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Game, Set, Match: Can self-regulation help India's online gaming industry gain legitimacy?

Beset by fraudulent fly-by-night operators while laboring under fragmented state-based regulations, online gaming companies hope the MeitY's self-regulation proposal will herald the codification of player-first initiatives

Game, Set, Match: Can self-regulation help India's online gaming industry gain legitimacy?
POSTED ON January 13, 2023 10:14 AM

Last October, the Kolkata Police seized Rs 32 crore from 1,600 bank accounts belonging to Aamir Khan, an accused in an online gaming app fraud case. This was in addition to Rs 20 crore that they had apprehended from him earlier. 

During their investigation, the cops found that the money in these accounts was deposited from outside the country. Khan and his associates accumulated this money after cheating people through a mobile gaming app called 'e-Nugget'.

He is not the first to hit upon the idea of using online gaming platforms to con people; this trend has been gaining ground since 2020, when the pandemic saw the online gaming industry take off. Experian's 2022 Global Identity and Fraud Report found that 30 per cent of Indian consumers have been victims of fraud on online gaming platforms.  

Alarmed by these rising instances, the government proposed an amendment to the IT (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, which regulates the country's online gaming market. These recommend the formation of self-regulatory organizations (SROs), which will be registered with the Ministry of Electronics and Information Technology (MeitY) and will certify online games.

Additionally, gaming firms will have to follow other due diligence protocols, including appointing compliance officers, conducting appropriate know-your-customer (KYC) checks and having a grievance redressal mechanism.

On the face of it, industry stakeholders welcome the government's efforts to formulate these rules that will bring online gaming under a comprehensive central regulation. They reckoned it will provide legal recognition to the sector, which stood at $2.6 billion in 2022 and is expected to grow at a 27 per cent CAGR to reach $8.6 billion by 2027, as per Lumikai's 'India Gaming Report FY 2022' report. 

Sai Srinivas, co-founder and chief executive officer of mobile esports and digital gaming platform Mobile Premier League (MPL) believed that if built on principles of fairness, transparency, and independence, these rules will help protect players and promote safety in gaming. 

"Player-first initiatives are something that the industry has strongly pushed for over the last few years, and it is encouraging to see it codified in these rules. Regulations bring stability, and stability, in turn, will boost growth and drive investments. A uniform framework such as this will immensely increase investor confidence. While there has already been a steady inflow of investments within the gaming sector, we expect this to grow manifold in the coming years," he claimed. 

Sai Srinivas, co-founder and CEO, Mobile Premier League
Sai Srinivas, co-founder and CEO, Mobile Premier League

Indian gaming companies are expected to raise $513 million by the end of FY 2022, a 380 per cent increase since 2019, as per Lumikai. Interestingly, most investments have come since 2020, coinciding with the Covid-19 period, and the past two years have seen the emergence of three Indian gaming unicorns—MPL, Games 24x7 and Dream11.

Gaining Legitimacy At Last

Online gaming companies agree that the proposed rules are an excellent first step towards comprehensive regulation for the sector as it will build consumer trust while ensuring that the industry follows responsible gaming standards. More importantly, they are delighted that the proposed measures can curb the menace of illegal offshore gambling platforms and protect Indian gamers from falling prey to illegitimate operators.

These draft regulations have especially come when India's gaming sector is witnessing rapid growth as consumers become increasingly comfortable about spending money on online games. According to Lumikai, in FY 2022, India had over 50.7 crore gamers, of which almost 12 crores were paying users. The revenue source is likely to move from real money games, where users play to earn, to in-app purchases, a category growing at 34 per cent CAGR.  

The creation of a self-regulatory body for the industry signals a move towards creating a larger framework for a responsible and safe gaming environment in the country, giving the sector legitimacy, something that the industry has been batting for a long time. Moreover, by bringing online games under the ambit of the IT Act, the unscrupulous, fly-by-night operators will be weeded out. 

However, on the flip side, Soham Thacker, CEO and founder of Gamerji, noted that the proposal had bucketed all gaming intermediaries into a broad category requiring similar compliance, failing to provide the much-needed clarity that the industry was seeking. 

"There has been no distinction made between real money and non-real-money games in the proposal. This affects us as young start-ups because Gamerji is a non-real money gaming platform. We are yet to evaluate the percentage of costs, but the regulation should have the provision only for the real money gaming platforms."

Roland Landers, CEO of All India Gaming Federation
Roland Landers, CEO of All India Gaming Federation

Additional measures have also been put in place to ensure that hosting and advertising of games cannot take place without first verifying their registration with a self-regulatory body. Moreover, when this draft proposal is finalized, it will increase the cost of compliance on the gaming companies. 

Roland Landers, CEO of All India Gaming Federation however opined that the compliance obligations that the proposed rules create are largely in line with industry best practices as seen in self-regulatory frameworks, which most players already follow. 

"The burden of compliance would only be felt by those gaming companies that do not yet follow such self-regulatory frameworks. Even in these cases, the IT Minister has been clear about their intention to support and help the gaming industry's growth. So we are confident that gaming companies will be well supported in meeting compliance obligations," he added. 

Away With The Troublemakers

The unregulated players have been the biggest competitor and bane of the organised online gaming industry, with the latter accounting for just around 20 per cent of the market size. Many large-scale gaming tournaments take place via WhatsApp groups, Facebook pages and YouTube channels and many are curious how these entities will be brought under the ambit of regulation. 

Landers hoped that some of the measures suggested in the draft rules will combat the menace of offshore betting platforms. When registered online games and gaming intermediaries are required to display the mark of such registration on their games prominently, this will help consumers distinguish between legitimate and illegitimate players within the market. 

Soham Thacker, CEO and founder of Gamerji
Soham Thacker, CEO and founder of Gamerji

Others noted that self-regulation would not mean that government oversight over the industry will be absent since the draft rules indicate that the self-regulatory body will be held accountable to the IT Ministry. Since it will also have a government nominee on its board, it is in the best interest of all stakeholders to ensure compliance.

Bin The Ban 

Over the past couple of years, the online gaming and gambling industry was in the news when some Indian states decided to ban them, claiming they were negatively influencing users. Tamil Nadu, which reported 17 suicide cases in three years due to financial losses incurred following addiction to online gambling, formulated an Ordinance and later passed a Bill in the Legislative Assembly seeking to ban 'games of chance'. 

Tamil Nadu joined other state governments, including West Bengal, Telangana, Andhra Pradesh, Karnataka and Kerala in imposing these bans. The High Court later overturned the prohibitions in the last two states.  

However, questions then arose on how state governments would define 'games of chance', decide which games fall under its purview and enforce the proposed ban. Experts also questioned how the administration could monitor the amount of money wagered or the time spent by a user on a game without wadding into the murky waters of right to data privacy.

The question on everyone's mind is whether the proposed self-regulation rules will safeguard online gaming companies from sporadic bans from state governments. Thacker has his fingers crossed for this, as he believes sporadic bans hurt the industry. "A comprehensive framework for regulating online gaming was much needed and will hopefully bring an end to the state-wise regulatory fragmentation," he added. 

Landers is confident that the state government will continue to regulate betting and gambling activities, and the draft rules clearly require online games to comply with existing laws regarding betting and gambling in the country. "In that sense, the policies of the central and state governments are aligned. We believe the rules and self-regulatory framework envisaged are aimed at regulating online games of skill. This framework will help bring about more clarity to all stakeholders about what kinds of online games are permitted in India," he added.

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