Gambling Gains: How Online Betting Boosts India’s Revenue Amid Legal Challenges

 

Online gambling has become a significant issue in India, attracting a large number of users despite being banned and socially stigmatized. A significant portion of the population engages in online gambling annually. This activity lures the youth, including the highly educated and capable, into a trap of easy money. Presently, the country’s ecosystem is perfectly ripe for an online gaming explosion, with the number of users expected to reach 25.6 million by 2029. However, this growth comes with significant harm to individuals and society at large.

Online platforms and apps offer a variety of games - from traditional card games to games found in casinos and sports betting. A significant advantage of online gambling is convenience, choice of games and anonymity. Today, millions of people are signing up for fantasy gaming apps like Dream11, My11Circle, and MPL. These apps allow users to assemble virtual teams made up of actual athletes and pit them against other teams to win cash or other incentives. Initially, people may win a few thousand rupees, but greed often leads them to lose everything.

Online gambling platforms use sophisticated design techniques to keep players engaged and addicted. This includes pairing players with bots, creating a sense of urgency, and using UI and animations to maximize winnings and minimize losses. However, the anonymous nature of online transactions can lead to data breaches and identity theft.

Despite being outlawed in many parts of the country, online platforms openly promote gambling, often disguising it as “gaming.” Delhi, Maharashtra, Telangana, Karnataka, West Bengal, Tamil Nadu, and Odisha are the main states where online gambling is at its peak. Even regions like Kashmir have increasing reports of young people using these internet betting sites, raising concerns about the long-term effects on the moral and social norms of Kashmiri culture.

The insidious trap of most online gaming platforms, especially fantasy league platforms employ celebrities and influencers to endorse and promote their betting activities, giving the impression that indulging in such activities is acceptable. Almost all betting platforms use celebrity endorsements, which further normalizes the practice. However, this needs to be looked into as it highlights several insidious strategies used by these platforms.

These gaming apps create a sense of urgency and false achievement. Because of this, players are forced to play for long hours without breaks, pay high fees, and participate in multiple games and tournaments, all with their real money. Due to their addiction to online gaming and gambling, there have been several cases of people ruining their financial situation and even taking their own lives. Regulation of the sector, akin to that of traditional gambling, is the only option to put an end to this.

Many individuals end up in heavy debt due to their gambling habits. This may cause them to borrow money, sell assets, or even engage in illegal activities to feed their addiction. This financial pressure on families can be devastating, leading to broken relationships and a reduction in overall quality of life.

Field experts attribute the surge in online gaming to the poor economic conditions and unemployment in the country, where youth are struggling to give up the addiction. Presently, a considerable proportion of adults and teenagers are seeking treatment for addiction to technology, specifically online gambling and betting. Gamers may develop an insatiable thirst for the rush of victory, leading to excessive time and money spent on these pursuits. This can result in interpersonal difficulties, financial troubles, and neglect of responsibilities. Over time, addiction can deteriorate both physical and mental health.

With millions of Indians spending billions of rupees on various games every year, the country's online gaming market has become a significant industry. It is also a fantastic source of tax income for the government. Since the government has no control over this industry and there are no laws governing this industry, it is essentially unregulated. This means that users of online gaming, especially players, have no protection against these sites.

How much revenue and profit does the government receive annually from these gambling apps?

India's online gambling market is expected to grow at an annual rate of 8.59% from 2023 to 2027, with 12.17 million users projected by 2027. The average revenue per user in this market could reach $291.83. During the pandemic lockdown, online gambling games saw a 40% growth.

The government receives more tax income as a result of this growth, as online gambling significantly increases the amount of money collected through the combination of income tax on winnings and GST on bets. Through a variety of tax systems, online gambling generates substantial tax revenue for the Indian government. For instance:

Income Tax on Winnings: Section 115BBJ of the Income Tax Act levies a flat 30% tax on winnings from online gaming. All gains, including bonuses, referral fees, and other incentives provided by online gambling sites, are subject to this tax. Net wins over ₹10,000 are subject to Tax Deducted at Source (TDS), which must be subtracted by the gaming operators before prizes are disbursed.

Goods and Services Tax (GST): The entire amount wagered on internet gaming platforms is subject to a 28% GST. Both skill-based and chance-based games are covered by this GST, which generates a sizable income stream for the government.

These tax structures are aimed at controlling the growing online gambling market, while also ensuring that the government derives financial benefits from it.

The profitability of online gambling websites varies widely based on factors such as the type of gambling offered, platform size, competitive landscape, regulatory environment, marketing strategies, and user experience quality. The top 15 revenue-generating companies in this segment, including Dream11, Gameskraft, Games24x7, A23, and MPL, cumulatively generated ₹9,093 crore in topline during FY22.

