According to a report by Statista, India recorded about 421 million online gamers in the year 2022. This was an eight per cent growth from the previous year and is likely to reach over 442 million by 2023.
In addition to this, almost two-thirds of Indians are willing to pay for online games, opening up avenues for game developers to monetise from their products, as per EY’s Window Of Opportunity Report 2023.
The online gaming industry has been growing exponentially in the past few years. The main reason was the emergence of COVID-19, which forced many people to resort to online gaming for relieving stress. Moreover, smartphone affordability, low cost-high speed internet and easy access have further contributed to the spike. Out of all Asian countries, India is growing rapidly to be amongst the major contributors to this industry, providing a source of income to many. However, just like every coin has two sides, the online gaming industry is also not void of its negatives.
Sushil Kumar Modi, a prominent BJP politician and member of parliament, brought up the subject in December 2021 and highlighted the demand for thorough regulation in the industry. “Online gaming is becoming a big addiction. I would like to highlight that this sector, like the crypto industry, certainly has regulatory lacunae. So, I would urge the government to bring a uniform tax on online gaming. I urge the government to make a comprehensive framework of regulation for online gaming,” Modi said in Parliament.
The general population is now vulnerable to gambling addiction, mounting debt, and being at the mercy of dishonest operators due to the unregulated structure of the industry and the ambiguities surrounding terminology.
In three years, there have been 17 documented suicide deaths in Tamil Nadu as a result of financial losses brought on by an addiction to online gambling, particularly online rummy. Young and middle-aged males with limited earnings make up the majority of the victims, pointing to the need for nationalized regulation.
Along this line, The Online Gaming (Regulation) Bill, 2022, was introduced in Lok Sabha on April 1st, 2022, to establish rules and regulations guiding the gaming industry to prevent fraud and misuse. The Bill proposes the establishment of a regulatory body to oversee the online gaming business, acknowledging the impacts of online gaming’s addictive elements and the sector’s significant national influence.
Need for regulations on online gaming
1)The online gaming industry lacks proper regulatory oversight. It operates in a legal grey area, as there is no comprehensive legislation addressing its legality and its distinction from gambling and betting. The applicable tax rate for online gaming is also a subject of ongoing debate.
2)The legality of online gaming is determined by the distinction between games of skill and games of chance. Games based on skills are generally permitted in most parts of the country, while games of chance are categorized as gambling, considered immoral, and prohibited in many regions. Since betting and gambling fall under state jurisdiction, each state has its own laws in this regard.
3)Despite the legal status, a significant number of people are becoming highly dependent on online gaming. This addiction is negatively impacting lives and causing distress to families. The pandemic has further accelerated the reliance on technology, leading to a substantial increase in screen time.
4)Parents nationwide are struggling to help their children establish limits on technology usage and gaming, often with little success. According to Economic Times, many young boys and girls are caught in compulsive gaming habits, spending as much as seven hours per week playing online games. This excessive gaming is affecting their academic performance, straining their social lives, and damaging relationships with family members.
5)Psychologists emphasize the immense opportunity cost of this addiction, as it has a detrimental impact on health that continues to escalate. Certain online games like PUBG and the Blue Whale Challenge have been banned due to incidents of violence and suicide. Additionally, this addiction is believed to contribute to near-sightedness in young individuals. Furthermore, the inadvertent sharing of personal information during online gaming can result in cheating, privacy breaches, abuse, and bullying.
Deconstructing the bill
The Online Gaming (Regulation) Bill, 2022, defines “Online Gaming” as games played on any electronic device including Personal Computers, Mobile Phones, Tablets and other devices. Here, the bill does not differentiate between a “game of skill” and “game of chance” and thus implies the inclusion of all types of online games within its provision.
The Bill, requires the constitution of an Online Gaming Commission(OGC), to exercise the powers conferred upon it by the said bill.
The OGC members will have a tenure of at least three years and will comprise of :
1)A chairperson and a vice-chairperson
2)Five members were nominated by Central Government, with at least one expert from the field of law, one expert from the field of cyber technology and one person with experience in law enforcement
3)Secretary and other officers as may be necessarily appointed by the Central Government
The bill follows the traditional legacy of going through the route of a licensing system for governing the industry. Anyone who operates an Online Gaming Server or an Online Gaming Website needs to obtain a license from the commission and adhere to the rules as mentioned in the bill. Any person operating without a license will be considered a punishable offence.
The license will be provided for a period not exceeding six years with the option of exceeding or renewing it.
The license can be revoked or refused in the following circumstances:
- The licensee has violated any of the conditions under which the permit was granted.
- The licensee has violated any provisions of the Act or rules
The other responsibilities of the commission include:
- Oversee the functioning of Online Gaming Websites
- Draft special reports on any matter pertaining to Online Gaming for the Central Government periodically
- Offer effective ways to prevent or stop illicit online gaming
- Issue, suspend, and revoke licenses for websites that offer online gaming, as well as establish the cost of license applications and renewals for such websites
- The Commission may create regulations to carry out the purposes of this Act after consulting with the Central Government.
- Any other item the Central Government refers to it for consideration
In addition to this, the Central Government may also, by notification, authorize Foreign Direct Investment in Online Gaming, including technological collaboration, subject to any terms or restrictions that may be imposed.
Concerns about the bill
- Unsupervised mobile applications
The bill defines, “Online Gaming Website” as the internet domain registration or URL address of the Licensee through which Online Sports Gaming is conducted” which means the Commission only has authority over websites that offer online gaming. However, mobile games are becoming more and more popular with players. As a result, mobile applications used for online gambling are unregulated and unsupervised by the Bill.
