Can Central Regulation Bring Stability To India’s Gaming Industry?

Is gaming different from gambling?

The $3.8 Bn online gaming industry kept reeling under controversy as large swathes of India continued to believe that they’re synonymous and called for a tighter leash on the business. 

It’s been nearly two years since the government tried to reset the rules for online gaming, rekindling hopes of a breather for the industry long mired in regulatory uncertainties. But little has changed. 

In the absence of a uniform, pan-India regulatory framework, most gaming companies are still in a state of limbo. The cry for intervention from the government for a centralised regulation in gaming turned louder after the April 2023 move from the Ministry of Electronics and Information Technology (MeitY), which was widely seen as a timely intervention that would bring clarity and stability to the sector, failed to break the ice. 

Close on the heels of the MeitY setback, came the GST blow later in 2023. A steep hike in levy of 28% was a great spoilsport for the gaming companies. The industry pinned its hope of a resolution in the Union Budget tabled earlier this month, but there was no word on online gaming in the budget for the second year in a row. 

The stakes are high as illegal betting platforms made a surge in transactions in the meantime, running up to INR 8.2 Lakh Cr, while users continued to migrate to offshore platforms due to the increasing tax burden on domestic operators.

An Ernst & Young and USISPF report had earlier projected that the online gaming sector would create 250,000 jobs by 2025, but in the new tax regime, this estimate was hacked to just 30,000. A staggering 83.3% of companies are now facing significant challenges in expanding their workforce.

While the industry kept trying to wriggle out of the knots, the pan-India gamer base spiralled to 590 Mn by the end of 2024, making it the second-largest mobile gaming market in the world, according to a report by New Delhi-based venture capital firm Lumikai. India’s online gaming market, is expected to cross $9.2 Bn by FY29, averaging a 20% annual growth rate, it projected. 

While real-money gaming (RMG) continues to be the biggest revenue grosser, contributing as much as $2.4 Bn to the overall revenue pool, in-app purchase revenue grew fastest at 41% in FY24. With 25% of gamers making in-game purchases, the sector’s paying user base too swelled to 148 Mn FY24. Lumikai predicted that in-app purchases, with a CAGR of 44%, would surpass RMG revenues by FY29.

No End To Hurdles

Despite its growing popularity among GenZ and millennial users, online gaming suffered endless glitches. States like Andhra Pradesh, Telangana and Odisha had earlier slapped a blanket ban on real-money games.

But the biggest hurdle for the industry came from Tamil Nadu. The state had first struck down a 2021 law on constitutional grounds and brought back the controversial 2022 Act that classified rummy and poker as ‘games of chance’. The Madras High Court, however, exempted these popular games from the ban, marking yet another twist in the tale.

The latest setback was Tamil Nadu thrashing out a set of regulations to rein in gambling and betting activities. The state has introduced strict usage restrictions on real-money gaming platforms by imposing ‘blank hours’ from midnight to 5 AM, mandating monetary limits for players, enforcing bans for minors, and requiring persistent pop-up caution messages regarding the addictive nature of online gaming.

Skill gaming companies Games24x7, Junglee Games, and Head Digital Works (A23) have moved the Madras High Court, challenging the constitutionality of the ruling that came into effect on February 15.

These companies filed writ petitions to seek a stay on the implementation of these regulations and secure an interim injunction to prevent state authorities from taking any coercive action against them. The firms have also urged the court to declare the legislation “arbitrary, void, illegal, and unconstitutional”.

A bench of justices SM Subramaniam and K Rajasekar has issued notices to both the state and the Union governments, with responses expected within two weeks. The court, however, refrained from passing any interim directions.

Delhi-based Esports Players Welfare Association (EPWA) and a group of professional gamers from Tamil Nadu have also challenged the Tamil Nadu Regulations on Real Money Gaming, 2025 in the Madras High Court.

Petitioner P Vikram Kumar, a resident of Chennai and a professional poker player who has represented India in the World Series Poker Championship multiple times, argued that the regulations infringe upon the fundamental rights of online gamers under Articles 14, 19, and 21 of the Indian Constitution, thereby severely impacting the professional gaming community.

EPWA and the players have challenged these restrictions on three grounds – violation of the Right to Livelihood, compromise of competitive integrity and global participation, and imposition of arbitrary restrictions.

Centralised Regulation Remains A Far Cry

As online gaming companies grapple with the regulatory mess, their unchecked illegal offshore peers make the best use of the standoff, driving billions of dollars away from India every year by feeding on a growing market which is home to the world’s youngest population.

“A national framework remains the most effective way to curb illegal offshore gambling while ensuring a safe and transparent environment for users,” Roland Landers, CEO of All India Gaming Federation, said. “Apart from a central regulation, any state-specific laws, as we have seen repeatedly in the past, will be unlawful and unimplementable, since, for any action to be taken, the state has to come to MeitY.”

But what’s blocking the way for a central regulation?

Abhishek Malhotra, founding partner of TMT Law Practice, cited lack of self-regulatory bodies (SRBs) as the biggest hurdle. “The notifications for the amendments to the IT rules were issued in 2023, but they are effectively not operational yet because the SRBs have not been formed and the definition of verified games has not been provided – what qualifies as a verified game and what does not,” he said.

To put things in perspective, MeitY had in 2023 said that all online games would be determined as permissible or not by a self-regulatory body. It also suggested multiple SRBs for different types of games. Although different gaming federations applied for SRBs, the government did not approve any of them.

In the absence of practical details on how to implement these regulations and what best practices companies should follow, state governments stepped in to regulate the industry themselves, Malhotra said.

The Centre has slammed the brakes on the implementation of the regulations, but uncertainty continues to shroud the industry.

“The gaming sector has long called for centralised regulation, but this remains unresolved. Over the past year and a half, the focus has been diverted largely to the GST matters, which took precedence due to their direct impact on survival. However, as legal matters related to the Supreme Court progress and are expected to be heard soon, attention is now turning back to regulating the gaming sector,” he said.

Gaming and technology lawyer Jay Sayta pointed out that there were many issues with the IT rules that came out in 2023. The rules never explicitly stated that states couldn’t introduce their own laws. Instead of a central law passed through Parliament, they tried to work within the existing framework, which had its limitations. Hence, the SRBs could never be formed.

For a centralised regulation, the first challenge is jurisdiction – who has the authority to regulate gaming? “Without amending the Constitution, it’s difficult to grant federal recognition to any framework without getting all states on board. If gaming falls under state jurisdiction, any central regulation will require states to either comply or voluntarily adopt the guidelines,” Sayta noted.

Of Hopes And Reality

There are reports that the Ministry of Home Affairs (MHA) has started exploring the need for a new central law to regulate online gaming, gambling, betting, and lotteries. According to Sayta, they’re looking at it more from a national security and offshore gaming perspective. “So, whether they will actually introduce a regulatory framework remains uncertain. It’s too early to say if they are planning to propose anything substantial.”

Only a centralised framework can resolve the issue of conflicting compliance requirements the states have slapped on the gaming companies, according to industry representatives. However, such a framework would also come with increased regulatory obligations, including KYC norms, advertising restrictions, and other compliance measures.

Until then, the fate of the online gaming industry will continue to remain uncertain.