How Can the New Government Create a Conducive Environment for i-Gaming Industry in India

The burgeoning i-Gaming industry in India represents a significant opportunity for economic growth, innovation, and employment generation.

The growing importance given by the union government to the online gaming industry is evident in the Prime Minister's renewed focus on establishing India as a prominent global gaming hub. In April 2024, he spent a day with seven of the country's top gamers to discuss the industry's trajectory and understand the challenges they face, especially regarding the nuanced distinction between skill gaming and gambling (game of chance).

The online gaming industry in India has experienced rapid growth, with a 28% CAGR between FY20 and FY23. Additionally, the EY-FICCI's report 'Navigating the Evolving Landscape for Online Gaming' projections indicate continued industry expansion and market size reaching ₹33,243 crore by FY28 with a sustained 15% CAGR. This sector attracts significant foreign and domestic investments and generates substantial direct and indirect employment.

Leveraging India's IT expertise, the industry has immense potential. To leverage this potential further, the new government post the Lok Sabha elections must prioritise two key issues: fostering innovation in the sector and facilitating conditions for iGaming companies and businesses that generate employment. This will help India position itself as a hub of developers, attract higher foreign direct investment (FDI), and stimulate economic growth.

Leveraging Smartphone Penetration

With the proliferation of smartphones, India has become one of the largest mobile gaming markets. In this digital age, the new government should not categorise online gaming as a 'sin' but rather recognise it as an opportunity to bridge the digital divide, educate the populace on mobile technology usage and responsible gaming, encourage innovation, and enhance skill development.

Regulatory Framework

Instead of viewing a new digital act as a catch-all solution for issues surrounding innovation, gaming, cryptocurrencies, and publishing rights, it is crucial to work within the existing IT Act 2000 and its 2023 amendments. This legal framework already provides provisions for i-Gaming.

To create a conducive environment, the government must immediately address three key regulatory areas:

1. Issuing Clear Parameters: Establish definitive guidelines to distinguish between games of chance and games of skill. Under current laws, games of skill are permissible under the Central Act, while games of chance require a license under state Gambling Acts. This distinction is essential for online and mobile games to operate within legal boundaries.

2. Recognizing of Self-Regulatory Organizations (SROs): The government should officially recognize the three existing SROs that oversee and represent the interests of the i-Gaming industry. This recognition will lend credibility and consistency to the regulatory framework.

3. Establishing a Self-Regulatory Body (SRB): Establishing an SRB with the appointment of members with deep industry knowledge to the SRB will ensure informed decision-making and effective oversight.

Taxation Policies

A clear and fair taxation regime is critical for the sustainable growth of the i-Gaming industry.

Direct Taxation: The income of developers, platform operators, and winners should continue to be taxed as it is currently. This approach provides a stable and predictable tax environment.

Indirect Taxation: Indirect taxes should apply only to goods and services provided by the platforms, and not to the money in circulation within real money games (RMG). This money, which circulates among players, should be kept in a separate escrow account and used exclusively for payouts after deducting direct taxes at source. This distinction needs to be clearly articulated in the Goods and Services Tax (GST) regime to avoid confusion and ensure fair taxation practices.

Additionally, any changes in GST rates must not be applied retrospectively. The GST Council should engage in pre-consultation with stakeholders to understand the potential impact on the industry's growth and innovation objectives. Maintaining distinct GST rates-18% for games of skill and 28% for games of chance further encourages innovation in skill-based games.

Coordination and Clarity

For the i-Gaming industry to thrive, it is essential to have clarity, consistency, and coordination among various government departments concerning gaming permissibility, registration, regulation, and taxation. Without these elements, the industry could be forced into a grey area, stifling innovation and growth.
Conclusion

The new government has a pivotal role in shaping the future of the i-Gaming industry in India as the industry is witnessing unprecedented growth and global investor attention. Therefore, by encouraging innovation and facilitating employment-generating opportunities, especially skilled-based, India can become a global hub for gaming developers. This transformation requires a balanced approach to regulation, clear taxation policies, and proactive stakeholder engagement. By addressing these key areas, the government can harness the full potential of the i-Gaming industry, driving economic growth and technological advancement in the country.

Authored By: Aruna Sharma

(An Excerpt from Agency)