- No classification of online games
The bill does not distinguish between various types of online games like e-sports, fantasy games and casual games. It is challenging to determine the legitimacy and relevant laws of games of skill and games of chance when they are combined. Since they are viewed as business operations, skill games are covered by Article 19(1)(a) of the Indian Constitution.
The Bill’s main shortcoming is that it doesn’t differentiate between different types of games, such as casual games, real money games, esports, etc., in its laws. Casual games don’t need to follow as many rules as real money games do. Keeping all game genres in one basket deters investment, stunts the development of casual games, and reduces the general exposure of the industry.
- Constitutional contradictions
The bill attempts to regulate “betting and gambling” in online games, through the Central Government. However, according to Entry 34 of List II (State List), all matters related to “betting and gambling” come under the ambit of State legislation. Thus, this contradiction may lead the commission to face certain hurdles in its functioning.
- Failure to include aspects of data protection, customer grievance etc.
The Bill overlooks important challenges faced by the online gaming sector, including issues related to data privacy, content and visual limitations, and mechanisms for resolving customer complaints. These are industry-specific concerns that cannot be adequately dealt with by existing legislation. While the Bill does address the issue of underage gambling, it falls short in effectively preventing fraud and the improper use of data, as intended by the lawmakers.
Previous State legislation regarding Online Gaming
Different states have varying legislations that distinguish between games of skill and games of chance, thereby removing the cons of the Online Games (Regulations) Act, of 2022. These are:
- The Tamil Nadu Gaming and Police Laws (Amendment) Act, 2020, aimed to prohibit games of skill played for wagers, bets, money, or stakes. However, the High Court of Madras challenged and struck down this amendment. The court’s reasoning included the protection of games of skill as business activities under the Indian Constitution’s Article 19(1)(g). It also found that the prohibition imposed by the amendment was disproportionate to its objective, which was to curb gambling in games of chance rather than games of skill. Additionally, the court highlighted that states are only granted authority to legislate on betting and gambling related to games of chance, making the amendment unconstitutional.
- Despite this ruling, Karnataka recently passed a similar law through the Karnataka Police (Amendment) Act, 2021, making all forms of gambling, including online gaming, a cognizable and non-bailable offence. This move was met with opposition from the gaming community.
- Apart from Karnataka and Tamil Nadu, the states of Andhra Pradesh and Telangana have also banned online games, including games of skill played for money.
- On the other hand, some states have legalized and regulated online gambling. Sikkim became the first state to legalize online gambling through the Sikkim Online Gaming (Regulation) Act, 2008, allowing various games, including games of chance prohibited in most other states. The government issues licenses for running online games and sports games, but access is restricted to physical premises within Sikkim’s boundaries.
- Meghalaya introduced the Meghalaya Regulation of Gaming Act, 2021, which regulates both games of skill and games of chance. Licenses are granted for a period of five years, and licensees are required to pay gaming royalties based on their earnings.
- Nagaland, on the other hand, only legalized online gambling games based on skills, prohibiting all games of chance through the Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2015.
The Online Gaming (Regulation) Bill, 2022, is a progressive step towards regulating one of India’s fastest-growing industries – online gaming. It helps in establishing safeguards for the people in the industry to protect themselves from fraud and misuse.
However, the bill in itself lacks full transparency. It does not clearly state the arena of legislation for the centre and the state. It also does not provide any regulations for data protection, consumer grievances etc.
Thus while the Online Gaming (Regulation) Bill, 2022 is a positive step towards protecting the industry, it is insufficient and should be remedied for its flaws.
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- Basuroy, Tanushree (2023). Number of Online Gamers in India 2017-2022. Statista. https://www.statista.com/statistics/1064010/number-of-online-gamers-india/
- Sikkim Online Gaming (Regulation) Act, 2008, No. 23, Acts of Sikkim State Legislature ,2008 (India)https://sikkim.gov.in/department/departmentmenudetails?url=Menu%3Dfinance-revenue-expenditure-department%2Fdirectorate-of-state-lotteries
- The Meghalaya Regulation of Gaming Act, 2021, No. 9, Acts of Meghalaya State Legislature ,2021(India)https://meghalaya.gov.in/rules/content/41431
- Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2015, No. 3, Acts of Nagaland State Legislature, 2015 (India)https://www.indiacode.nic.in/bitstream/123456789/15162/1/the_nagaland_prohibition_of_gambling_and_promotion_and_regulation_of_online_games_of_skill_act_2015.pdf
- The Karnataka Police (Amendment) Act, 2021, No. 37, Acts of Karnataka State Legislature, 2021(India)https://dpal.karnataka.gov.in/storage/pdf-files/Acts%20&%20Ordinance/28%20of%202021%20(E).pdf
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- The Hindu Bureau (2023) “Tamil Nadu assembly re-adopts Bill against online gambling”. The Hindu. https://www.thehindu.com/news/national/tamil-nadu/tamil-nadu-assembly-readopts-bill-against-online-gambling/article66652365.ece
- Ghosh, Kamalika (2022) “The online gaming regulation conundrum:Who will regulate the sector?”. Outlook. https://www.outlookindia.com/business/the-online-gaming-regulation-conundrum-who-will-regulate-the-sector–news-223965
- Saxena, Tanushree (2023) “Online gaming regulation 2022: Unlocking a new level”. The CyberPeace Foundation. https://www.cyberpeace.org/online-gaming-regulations-2022-unlocking-a-new-level
Krishti Khandelwal is a Research Intern at IMPRI.
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