The new framework that creates a distinction between online games and those allowing betting and wagering has drawn praise from industry members. However, the government’s decision to keep the definition of ‘wagering on an outcome’ open-ended could potentially open up disputes, they added.
“These rules don’t deal with all the nuances of games of chance, games of skill. We bypassed that and laid out a basic principle that the moment an online gaming trespasses into involving betting and wagering, then it falls afoul of these rules,” said Rajeev Chandrasekhar, minister of state for electronics and IT. The government considers “the online gaming ecosystem as being a very important and integral part of the goal of taking India’s digital economy to $1 trillion,” he said.
The SROs -registered under Section 8 of the Companies Act– will consist of an individual having online gaming industry experience; an individual having experience in promoting interests of online gaming users; an educationist; a mental health expert; an individual with experience in information and communication technology field; a current or former member of an organisation dealing with protection of child rights; a public policy, law enforcement or public finance expert; and any other individual approved by the government.
Pointing out that in recent months gaming entrepreneurs and startups have been dealing with ambiguous and often confusing legal framework and running afoul of the state laws, Chandrasekhar said that “ we hope that these rules will create a much more stable, consistent predictable framework for all those startups that are interested in the online gaming ecosystem.”
He said the government plans to start with three SROs and will decide on approving more depending on the number of requests and the workload of the first three SROs.
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The notification was part of the amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023 announced on Thursday.Experts are of the view that the new rules are an attempt “to create an overarching framework for the online gaming industry.”
“If a gaming company goes through the process of being certified by the SRO, it in a way gets whitelisted and ideally should be outside the remit of states and act as an insulation for this sector,” Rameesh Kailasam, CEO of internet industry body IndiaTech said.
Terming the clarity provided by the new rules as a boost for investor confidence Trivikraman Thampy, co-founder & co-CEO, Games24x7 said, ‘with consumer protection and responsible gaming at the forefront, the regulatory framework will aid in arresting the proliferation of offshore and illegal gambling and betting platforms in India, which operate with little regard for consumer interest.”
Welcoming the regulations, Harsh Jain, cofounder and chief executive of Dream11 said it would “unlock the potential for our $20 Billion Indian Online Gaming industry” and significantly contribute to the Prime Minister’s “vision of a trillion dollar digital economy”.
Regulatory clarity has emerged as a critical aspect for India’s online gaming industry estimated to grow to $8.6 billion by 2027 from a level of $2.6 billion in 2022 growing at a compounded annual growth rate (CAGR) of 27%, according to estimates by gaming focused venture fund Lumikai.
In recent years, several online gaming platforms such as Dream11, Games24x7, Mobile Premier League (MPL) have become unicorns, or startups with valuation of over $1 billion. The Indian online gaming industry has cumulatively attracted $2.5 billion in foreign direct investment (FDI) so far.
State rules
The debate on what constitutes a game of chance or that of skill is one that online gaming companies have been a part of for several years.
In several orders the Supreme Court has upheld that fantasy sports apps offered games of skill, and not chance. In 2021, the apex court had upheld an order of the Rajasthan High Court which had said that fantasy sports were in fact games of skill and not chance.
Meanwhile, experts hold that games, where predominantly the outcome depends on factors determined by skill, should be termed as such. Whereas those where outcomes depend purely on probabilities are games of chance. Card games such as Rummy and Poker have also been determined to be games of skill.
Moreover, gambling and betting continue to remain a state subject. This means that state governments will still be able to decide if they want to allow gambling, lottery in their jurisdictions.
“Now games of skill have a clear safe harbour provided by the central government, which protects from any push and pull from the state so long as they are certified. If they aren’t certified then it’s not under the safe harbour and can be treated by the states and courts according to their interpretations,” a co-founder of an online gaming company told ET.
Pointing to the lack of definition on wagering, in Thursday’s notification, a co-founder of an online gaming company said it “requires language clarity, else would again bring us to the same place with the states”.
“If the lack of definition is read together with laws of the land, and if state governments determine that a particular platform allows gambling, they can still potentially be banned,” he added.
Clarity on taxation
This move by the government to demarcate online games from online betting follows the Budget announcement earlier this year, which recognised online gaming separately from betting and gambling for taxation purposes.
Industry members said they are now awaiting clarity on the imposition of goods and services tax (GST), and has urged that the indirect tax be levied only on gross gaming revenue, and not on the contest entry amount. The gross gaming revenue is the fee charged by an online skill gaming platform as service charges to facilitate the participation of players in a game on their platform while contest entry amount is the entire amount deposited by the player to enter a contest on the platform.
Terming the notification of MeitY rules as “a pivotal moment for the online gaming industry in India,” Joy Bhattacharjya, director general of industry body Federation of Indian Fantasy Sports said “ it is expected to put an end to the ambiguities that the industry was grappling with and lay the foundation for sustainable and responsible growth.
Pointing out that India’s online gaming industry has already attracted $2.5 billion in FDI he said the industry body was “looking forward to engaging with MeitY to seek requisite clarifications as members initiate the compliance process”.
Payment rules
To further protect users from financial harm, the government has also mandated that online gaming intermediaries which enable access to permissible online real money games shall not “itself finance by way of credit or enable financing to be offered by third party for the purpose of playing such online game”.
Before accepting any deposit in cash or kind from users, the gaming intermediary will be required to verify the identity of the user by following the know-your-customer norms prescribed by the Reserve Bank of India.
“Some of the definitions have been left ambiguous and upon the SROs to decide, but the lack of specific definitions for concepts like wagering, financial loss, user harm, etc. could lead to disputes between the gaming companies and the regulatory bodies,” a top executive at a fantasy sports platform told ET.
Additionally, the rules also mandate the SROs to take measures to safeguard users against the risk of gaming addiction, financial loss and financial fraud. “While financial fraud is clearly laid down by the law, financial loss isn’t. The SROs would have been in a better position to make decisions if there was a threshold defined for financial loss,” a co-founder of an online gaming company said, on the condition of anonymity.
“As we transition to the self-regulatory model that will be recognised by MeitY, we look forward to working collaboratively with our industry peers and other stakeholders. We believe that this effort will help to create a sustainable and thriving gaming ecosystem in India,” Sai Srinivas, chief executive and co-founder, MPL said.
A section of the industry had also raised concerns with the draft regulations issued back in January over potential intellectual property leaks on account of the certification process by the SRO.
“We are thankful to the minister for having addressed these issues completely with a self-declaration mechanism with a three-month window to get certified by the SRO,” said Paavan Nanda, cofounder, WinZo Games.
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