The Tamil Nadu cabinet, led by Chief Minister MK Stalin, approved an ordinance on September 26 to ban online games with stakes in the state, dealing yet another blow to the nascent but fast-growing sector.
According to a government statement, the ordinance will take effect following the governor's approval.
The move comes as the Supreme Court begins hearing a petition by the Tamil Nadu government challenging a Madras High Court decision that overturned the previous AIADMK-led government's November 2020 ban on online games involving the transfer of money. In an order issued on August 3, 2021, the state high court declared it unconstitutional.
On September 9, the Supreme Court issued notice to all of the petition's respondents, including skill-based gaming companies Junglee Games, Play Games24x7, Head Digital Works, and industry body All India Gaming Federation, giving them four weeks to file their responses, with the case expected to be listed in 10 weeks. Since then, the Supreme Court has added a similar petition by the Karnataka government to the matter.
New online gambling law
MK Stalin, who took office as Tamil Nadu chief minister in May 2021, set up a four-member committee led by retired Justice K Chandru to analyse the negative effects of these games and make recommendations for a new law prohibiting "online gambling games" on June 10, 2022.
On June 27, the committee issued a report recommending the prohibition of these games as well as advertisements encouraging people to play them. The government also stated that it solicited feedback from key stakeholders as well as the general public via email in order to draft the ordinance with advice from the state law ministry. On September 26, this draft ordinance was presented to the state cabinet for approval.
Skill-based real money gaming, which accounts for a significant portion of the Indian gaming industry's revenue, has been banned or attempted to be banned by several state governments, including Tamil Nadu, Andhra Pradesh, Telangana, Kerala, and Karnataka because gambling is a state subject.
According to industry executives, South India is a particularly important market for skill-based games such as Rummy, which has a significant penetration in these states.
Real money gaming (RMG) contributed roughly 70% of the country's gaming industry revenue, which touched Rs 10,100 crore in 2021, representing a 28% year-on-year increase, according to a recent EY-FICCI report. Fantasy Sports saw a 26% increase in revenue, while Rummy saw a 28% increase in revenue in 2021, it added.
Roland Landers, the chief executive of skill gaming industry body All India Gaming Federation (AIGF), said the move was "disappointing since it disregards the six decades of established legal jurisprudence as well as the recent judgement of the Madras HC"
"As the apex industry body for online gaming, AIGF has been trying to engage with the government to understand their concerns and have also made them aware of the proliferation of offshore gambling website and apps which flourish when constitutionally protected India apps are banned. We had provided various consumer protection and other measures which stop short of an outright ban. In such a scenario this is unfortunate" he said.
"Instead of waiting for the SC judgment and in the meantime respecting the categorical decision by their own HC, they seem to have taken another unconstitutional decision which will eventually only benefit online gambling and lottery operators" Landers added.
He mentioned that they will wait for the final bill to decide their next course of action.
Meanwhile, the Indian government is considering regulating the burgeoning online gaming industry.
In May 2022, the government set up a seven-member inter-ministerial task force chaired by Rajeev Chandrasekhar, minister of state for information technology, to work on regulations for the online gaming industry and to identify a nodal ministry for the sector.
The minister has held multiple rounds of discussions with skill-gaming platforms, industry associations, lawyers and gamers who have sought a light-touch self-regulatory policy framework.According to Reuters, a panel of government officials has proposed establishing a regulatory body under the IT ministry to classify games based on skill or chance, have blocking powers against prohibited game formats, and take a tougher stance against gambling websites.