Move to regulate online gaming

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    The Ministry of Electronics and Information Technology (MeitY) has released draft amendments in relation to online gaming.

    Online gaming sector in India

    • The revenue of the Indian mobile gaming industry is expected to reach $5 billion in 2025. 
      • The industry grew at a compound annual growth rate (CAGR) of 38 percent in India between 2017-2020, as opposed to 8 percent in China and 10 percent in the US.
    • The pandemic saw a huge spurt in the popularity of online games. 
    • While some of them are games of chance, many are games of skill. 
      • This includes crossword puzzles, bridge, rummy, poker, scrabble and other games that require the application of mind and an element of skill. 
    • The distinction between a game of chance and a game of skill has been maintained for over 150 years. 
      • The Public Gambling Act, of 1867 expressly excluded games of skill from the purview of the expression “gambling”. 
        • Section 12 of this vintage law stated: “Nothing in the foregoing provisions of this Act contained shall be held to apply to any game of mere skill wherever played.”
    • Courts have repeatedly held that money involved in the playing of a game of skill would not amount to gambling.
    • A serious controversy arose as to whether horse racing was a gambling activity.
      • In a detailed judgment, the Supreme Court held that horse racing was a game of skill and could not be treated as gambling. 
    • Parliament has maintained the distinction between the two categories of games and has continued to hold that games of “mere skill wherever played” will not amount to gambling.

    Major Highlights of the proposal 

    • The proposals are aimed at safeguarding the interests of users by introducing set procedures and norms for verification and user engagement. 
    • It defines what constitutes an ‘online game’.
      •  It is “a game that is offered on the internet and is accessible by a user through a computer resource if he makes a deposit with the expectation of earning winnings”. ‘
      • Winning’ constitutes any prize, in cash or kind, intended to be given to the participant “on the performance of the user and in accordance with the rules of the such online game”.
    • The game operators would have to verify users on the platform and provide them with the terms of services
      • They would also have to be informed about the risk of potential financial loss and addiction associated with the game.
    •  The self-regulating bodies’ framework must also include safeguards to protect children. 
    • Before hosting or publishing a game, the platform would have to verify it from the self-regulatory body it is associated with. 
      • It would then be required to carry a registration mark on all its recognised online games. 
    • MeitY is entrusted with the responsibility of recognising and if required, unrecognising all self-regulated bodies under the proposed framework. 
    • The gaming intermediaries must have a physical address in the country which must be published on their website and app.

    Significance 

    • The idea is to ensure that online games are in conformity with Indian laws and to safeguard users against potential harm. 
    • It will bring online gaming under comprehensive central regulation. 
    • These rules will help curb the menace of anti-national and illegal offshore gambling platforms.
    • A uniform framework such as this will immensely increase investor confidence. 
    • The rules, built on principles of fairness, transparency, and independence, will help protect players and promote safety in gaming.
    • This will help create a more responsive and agile framework to prevent harm and address user grievances

    Concerns and Challenges 

    • The rules still bucket all gaming intermediaries into a broad category irrespective of size or risk. 
      • They all require similar compliances, including the need to have India-based officers. 
      • This can disproportionately burden young start-ups, and make it difficult for global players to start their services in India.
    • It is also possible that many online games in India will shut down and the business will go overseas.
    • The net result will be lower tax revenue and large-scale unemployment.
    •  The moral dilemma seems to plague the Group of Ministers in deciding whether online games should be subject to tax at the highest rate of 28 percent on the entire collection or only on the platform fee charged by the gaming company.
    • Online games are played through servers and electronic equipment that can be located anywhere in the world. 
      • It would then lead to unnecessary investigative activity on the part of the GST authorities. 

    Conclusions and Way Forward 

    • This is a first step toward comprehensive regulation for online gaming and will hopefully reduce the state-wise regulatory fragmentation that was a big challenge for the industry. 
    • These rules will go a long way in ensuring consumer interest whilst helping the industry grow responsibly and transparently
    • It is economically unwise to look at online games from a purely GST perspective.
      • The employment potential of online games must also be examined. 
    • There should be a widespread public consultation to ensure that economic rights, individual freedoms, and social imperatives remain in balance.

    Mains Practice Question 

    [Q] Why India’s online gaming industry needs a regulatory architecture?Comment