Why uniform regulatory framework is needed to regulate India's real-money gaming industry

Why uniform regulatory framework is needed to regulate India's real-money gaming industry

The Indian government is said to be in early stages of formulating a single legal framework to regulate the country's real-money gaming industry.

This move could provide much-needed regulatory clarity to the sunrise sector, which is currently undergoing a turbulent period due to a range of issues, including taxation and a series of legal challenges.

A central regulatory framework could resolve the uncertainty faced by companies dealing with various state-specific regulations, as states attempt to regulate the sector in the absence of a uniform legislation. Last week, Tamil Nadu notified a set of state-specific regulations that introduced time and usage curbs on real-money gaming platforms.

Additionally, the framework will also help the government tackle the growing menace of offshore gambling apps, which have raised concerns about money laundering, among other issues.

Gaming vs Gambling

In India, real-money games or online money games are generally classified as games of skill or games of chance. Games of chance are those where the winner is predominantly determined by luck and are considered gambling, while games of skill are those where the outcome is primarily determined by the player's skill and strategy.

Only games of skill are considered legal in India and fall under the purview of the union government, while gambling is a state subject in the country.

In recent years, several state governments, including Tamil Nadu, Andhra Pradesh, Telangana, Kerala and Karnataka, however, have banned or tried to ban skill-based real money games by introducing new amendments to their state-specific gambling laws and bringing them within their ambit. Many of these bans were later challenged in the state courts by skill-gaming startups and industry associations, and the suspensions were overturned.

Why a uniform regulatory framework is needed?

In April 2023, the Ministry of Electronics and Information Technology (MeitY) notified gaming-related amendments to the IT Act, 2021, which allowed multiple self-regulatory organisations (SROs) to determine whether a real-money game could be permitted in India or not.

This was after MeitY was designated as the nodal ministry for all online gaming-related matters in December 2022 and the ministry held discussions with various stakeholders, including skill-based gaming companies, industry bodies, players, and lawyers, among others. However, the ministry is said to have later dropped the SRO plan.

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, industry executives have previously told Moneycontrol.

In April 2023, Rajeev Chandrasekhar, who was the Union Minister of State for Electronics and Information Technology at the time, had said that the internet cannot be regulated by states, hence it is "meaningless" for a state government to try and legislate sectors such as online gaming.

Industry experts say Tamil Nadu's recent move may incentivise similar actions from other states, potentially leading to a fragmented regulatory landscape for the fast-growing sector. They said the necessity to comply with varying state laws would pose operational challenges for real-money gaming companies, especially startups.

These state laws, which often contradict one another, could also result in increased litigation and may discourage innovation in the sunrise sector, experts warn.

Regulatory clarity impetus for growth

For years, real-money gaming companies have called for a uniform central regulation to ensure the sector's sustained growth and draw foreign investment. It would also eliminate the legal uncertainty which frequently disrupts business operations, experts say.

The Indian gaming industry reported revenues of $3.8 billion for the financial year 2024, a 22.6 percent growth from $3.1 billion in FY23, according to a report by the gaming and interactive media venture fund Lumikai. Of the $3.8 billion in revenue, about $2.4 billion came from the real-money gaming segment.

The report also said the sector is estimated to cross $9.2 billion in revenue by FY29 at a 20 percent CAGR over the next five years.