If Digital India Has To Progress, Online Gaming Industry Needs Corrections Not Penalties

The year 2021 saw that every 8th day a start-up was becoming a unicorn in the nation and now, since the beginning of this year it is every fifth day. It is the facilitative ecosystem that has come up in India in the last few years that has ensured this coupled with culture, creativity and relentless commitment displayed by young Indian entrepreneurs.

In the true spirit of our nation and what can only work as reparative for Karnataka’s image as the start-up capital of the country, the Karnataka High Court struck down the blanket ban imposed by the state government on all forms of online gaming involving monetary transactions calling it “ultra vires” (beyond the powers of government bodies) to the Constitution of India.?

The division bench issued a writ of mandamus, restraining the respondents from interfering with businesses of online gaming and allied activities. This came after high courts in Kerala and Madras had previously struck down similar bans by their respective state governments.

This is a great moment for the gaming industry as well as India as a budding start-up nation. Start-ups in Karnataka must be delighted with the decision, while for other start-ups around the country and global investors, the court’s decision will affirm their faith in the Indian legal system.

A digital India cannot be one where misinformation guides policy and the high court decision makes it amply clear. While we do need central, progressive and ubiquitous policies for online gaming in India, local governments and enforcement organisations need to work with the industry to establish best practises and promote responsible gaming.?

The Universal Service Obligation Fund (USOF), to which the telecommunications industry contributes, is a good example of how the regulator has used contributions from the industry to effectively empower the consumer and enhance awareness and access.

Blanket bans are uninspired and ineffective ways of dealing with any perceived problems and have no place in the India of 2022. “Youth Innovation” and misinformed decisions cannot go hand in hand. If the dream of a truly Digital India is to be realised, innovative solutions need to be found everywhere, by all stakeholders through constant collaboration and creative problem solving.

DESI CULTURE

Prime Minister Narendra Modi recently called for more games that are made in India and take the history and culture of our nation to the world. Two key factors which can further be a shot in the arm include policies that support the growth of start-ups and new business and a consistent engagement process with industry offering these companies a chance to fulfil their potential, maximise revenue and grow exponentially.?

The growing attention comes on the back of a massive growth spurt seen by the sector during the pandemic. The need for interactive entertainment due to the lockdown measures drove the growth of online gaming in India at a compound annual growth rate (CAGR) of 38% in 2019-2020 and 37% in the next fiscal. This growth was faster than social media that grew by 11% & 26% in the same periods according to a report by Boston Consulting Group (BCG).

The differences between games of skill and games of chance are significant. While the former depends strongly on a person’s skill and practice to win, the outcome of the latter depends purely on luck. For a layman, a game of skill is one where a person can choose to win or lose, for example, chess, and a game of chance is one where the outcome doesn’t depend on any manual intervention, for example, a coin toss.?

Why the online gaming sector and what it brings to the table is not clear is becoming increasingly unclear with each passing day. However, what is clear is that everyone is paying attention to the sector and the successive court judgements have upheld the preponderance of skill as a legitimate business.

INVESTORS DELIGHT

The growth of the sector also caught the eye of the investors who invested USD 549 billion in the first three months of 2021, which was more than the amount raised in all of 2020. To understand how the investor interest in gaming has increased over the last five years, consider the money the gaming start-ups raised in 2016 - a meagre USD 34 million.

Naturally, the policymakers have also seen the potential of the “sunrise industry” and have reacted differently to the interest in and the amount of time spent on gaming. Akin to when social media was introduced, online gaming has faced opposition from certain quarters, with the Karnataka ban an extreme reaction to a popular medium for entertainment and engagement.

In less than a decade, social media has led to a creator economy and easy-to-manage online marketplace that is propelling us towards our dream of a trillion-dollar digital economy. The gaming industry looks poised to carry the baton in the next phase of innovation and growth.

It is estimated that there will be around 700 million gamers in India by 2026 and the size of the market will be close to USD 7 billion. This would make gaming one of the biggest sectors by reach and market size in India and also put us on the global stage as a frontrunner in game development and design.?

FRIENDLY ECOSYSTEM

This will need more investments, more homegrown talent, and even more support from all stakeholders. Start-ups, especially, will need progressive policies that can create an atmosphere of certainty and lower the risk for investors and new entrepreneurs. Policy predictability while creating an ecosystem that champions innovation and disruption is the key towards retaining great talent and enhancing ease of doing business.

Indian start-ups have had to move or explore other geographies like the US, UK, Ireland, UAE, Singapore for their headquarters with greater frequency. Favourable policies for growth and an ecosystem that continues to promote investments and entrepreneurship is the need of the hour.?

Although we have made strides in this direction, there is still a long way to go. In India, for example, the dividend distribution is taxed while Singapore avoids this taxation. A capital gains tax of around 15-20% is applied here, which can be perceived as a penalty for choosing entrepreneurship.?

At the same time, the capital gain tax rate in Singapore in 0%. The policy system could also do with a do-up. Start-ups are still finding their feet in the corporate world and can’t be drawn into a lengthy, time consuming and expensive court battles every time something doesn’t look right.?

A light-touch regulatory framework would be ideal to deal with start-ups where corrections work better than penalties. While cities like Tel-Aviv and countries like Singapore are doing their utmost best to promote start-up growth, there is scope to improve the Indian ecosystem for start-ups, starting with favourable policies for job creators of today.

NEED CENTRAL PLANNING

Apart from a central, ubiquitous and progressive policy framework under a progressive ministry like MeitY, the ministry and Niti Aayog can work together to formulate a central policy framework and oversee nationwide execution.?

As the entire framework will be dependent on whether the game in question has a preponderance of skill or luck. In that regard, a Skill Gaming Council (SGC) can be used to make the differentiation between skill and chance possible through audits and certification.

The gaming companies should appoint residential grievance officers to deal with consumer complaints. Companies can be given deadlines for action on the resolution of received grievances.?

In case of non-conformity to the laws, the defaulting companies can be reported to the state police for legal action by the consumers. The idea is to get the policymakers, the industry and all relevant stakeholders on the same page and work towards the benefit of the users.?

In this light, the Animation, Visual Effects, Gaming and Comics (AVGC) task force, announced in the budget, is a positive step towards achieving it and can also help recommend ways to build domestic capacity to serve Indian markets as well as the global demand.?

ONLY JUST

The Karnataka High Court Judgement has been welcomed and celebrated by the industry and millions of gamers but the reasons leading to such bans still need to be addressed. The Supreme Court’s intervention on the differentiation between ‘games of skill’ and ‘games of chance’ already made it clear that the former is legal in India.?

And yet, time and again, skill-based gaming companies have found themselves unfairly disadvantaged and held back from realising their full potential. Policy unpredictability is often cited as the biggest impediment for an industry currently employing thousands and expected to add over two lakh new jobs over the next three years given the right policy impetus.?

The gaming industry is still in its growing phase and there will be challenges along the way. It is only by doing that we can learn what needs to be done. Quoting a famous video game, Dragon Age II, "We stand upon the precipice of change… Watch for that moment and when it comes, do not hesitate to leap. The IT industry in India was that leap of faith and today an equally bright future beckons this new and transformative India of tomorrow into a brave new world.?

(Dr Subi Chaturvedi is a former member of the United Nations Internet Governance Forum and currently chairs FICCI’s committee on technology, policy and leadership. Views are personal)