The home ministry, along with other ministries, is discussing the way forward for India's online gaming industry from the lens of cracking down on legal gaps that are letting gambling apps to present themselves as gaming operations. 

An informal group of inter-ministerial officials, along with select members of the industry, have been involved in discussions so far, the people cited above said on condition of anonymity. 

Gaming vs Gambling

Early discussions included whether a new law is required which would distinguish gaming from gambling, something that has remained contentious despite the Supreme Court terming online gaming as a game of skill, and gambling as a game of chance.

The government recognises the sector's strong growth potential, one of the two people cited above said on the condition of anonymity. 

"The industry has also made multiple presentations showcasing its scope to draw foreign investments. To enable this, the Centre believes that a single law will be key in terms of regulatory clarity, and that it would also allow India's Financial Intelligence Unit (FIU) to crack down on offshore entities—something that the ministry of electronics and information technology's (Meity) proposed self-regulatory body framework has so far failed to do," the person said on the condition of anonymity.

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Queries sent to leading gaming companies Dream11 and Games24X7 remained unanswered. Meity and MHA also did not immediately respond to Mint's queries.

Tax puzzle

New Delhi's impetus for these discussions is two-fold. Firstly, it needs clarity on taxing online gaming companies, which have challenged GST notices for ₹1.12 trillion in the Supreme Court. (The court has stayed these notices, and hearings begin on 18 March) Secondly, the home ministry is worried about offshore entities hosting online gaming and betting, which may be abused for money laundering.

Unified regulation would be a much-needed relief for the industry that has faced multiple obstacles despite the Supreme Court clarification on gaming and gambling, said Jay Sayta, a technology and gaming lawyer who represents many gaming companies.

"These gaming companies have a vital role to play in India's nascent gaming industry, and stifling them right at the onset can lead to a fast-growing industry being overridden by black-market, fly-by-night gambling operators. But, much will depend upon how much regulatory ambiguity is eventually addressed by this committee—many times, the discussions do not translate into intended results," Sayta said.

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Karnataka, which unsuccessfully tried to ban online gaming in 2021, said in 2023 that it intends to regulate it for the state's residents. In December 2023, Maharashtra sought to restrict online games in the state. 

Earlier this month, Tamil Nadu imposed state-specific regulations on real-money games available to users in the state, after a previous attempt to ban them that was overturned by the High Court. Each of these matters was challenged in the Supreme Court. A unified law would be a relief for online gaming companies operating across states but face varying rules and regulations.

According to a policy executive at one of India's top three online gaming firms, state-wise regulations are confusing because gamers do not just interact with people from within a single state, leading to what he called regulatory spillage. 

Investments at stake

"It is because of this that a single online gaming law can help bring back foreign investments into the sector, which have dropped by over 90% during the past two years of regulatory uncertainty. Larger investments would add a further fillip to the larger entities, thereby helping create big online gaming corporations in one of India's key sunrise sectors," the executive added.

Online gaming companies generated revenue of $2.4 billion in FY24, the annual report on online gaming by Google and venture capital firm Lumikai showed. Out of this, $1.7 billion came from Sporta Technologies (which operates Dream11), Gameskraft Technologies and Play Games24X7, the three biggest online gaming companies by revenue, corporate affairs ministry data showed.

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Each of these companies saw considerable success between 2020 and 2022, at a time of pandemic lockdowns and work-from-home mandates. Between March 2021 and 2022, Dream11, Games24X7 and fellow online gaming firm Galactus Funware (which operates Mobile Premier League) raised close to $1 billion, drawing investments from global venture firms such as Sequoia Capital and Tiger Global.

The latest attempt to regulate online gaming is a continuation of previous efforts starting 2022, when Meity was appointed as the nodal ministry for the sector. Later, the home ministry formed a group of ministers to examine the matter. While the home ministry will take the Supreme Court's judgement into consideration, the Centre believes a unified legal framework is imperative, one of the two people said.

A single regulation could also help startups consolidate into larger entities, industry executives said.

Roland Landers, chief executive of industry body All India Gaming Federation (AIGF), said the fragmented regulations have "significantly slowed" the inflow of foreign investments into the sector. 

"With the support of initiatives like the AVGC mission, we are seeing renewed interest from investors. But, to sustain this momentum, a progressive, centralized regulatory framework is essential," he added. The National AVGC-XR Mission is a government of India initiative to promote the Animation, Visual Effects, Gaming, and Comics (AVGC) sector.