Indian Fantasy Sports (FIFS), said these rules "strike a great balance" between promoting responsible gaming and providing impetus to the online gaming industry.
Deepak Gullapalli, founder of skill-based gaming firm Head Digital Works, said the draft proposals were also "poised towards keeping in check the illegitimate offshore operators breeding in the country which is a long awaited decision".
What are the concerns?
Rajat Prakash, Managing Partner at Athena Legal, said these draft rules will bring much needed regulatory certainty to the industry and help in weeding out unscrupulous players. They will also increase the cost of compliance for the sector.
"The rules still bucket all gaming intermediaries into a broad category irrespective of size or risk and require similar compliance, including the need to have India-based officers. This can disproportionately burden young startups, and even make it difficult for global players to start offering their services in India" said Rohit Kumar, founding Partner at TQH Consulting, a public policy research and communications firm.
The rules also define an "online game” as a game that is offered on the Internet where users make a deposit with the expectation of earning winnings.
Jay Sayta, a technology and gaming lawyer, said the draft rules do not distinguish between skill-based and chance-based games played for stakes and so fail to provide the much-needed regulatory clarity that the industry had been seeking.
The rules propose that online gaming intermediaries are prohibited from hosting, displaying or sharing information "that is not in conformity with any law for the time being in force in India including any law relating to gambling or betting…" However gambling and betting is not defined in the draft rules.
"Therefore, clarity on the definition of online game and whether it specifically covers only skill-based games as well as providing a definition of gambling and betting in the draft rules is imperative," Sayta said.
He noted that the provisions applicable to intermediaries may also not apply to online gaming apps and websites as they are actively responsible for publishing and providing access to online games to users and play an active role in facilitating online games on their platforms, due to which it is difficult to construe online gaming websites and apps as intermediaries.
Some startup founders and executives are concerned over the status of non-real-money gaming games where users make no deposits.
Prakash said the definition could imply that these games will be legitimate online games under the rules, although Tanu Banerjee, Partner at Khaitan & Co noted that the ministry is empowered to declare any other internet-based game to be categorized as an ‘online game’ and brought within the ambit of the amended IT Rules, even if no deposit is required from users.
According to the proposed amendments, the IT ministry can declare any game made available on the Internet and accessible by a user through a computer resource without making any deposit as an "online game" for the purposes of these rules, if it is satisfied that the game may "create a risk of harm to the sovereignty and integrity of India, security of the state, friendly relations with foreign states or public order for causing addiction or other harm among children"
Following these measures, the games will have to comply with all provisions of these rules or to an extent that would be specified in the ministry notification, the draft amendment reads.
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