A consultative approach between various levels of the government might be in line with the public policy given that the underlying activity is both economic and social in nature.

Introduction

The Government of India recently passed the IT Amendment Rules, 2023 in which it has recognised the online gaming industry. Some of the key provisions of the law include that there should be a clear demarcation between play of an online Real Money Game (RMG) and a general online game, and there should be further constitution of multiple self-regulatory bodies (SRBs) which would be the nodal authorities to issue permits to the online RMGs. The said SRBs, however, have not yet been notified even after passing of two years of the law reflecting gap in the policy and even raising larger questions whether there the legality of online RMGs, which remains the bone of contention, should be considered afresh.

Regulation of digital markets

It is important to note that there are multiple facets of digital markets. One of the primary considerations is high economic growth and efficiency gains. For instance, the advent of AI is not only expected to make a direct contribution of $121bn to the economic growth but it has also resulted in technological breakthroughs in the field of medical science and education. Similarly, the provision of social media services has not only allowed the users to connect in a unique manner at the comfort of home but also revolutionized the online display advertising industry at the same time.

Given this background of economic efficiency, various laws and policies evolve. Some of the key governance issues which have emerged in the digital industry include the presence of consumer welfare and the user safety. The government is currently working on a ‘family of digital laws’ approach in order to address these concerns so that the underlying economic gain could be maximised while minimising the social harm caused. These ‘family of digital laws’ more generally involve presence of a disclosure regime, application of consumer and data protection laws and ensuring competition in the market.

Online gaming industry as a challenge

Given the overarching principles of policy making, the online gaming industry remains more of a challenge. As far as economic efficiency is concerned, there are multiple analyses which suggest that there is a huge economic potential available within the industry to the tune of INR 66,000 crore. There might be a further scope of generating over 10,000 direct and indirect jobs through this sector underlying its importance. The government might be able to collect GST and corporate tax (on winning) of INR 3,000 crores and 10,000 crores respectively.

Despite the presence of such an economic potential, the government has adopted a ‘second-look’ approach when it comes to legalising the online RMGs. This hesitance underlines the need for a closer look as far as the harms caused by this sector are concerned. A critical analysis of the IT Amendment Rules, 2023 would suggest that some of the core concerns when it comes to permitting online RMGs is about financial loss and addiction. These concerns get reiterated in the legislative documents enacted in Tamil Nadu and Karnataka where the governments have held that online RMGs might lead to unsustainable debt and financial distress. In fact, the concern around addiction and psychological harm is worrying as the proposed theory of harm traverses from economic to social arena.

Game-of-skill vs. game-of-chance fallacy

For some reason, the discussion on legality of online gaming has been hijacked by the false dichotomy of ‘game of skill vs. game of chance’ before even a distinction between online games and offline games is drawn. This differentiation is important because a common thread between all legally permissible offline games and sports is that they involve some element of physical activity. This aspect is totally lost in online gaming, even though they are played on a non-RMG basis, requiring the government to adopt a nuanced approach. In fact, this is one of the many reasons why both, the central and the Tamil Nadu government, did not get seduced in this distinction trap and rather correctly kept the larger question on user psychology open.

Way forward

It is imperative that there is a concrete law and policy framework for sustainable economic growth. Digital markets are no exception to this rule. While online activity has mostly contributed positively to the economic discourse, the question on the applicable theory of harm in the case of online gaming raises unique questions. Occasionally, an activity which is usually considered economic in nature may traverse to the social domain and online RMG is a typical example of it. In such a case, any call for uniform regulation at the central level may be a farcical exercise. Every state government is accountable to its citizens for delivering governance and maintenance of law and order. In such a case, a consultative approach between various levels of the government may be more in line with the public policy rather than inviting any confrontation. The constitutional courts should also adopt a wait-and-watch approach rather than pronouncing on a knee-jerk basis.

The article has been written by Mr. Sumit Jain and Abhishek Raj who are Directors at the Centre.