Online gaming and gambling are two different activities that are often confused or considered together, due to their association with the internet, and the potential for financial transactions. Online gaming refers to the act of playing video games or computer games over the internet. This can be done individually, or as part of a multiplayer experience, where players from around the world connect and interact with each other in virtual environments. Online gaming can be entirely for recreational purposes, allowing players to compete against others, complete missions or quests, or explore virtual worlds.

On the other hand, online gambling involves the act of placing bets or wagers on various games. In India, online gaming is a rapidly growing industry, and it includes a wide range of games, such as skill-based games, fantasy sports, poker, rummy, and more. These games are legal and regulated under the framework of the Public Gambling Act, 1867. Skill-based games, like chess, carrom, and online multiplayer games, like PUBG, Fortnite, and Call of Duty, are popular among Indian gamers.

These games are considered legitimate, and do not fall under the legal definition of gambling because their outcome relies heavily on the skill, and decision-making ability of the player. However, some skill-based games that involve real money transactions, have faced scrutiny, with debates on whether they should be categorized as gambling or games of skill. Games like poker and rummy have faced legal challenges, with some states classifying them as games of chance and others defining them as skill-based games.

In the case of fantasy sports, which involve creating virtual teams and earning points based on the real-life performance of professional players, it is largely considered a game of skill, and has gained massive popularity in recent years. On the other hand, online gambling, specifically involving games of chance, like online casinos and betting on sports events, is generally considered illegal. The Public Gambling Act, 1867, prohibits operating or visiting gambling houses but it is not sufficient to deal with online gaming or gambling. Overall, the Indian online gaming and gambling landscape is complex and evolving, with debates related to the classification of certain games and the regulations surrounding online gambling.

The legal framework is varied among different states, and it is essential for entities to understand the laws and regulations specific to their region to engage in online gaming or gambling activities. In India, the online gaming industry has witnessed phenomenal growth, especially during the Covid period, and this trend is going to continue. If we look at its contribution to the economy, data reveals (as per a KPMG report) that, in FY 2021, there were 433 million online gaming users, giving a revenue of Rs 136 billion ($1.6 bn).

This number is expected to go up to 657 million users, and revenue to the tune of Rs. 290 billion ($3.5 bn) by 2025. According to this report, casual gaming industry’s ad revenues amounted to Rs 3,600 crore in FY 2021, making up to 60 per cent of casual gaming revenues, and are forecast to increase at a CAGR of 29 per cent to Rs 9,900 crore in FY 2025. With the arrival of 5G and cloud-based gaming, subscriptionbased models may acquire market share in the mobile based casual gaming industries worldwide, and in India. Revenue stream from the subscription model is more reliable than the advertising model. In fact, the affordability of high-speed internet, increase in the volume of digital payments along with rise in the usage of smartphones, and tech savvy younger generation in our country, are causative factors for this phenomenal growth and prospects. Government stands to gain substantially by taxing gaming, and with improved laws, it can control a vast, unreported sector. The growth of the economy will also be positively affected. Recently, resisting all pulls and pressures from gaming industry associations and pressure groups, the GST Council, has agreed to levy 28 per cent GST on full face value of gaming transactions.

Amended legal provisions and rules for online gaming, horse racing and casinos came into effect from 1 October 2023, bringing into effect the 28 per cent GST at face value at entry level, and mandatory registration for offshore online gaming companies. Officials on their part have started issuing huge tax notices to such companies, and notices worth Rs one lakh crore have been issued so far. However, the growth of online gaming sector in India coincides with growing socio-economic concerns related to addiction in youth, especially children and working adults, content-related concerns in terms of depiction of violence or other inappropriate content, ads of off-shore gambling and betting websites targeting Indian users, risks of money laundering and financial frauds in the absence of any strict KYC mechanism. The Union Government, being aware of the potentialities of the positive and negative aspects of the gaming industry in India, has taken incremental steps towards regulating online gaming.

The Ministry of Electronics and Information Technology (MeitY) has been made the nodal ministry for online gaming and e sports. After due deliberations with experts and stakeholders, the ministry on 6 April 2023, notified detailed amendments to the Information Technology (intermediary Guidelines and Digital Media Ethics Code) Rules, 2021.

The purpose of these amendments is to control the unabated and unwarranted negative impact of online gaming activities on users, especially children and other vulnerable sections of society. The amended rules notably provide for a Self Regulatory Body (SRB) which will have the authority to inquire and satisfy itself that the online game does not involve wagering on any outcome, the online gaming intermediary and the game complies with the rules, the requirements under law for being competent to enter a contract, and a framework made by SRB regarding safeguards against user harm, including psychological harm.

It is obligatory on the part of intermediaries to make reasonable effort to not host, publish or share any online game that can cause harm to users, or that has not been verified as permissible by designated SRB. There is an additional obligation on the intermediaries in relation to games involving money, by way of displaying mark of verification on such games; informing users of the policy for withdrawal or refund, manner of determination and distribution of winnings, fees, and other charges; obtaining KYC details of users, and not giving credit or enabling financing by third parties to the users.

The rules address addiction related concerns through safeguards, such as warning messages, monetary spending limit, and time limit. These rules mandate that SRBs are held accountable for performing their functions responsibly. However, online gaming has serious national economic security implications as well. There are varied means of money laundering through online games, and one of them is in-game items purchased by the players, for enhancement of gaming experience, and which have real life value outside the game.

Such items are purchased using virtual currencies, using funds acquired through hacking/phishing, or through a labyrinth of exchanges amongst multi-player online game characters, which are hard to identify, and which enable cross country movement of money. Certain online games allow players to buy “loot boxes” which contain unknown sums and can be used in the game after its contents are accessed post purchase. Loot boxes have become a popular avenue for money laundering. The anti-money laundering (AML)laws in India require ‘reporting entities’ like banks, financial institutions, and persons carrying on designated business, which includes games of chance, to undertake client verification before commencing a business relationship.

Such entities are required to maintain records of prescribed transactions, like transactions crossing Rs 10 lakh, and suspicious transactions effected in cash. While the reporting entities are obliged to report non-monetary transactions as well, it does not explicitly cover online gaming companies. However, recent imposition of heavy penalty by the FIU-India on an online payment system, despite their contention that it is not a reporting entity, is an illustration of the strict stance the authorities can take to uphold the spirit of law. FIU-India in its order has emphasised the need for AML laws to cover entities that facilitate cross border transactions through various payment systems. Besides money laundering, criminals also exploit the gaming sites for committing various cyber-crimes, like extracting vital bank and personal data, by way of gaining access to the smartphones of the users through download of the games. In short, online games provide a fertile ground for serious cyber and economic crimes impinging on national security.

Gaming and gambling have a lot of common ground, and there is a hairline difference. Advantage of the same is taken by online gaming companies for earning huge amounts of money, especially true of offshore companies. Elements of gambling can be found in a variety of online games, whereas the laws governing the same are not very clear.

Perhaps amendments in the IT laws, as the entire action takes place in cyberspace, to make online gaming or gambling a serious crime, are required. Present laws do not have enough deterrence to prevent the misuse by unscrupulous elements, which at times adversely impacts national security

(The writer, a retired IPS officer, has served in various capacities including as Commissioner of Delhi Police, DG-BSF, DG-NCB, DG-BCAS and Special Director, CB)