Online gaming: Centre must tighten norms while states must find a balance

The ongoing battle between the Centre’s regulatory measures and the Tamil Nadu government’s total ban on online gambling has sparked an intense debate, exposing the intricate network of economic potential, addiction, and cybercrime characterising India’s booming online gaming sector. While the online gaming industry offers immense opportunities for economic growth, it also raises significant social and psychological concerns, necessitating stiffer regulations than those announced last week.

The Tamil Nadu government prohibited internet gambling earlier this week, defying the Centre’s more measured approach. The difference is that the Centre’s policy regulates real money wagering but allows skill-based wagering. In contrast, the Tamil Nadu law prohibits online game suppliers from offering online gambling services, gaming any online game that requires the use of cash or other risks, or gaming any online game that violates the rules. This means all forms of gambling while playing online games are now prohibited. It spells the death of Rummy and Poker (Teenapatti and Andar Bahar) and fantasy sports like Dream 11 and the Mobile Premier League.

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The sector has applauded the Centre’s stance while criticising the Tamil Nadu government’s new law. Yet, the genuine problem emerges because, according to the Constitution, gambling, betting, and wagering on the outcome of a game are all considered state matters. Therefore, states have the authority to prohibit internet gaming, which Tamil Nadu intends to do.

Huge potential

Internet gaming has grown in popularity in India, with millions playing games like PUBG, Free Fire, and Call of Duty. The most significant boost to the business has probably come from Prime Minister Narendra Modi himself, who stated that India must contribute more to the gaming world by inventing and producing more games in the country, tacitly endorsing online gaming. He expanded his “Made for India” concept to include online gaming, stating that it should reflect India’s spirit and culture while criticising existing ones for causing stress and violence.

Around 500 Indian online gaming companies have received over Rs 20,000 crore in investments/FDI. They are expected to receive more than Rs 50,000 crore by FY25. According to the government’s AVGC (Animation, Visual Effects, Gaming, and Comics) task force report, India is expected to become one of the world’s biggest gaming marketplaces. It has risen steadily over the past five years and is expected to quadruple in value to $3.9 billion by 2025. India’s average revenue per paying user (ARPPU) rose 11 per cent to $20 in 2022. According to a KPMG report, India has over 400 gaming companies and 420 million online gamers, ranking it second only to China in market size.

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One of the primary reasons for such explosive growth is that most internet gaming is ad-supported. Informal gaming (Candy Crush Saga, PUBG) generates 60% of its advertising revenue and 40% from customer expenditure. According to reports, this ratio will stay even as the sector expands. The sheer magnitude of the industry is reason enough for any government to support it rather than restrict its operations.

The Centre has introduced a new clause, Section 194BA, in the 2017 Union Budget to tax a user’s net wins from online gaming at the end of the fiscal year. In addition, the government has added a new Section 115BBJ to tax winnings. According to this section, the income tax calculated on net wins from online gaming over the preceding year will be 30 per cent. TDS will be levied on gains of less than Rs 10,000. The industry has applauded this move, claiming that it will accelerate the expansion of online gambling.

The negatives of gaming

Yet, the negative impacts of online gaming must be investigated further. Internet gaming has contributed significantly to India’s rising gaming addiction problem. According to studies, internet gaming causes a loss of desire, attention deficit disorder, and diminished interest in academic activities. Gaming addiction is a psychological disease characterised by an insatiable need to play video games, significantly interfering with one’s personal, social, and professional life.

Furthermore, repeated exposure to violence and aggressiveness in online games can result in desensitisation to violence, increased aggression, and psychological issues such as sadness and anxiety. Almost 40 people have died by suicide due to addiction in Tamil Nadu alone in the past two years.

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In India, online gaming has become a breeding ground for cybercrime. Internet gaming platforms are vulnerable to cyberattacks, such as hacking, phishing, and other forms of fraud, which can result in financial losses, identity theft, and other fraudulent actions.

According to critics, one of the causes of the addiction is that the nature of online gaming incentivises gamers to play more, offering more significant rewards. A first-time gamer, for example, frequently gains a reasonable sum of money, which is attributed to beginner’s luck. Yet, a lot of work goes on behind the scenes, with these corporations hiring psychologists, mental health experts, and AI to identify the new players who are beginning to stay away from online gaming for an extended period. They are the ones who are targeted and offered incentives to keep their interests alive.

As a result, the Centre’s decision to designate self-regulatory organisations (SROs) with mental health workers and psychologists as members, in addition to industry representatives, needs to be reconsidered.

Balancing act for states

The internet gambling sector offers both cash benefits and challenges to Indian states. While the industry has the potential to generate considerable tax revenues, create jobs, and propel technological developments, it also has regulatory, enforcement, and societal consequences. States must find a delicate balance between encouraging sector expansion and guaranteeing responsible gaming practices to maximise the financial benefits of online gambling. Investments in regulatory infrastructure, enforcement procedures, and problem gambling prevention and treatment programmes will be required.

The recent norms rolled out by the Centre need to be much stiffer to regulate a sector that has the potential to become one of the biggest revenue earners for the states and the Centre. Hence, a lobby group within the government will always be favourable to the industry. Therefore, asking the sector to self-regulate itself is as good as giving it free rein to promote its products.