India’s online gaming industry has witnessed a tremendous transformation in the past few years. The year 2023, in particular, has been a landmark for this booming sector, with significant developments that will shape the industry’s future.
According to a recent report by global consultancy firm EY, the market size of the online gaming industry is estimated at ₹16,428 crore in the financial year 2023, and the industry estimates suggest it will reach ₹33,243 crore in the next five years.
The key factors that contributed significantly to the sector's growth alongside regulatory changes included the rapid expansion of 5G networks and the availability of affordable smartphones. These have led to a massive influx of new users, particularly from Tier 2 and Tier 3 cities.
Going forward, we at IndiaTech.org see online gaming transforming into a mainstream form of entertainment.
Regulatory clarity – a turning point
A significant turning point for the online gaming sector in India was the appointment of the Ministry of Electronics and Information Technology (MeitY) as the nodal ministry on December 29, 2022. This move signalled the government's commitment to providing a robust framework for the industry and set the stage for a series of regulatory changes in 2023. After multiple consultations, the 'Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023,' marked a substantial overhaul of online gaming regulations.
One of the fundamental changes introduced by these rules was classifying an online game as a ‘permissible online real money game’ after verification by the self-regulatory body (SRB). The online gaming industry has been advocating for central regulation for nearly half a decade. The introduction of these rules has not only legitimised the sector but also allowed for innovation. Although the Self-Regulatory Bodies (SRBs) have not yet been notified by Meity, once they are, they will offer a framework for responsible and sustainable gaming practices.
GST resolution — a concern but still there is a silver lining
The year 2023 also saw the introduction of a new tax structure for the online gaming sector. After two years of deliberation, the GST Council agreed to levy a 28% GST on online gaming deposits, based on the report submitted by the Group of Ministers (GoM) formed by the GST Council. In addition, the government levied a 30% TDS on the winnings of online gaming.
The imposition of a 28% GST on deposits significantly impacted the online gaming industry. Consequently, numerous gaming start-ups ceased operations, and many larger gaming companies experienced layoffs. The sector decided to reorganise and restructure its operations to pave the way for the new taxation structure. As a silver lining, the GST council also decided to review its decision six months after implementation in October 2023.
Subsequently, the Directorate General of GST Intelligence (DGGI) issued 71 show-cause notices to online gaming companies, alleging GST evasion amounting to over ₹ 1.12 lakh crore. While the case is still under judicial consideration, if the gaming industry were to pay such a substantial sum, it could potentially lead to the complete collapse of the sector in India.
Although the government has repeatedly referred to its GST amendments as "clarificatory" in nature, these tax notices appear to signal the resurgence of retrospective taxation. This matter has previously generated controversy.
Outlook 2024— fueling digital economy
As the online gaming sector concludes 2023 with expectations for the announcement of Self-Regulatory Bodies (SRBs) from MeitY and the resolution of the GST notices, the industry's outlook remains optimistic.
The sector is crucial in contributing to the government's $1 trillion digital economy vision. Moreover, the industry has generated employment for approximately one lakh individuals, both directly and indirectly, with the potential to create up to 2.5 lakh job opportunities by 2025.
Although user safety remains a primary concern for the government, mainly due to recent incidents allegedly linked to the Mahadev app, establishing SRBs can help address this issue. The SRB will collaborate closely with the government and industry stakeholders to develop a framework that prioritises user safety. Recognising the importance of this issue; the sector has also taken a proactive approach by signing a voluntary 'Code of Ethics for Online Gaming Industries' aimed at fostering a safe, trusted and accountable online gaming ecosystem with a focus on user safety.
The online gaming industry has experienced significant turbulence recently, with 2023 bringing challenges and hope. Moving forward, 2024 is expected to provide greater clarity and foster sustainable growth for the sector.
—The author, Rameesh Kailasam, is CEO of Indiatech.org, the technology services industry association. The views expressed are personal.
(Edited by : C H Unnikrishnan)
First Published: Dec 29, 2023 10:38 AM IST
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