India's Self-regulatory Bodies Address Testing Woes For Smaller Gaming Startups

Gaming startups and companies are proposing at least two self-regulatory bodies (SRBs) to the Centre by the end of this week. The SRBs will recommend a testing framework consisting of several tests to determine whether a game is a game of skill or chance. 

The SRBs will submit details of the board of directors from various areas of expertise. The approvals for the respective SROs are likely to arrive within the next fortnight.

Of the two SRBs being proposed, one is by the All India Gaming Federation (AIGF) members, whereas companies' members of the e-gaming Federation (EGF) and the Federation of Indian Fantasy Sports are likely to jointly form the other SRB.

The Ministry of Electronics and Information Technology (MeitY) announced new regulations for online gambling on 6 April. These regulations forbid any game that incorporates betting or wagering and entail a framework of multiple self-regulatory organisations (SROs). The Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021 have undergone new amendments that incorporate these rules.

In February, the central government started this process by appointing Meity as the nodal ministry for online gaming. Afterwards, there were a series of discussions with the industry, player associations, and educators to figure out if they were going in the right direction.

Certification process and test criteria:

Roland Landers, CEO, All India Gaming Federation stated, "At AIGF, we are going to follow a two-pronged method called subjective qualitative test and quantitative test. The first will ensure that the games are in line with Supreme Court and High Court precedence on the game of skill laid out in various cases. To support the qualitative test, there will be a quantitative test based on statistics and data. The nature of this quantitative test may vary from game to game, including tests based on historical data to simulation-based tests."

According to industry sources, the other SRB's proposal will consist of seven tests to establish whether games are based on skills or chance. For games to receive provisional certification in India, they must pass six tests. After passing the seventh test, they will have three months to apply for the final certificate.

When it comes to smaller startups' apprehension of lacking resources to carry forward the certification process, sources revealed to BW Businessworld that bigger companies can opt for a simulation test with enough data and resources. 

Smaller companies will be provided with the option based on the set principle that if they have a dearth of data initially, they may run a limited test with a test group finalized by the board of directors of SRB. After a certain period, once the game is active and has enough data, they may run the requisite two to three stringent tests.

Market scope

India's gaming revenue expanded from USD 2 billion in FY21 to USD 2.6 billion in FY22 and is expected to increase at a CAGR of 27 per cent to USD 8.6 billion in FY27, according to Lumikai, a gaming and interactive media venture fund. Out of USD 2.6 billion, approximately USD 1.5 billion came from pay-to-play gaming, which represents almost 58 per cent of the industry's revenue. There are 430-460 million gamers in India, and this number is expected to reach 600-650 million by FY25.

Commenting on the industry, Rajeev Chandrasekhar, Union Minister of State for Electronics and Information Technology said, "Online gaming is certainly a huge opportunity for India and young Indians. We see the Indian online gaming ecosystem expanding and growing into a multi-billion-dollar industry and being an important catalyst to India's one trillion-dollar digital economy goal by 2025-26, with very clear restrictions on online wagering and betting."

He further conveyed that there will be multiple SROs, and these SROs will have participation from all stakeholders, including but not limited to the industry.

Positive investor interest and economic opportunities

Experts believe that the proposed framework for online gaming firms in India is the best possible solution and sets a positive path for the industry. The guidelines provide clarity, attracting investors and facilitating the sector's growth.

Moreover, industry pundits convey that the framework promotes innovation, strengthens the "Make in India" initiative and enhances India's brand image. It also drives the growth of India's tech industry while ensuring responsible and transparent practices, protecting consumer interests, and preventing the spread of illegal offshore gambling sites. Overall, the new guidelines create new career and economic opportunities and contribute to India's technological advancement.

Data and cybersecurity

With 430 to 460 million gamers, cybercriminals will increasingly target the online gaming industry, disguising themselves as gamers and breaking into their victims' computers and personal information.

"Gaming, being a technology-based industry, falls under the already available data protection laws in the IT Act, which are applicable to everyone and not just gaming. In addition to that, because money is involved in this game, companies will have to come up with measures to protect user funds and have policies in place to ensure safe user funds," explained Landers on new rules assuring cyber safety.

Underscoring other mandates to be followed, Gaurav Kapoor, CFO, Baazi Games, mentioned that the set of regulations for the online gaming industry within India, like the company having a base in India and appointing a compliance officer responsible for all compliances of the gaming company, and the Nodal Officer being available 24 hours to hear the law and enforcement agencies and respond back in an appropriate time, have already been brought into the regulation.

Silver lining for legal tussle ahead

Betting and gambling activities are banned under various state laws, while a few games of skill have been held to be constitutionally valid by the Supreme Court in various judgments. However, the online gaming industry in India has seen immense growth in the recent past in this legal landscape. The Supreme Court has laid out that the preponderance of skill over chance makes a game, a game of skill.

On the tussle between state regulation and court-defined game of skill, Landers stated that now that the rules have come, in a year or so, the state will only govern games of chance. Moreover, the states will also get clarity that they can follow the central rules on games of skill and will have a clear understanding that their mandate lies in games of chance only, he added.

Hits and misses

"Within the new set of rules, Know Your Customer (KYC) of all players on all platforms is mandatory. Secondly, under FEMA, we cannot allow foreign players to play on our site. When governed through these rules, the companies will be able to provide data to the government, which in turn will prevent all types of money laundering, terror funding, etc.," commented Kapoor on apprehensions around the repercussions around the games.

Kapoor further reflected that the part where the government has to work harder is to prevent offshore companies from abetting. "Because they don't have a KYC mechanism, they accept any sort of money coming in and to be paid out once you win. That is the menace which needs to be controlled," the CFO mentioned.

Foreign Landscape

"Across Europe, most of the countries have a gaming commission that looks at both online and offline games of skill and chance. Different sets of rules are applied, respectively. If it's a game of chance, then the game can only be played in a licensed casino. This exists in India too but in only a few states," Kapoor presented a comparative global view.

Meanwhile, the establishment of self-regulatory bodies and the proposed testing framework marks a vital landmark in regulating the Indian gaming industry, providing clear and objective standards for differentiating games of skill from games of chance. With the expanding market scope and user base, a robust regulatory framework will contribute to the growth and sustainability of the online gaming sector in India.