As the Indian gaming industry has clocked $3.1 million in FY 2023 and is expected to be at $7.5 million by FY 2028, a nuanced approach with a proactive government role in crafting and implementing checks and balances, in consultation with industry players, is crucial for fostering a conducive environment. This, along with cascading responsible ethical practices, will be key to unlocking the full potential of India’s gaming sector.
Gaming vs Gambling
With the exponential rise of the online gaming industry, distinguishing between gambling and gaming is crucial. Gaming involves skill-based activities, strategic thinking, and immersive experiences, while gambling entails wagering money on uncertain outcomes with chance playing a critical role.
The Supreme Court of India, in its landmark decision in Lakshmanan vs State of Tamil Nadu (January 1996), highlighted the difference between games of skill and chance. In a game of chance, you either rely solely on luck or a combination of luck and skill whereas in games of skill, success primarily depends upon the player's knowledge, experience, and abilities even if they involve an element of chance.
Further in Head Digital Works Private Limited vs State of Kerala case (September 2021), the Kerala High Court struck down a notification seeking to ban online rummy when played for stakes and held that the skill required in playing a game does not depend upon stakes and is not a criterion to gauge whether it is a game of skill or not.
Recently, in the All India Gaming Federation vs State of Tamil Nadu (November 2023), the Madras High Court partly upheld the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022 prohibiting all forms of online games in Tamil Nadu. It also held that the provisions of this Act would only regulate the games of chance played for stakes in Tamil Nadu and games of skill would not come under the purview of the prohibition.
Legality and Ethics in Online Gaming
The 7th Schedule of the Constitution empowers each state in India to enact laws related to "betting and gambling", resulting in varying regulations across states. For instance, Telangana and Andhra Pradesh have prohibited all online games, eliminating the exemptions for games of skill. However, Sikkim and Nagaland have established licensing systems for various online games.
Recent central government interventions, including amendments to the Central Goods and Services Tax Act, 2017 and the Integrated Goods and Services Tax Act, 2017, effective from October 1, 2023, bring uniform changes impacting casinos, horse racing, and online gaming, and the concern around a 28% tax on winnings. Overseas suppliers of online money gaming are now mandated to register under the goods and services tax (GST) regime.
The Ministry of Electronics and Information Technology has established a central legal framework for online gaming via amendments to the Information Technology Rules, 2021 and Intermediary Guidelines and Digital Media Ethics Code. These are the “Online Gaming Rules,” to prevent gambling, user harm, and money laundering, especially in case of access to “online real-money games” to the public.
The online gaming industry has witnessed the execution of the Code of Ethics for Online Gaming Industries by the Internet and Mobile Association of India at the Indian Gambling Convention, 2023 to create a safer gaming environment. The code allows customers to define their gaming restrictions, employ advanced tech tools for behaviour monitoring, and implement safety precautions for children and vulnerable sections. It emphasises age-appropriate content, preventing minors from accessing real money.
Impact of AI and Ethical Challenges
The Digital Personal Data Protection Act, 2023 (DPDP Act) plays a key role in integrating artificial intelligence (AI) in India. The future trajectory of AI regulations will be influenced by ongoing discussions, legal interpretations surrounding the DPDP Act and the evolving landscape of online gaming regulations at central and state levels.
The DPDP Act mandates stringent regulations on personal data handling which applies to the processing of digital personal data within India, whether collected in digital form, or non-digital form and digitised subsequently. Section 4 of the DPDP Act lays down the grounds on which data can be processed, with consent given by the data principal for legitimate uses. The consent provided under Section 6 of the Act must be “free, specific, informed, unconditional, unambiguous, with the specific purpose” for which the data is processed being clarified, including provisions for withdrawal and repeat consent.
AI algorithms offer endless online gaming experiences and curtail expenses however homogenisation and quality control questions exist. Heavy reliance on AI to develop online gaming content deprives the games of their uniqueness, thereby restricting innovation. An ethical dilemma arises with respect to the permission and transparency in data collection, as gamers may not be aware of the scope and intention of data collecting while engaging in online gaming.
Conclusion
Thus, with India's online gaming industry poised to expand exponentially, expected to reach 600-650 million users by FY 2025, 2024 marks a pivotal year for the gaming sector as a whole. It also necessitates a comprehensive legislative framework to address the myriad ethical concerns, including addiction, financial loss, fraud, and data security breaches.
Furthermore, the necessity of implementing measures to issue repeated warnings to users breaching time or monetary limits cannot be overlooked. Such regulatory clarity is not only imperative for instilling confidence and ensuring accountability but also serves as a catalyst for innovation, attracting investment, and fostering sustained growth in the online gaming industry.
As India charts its course through this rapidly evolving landscape, proactive efforts in formulating inclusive and responsible regulations are paramount to unlocking the full potential of the online gaming sector while safeguarding the welfare of all stakeholders.
—The authors; Srikant C V, is Partner, Achint Kaur, is Counsel Associate, and Shreya Mishra, is Associate, at law firm Khaitan & Co. The views expressed are their personal.
(Edited by : C H Unnikrishnan)
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