On Valentine’s Day, the Karnataka High Court removed one barrier to the growth of the high-potential online skill-based gaming business.
The court ruled in favour of petitioners representing various online gaming platforms and upheld the differences that separated gaming from gambling. In the process, it quashed various sections of the Karnataka Police (Amendment) Act 2021 that seemed to blur the differences.
With this verdict, the Karnataka High Court becomes the third one in southern India to align with several judgements of the Supreme Court, which hold that games of skill do not come within the ambit of Entry 34 of the State List in the Seventh Schedule of the Constitution, which allows states to regulate “betting and gambling.”
If gaming is not gambling and involves the use of skill, whether physical or mental, the state cannot arbitrarily place roadblocks in the path of this industry.
In her recent Union budget, Finance Minister Nirmala Sitharaman talked about the creation of a task force to investigate and better understand the animation, visual effects, gaming, and comics sector, an announcement that has largely been lost in the din over other initiatives — especially capex increase.
This is what she said in paragraph 81 of her relatively short speech: “The animation, visual effects, gaming, and comic (AVGC) sector offers immense potential to employ youth. An AVGC promotion task force with all stakeholders will be set-up to recommend ways to realise this and build domestic capacity for serving our markets and the global demand.”
High time. This article will focus on gaming, even though it may involve other aspects of AVGC in software development, because it is turning out to be a multi-billion-dollar area of opportunity not only for skilled game creators, but also for allied industries that support gaming, including semiconductors, banking, fintech, and telecom.
Estimates put the number of people directly involved in gaming at just under 50,000, but this number could explode quickly if given the right push. Through the spillover effect (and because of how tech-intensive the online gaming industry is), we will see a rapid increase in employment opportunities in allied sectors as well. With 5G and other relevant technologies soon to be rolled out and the onset of the metaverse, the online gaming sector is ready to take off vertically.
According to a KPMG report, the Indian gaming market is likely to more than double from $1.83 billion in 2021 to $3.91 billion by 2025. The total number of players will rise from 433 million now to 657 million. That’s like half the population.
The main challenge arises from a difference of just two letters — “b and l” — that separates gaming from gambling. The latter faces serious legal curbs and social disapproval, while the former involves the use of skill.
In one line, what separates gaming from gambling is the element of skill that players must develop, even though there is always an element of chance in all human activity. Thus, a preponderance of skill over chance to gain an insight into the most likely outcome is essential in the realm of online games of skill. This can involve both physical and mental skill, while gambling is about sheer randomness, both in the game and in outcomes.
This difference is not well understood in the Indian polity or even by journals of repute, where, despite the recent Karnataka judgement, we continue to see the matter being misrepresented in the press as ‘legalisation of gambling!’
In India, the laws to regulate gambling date back more than a century and a half to 1867, when the Public Gambling Act was passed by the colonial government. But post-1950, when the Indian Constitution came into being, “Betting and Gambling” were shifted to the State List even though the 1867 Act remains in force.
In short, states can — and are — making laws to restrict or regulate gambling, but do not have the legislative authority to create laws for the online gaming space under Entry 34 of the Constitution of India.
Technological advances require nuanced regulation and not a blunt instrument to prevent regulatory arbitrage. But technological change is usually many steps ahead of lawmakers’ ability to comprehend the changes, which leaves one wondering who — centre or state — is best equipped to regulate the sector.
If the gaming business is to flower and soar, it needs a field not littered with legal mines — especially keeping in mind investor interests and India’s mission to improve her Ease of Doing Business index.
The logical way out is for the centre to consult states, frame a model Gaming Act, and identify a federal ministry that will guide the burgeoning industry. If we want to integrate with the potential of the metaverse and create invaluable investment opportunities for India, this first step must be taken.
This is probably why the Finance Minister suggested a task force to promote gaming and understand the AVGC sector. Whatever she does, getting the states on board is vital to giving the gaming business a huge liftoff. States have to get their act together, and the operative word is “together.”