Dream11 stands out as the leading fantasy sports and real money gaming company in India. In 2022, Dream11 generated over ₹38 billion in revenue and reported a profit of ₹188 crore for FY23, with revenue rising 66% year over year to ₹6,384 crore.

In 2022, the Indian fantasy sports sector brought in an estimated ₹68 billion. During the IPL 2024 season, fantasy sports platforms earned a gross gaming revenue (GGR) of $510 million, marking a 27% increase from the previous year.

The total revenue of the Indian gaming industry is expected to grow from USD 3.1 billion in 2023 to USD 6 billion by 2028. These easily accessible games constitute nearly 80% of the country’s online gaming industry, according to the E-Gaming Federation of India (EGF), which advocates for self-regulation of the booming sector.

With an annual growth rate of around 30%, the online gaming industry in India is the fastest-growing sector of the media and entertainment industry, boasting over 400 million users.

According to AIGF (All India Gaming Federation) estimates, the online gaming business generates over $1 billion annually and could create nearly 50,000 new jobs by 2025. AIGF also highlights that a booming gaming industry requires game developers, IT support, and massive customer care teams to manage the rising number of subscribers. Instead of a complete ban, AIGF is open to working with lawmakers to draft regulations.

Overall, in the fiscal year 2021, the online fantasy sports sector of India’s online gaming market was valued at over ₹20 billion. This market size is projected to exceed ₹50 billion by the fiscal year 2025.

Read also: Does the video game industry support gender inequality

The Complex Legal Landscape of Online Gambling in India,

The legal landscape for online gambling in India is complex. The primary law governing gambling in India is the Public Gambling Act of 1867, which prohibits running or being in charge of a public gambling house. However, it does not explicitly address online gambling, as it was enacted long before the advent of the internet.

Online gambling is also a state-wise subject in India, meaning each state has the authority to formulate its own laws regarding gambling. As a result, the legality of online gambling can vary across states.

Supreme Court’s Distinction: The Supreme Court of India divides online gambling into two categories – “games of skill” and “games of chance.” The Court stated that skill-based games such as poker and rummy, which rely on the player’s ability rather than luck, are generally considered legal. However, games of chance, which are primarily based on luck – such as most casino games – are generally prohibited. This distinction is important in the context of online gambling as it establishes the legality of different games.

The Supreme Court is currently considering a sizable number of petitions related to this matter. The ease of access to gambling portals and the absence of an appropriate legal framework can lure people into a cycle of debt and hopelessness.

AIGF’s Role: There is an ongoing debate about creating a comprehensive regulatory framework for online gambling in India. The All India Gaming Federation (AIGF) advocates for self-regulation and working with lawmakers to draft regulations that ensure consumer protection and fair play. The AIGF, which calls itself the apex body for online skill-gaming, emphasizes the need to differentiate between gambling and “online skill gaming,” where the element of skill outweighs the element of chance. The All India Gaming Federation (AIGF) is the country’s biggest online gaming association. Its members abide by the Self-regulatory Charter and undergo audits by the All India Skill Gaming Council, which includes educators, data scientists, former Supreme Court judges, and senior bureaucrats. However, only about 10% to 15% of India’s gaming business is made up of AIGF members.

Government Advisories: India’s Ministry of Information and Broadcasting has issued several advisories against these types of promotions since 2022, highlighting the need for a stronger legal framework to curb gambling addiction. Despite this, many gaming apps continue to flout government and RBI directives.

The majority of Indian courts have categorized many of these applications as “games of skill” separate from conventional gambling. However, it is important to recognize the inherent parallels. These platforms’ competitive nature, easy accessibility, and potential for significant gains can quickly lead to compulsive engagement, similar to tendencies seen in gambling addiction.

In contrast, the majority of online gambling enterprises are open to statutory rules being put in place, according to a report by Ikigai Legal. However, because the legal status of online gaming is still uncertain, they seek predictability and regulatory assurance, which has not yet been provided. Although there is some clarity in the new draft regulations, more clarity is required to make these enforceable.

Recent Developments:

Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021: These rules provide some clarification regarding the kinds of games that fall under its purview. Any online game in which the participant deposits money in the hopes of earning anything, with real money used as payment for the winnings, falls under these rules.

Draft IT Rules, 2021: The Ministry of Electronics and Information Technology (MEITY) has released a draft set of laws titled the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021.

The Foreign Exchange Management Act (FEMA), a federal regulation implemented in 1999, also impacts the legality of online gambling in India. FEMA primarily deals with financial transactions centered on currency exchange and global trade. While most of FEMA does not pertain to gaming and does not apply to specific individuals, one relevant section concerns the legality of funding online gambling accounts with currencies other than Indian rupees, which might be deemed unlawful.

Furthermore, every online gambling intermediary, including social media sites like Facebook and search engines like Google, will need to register with a self-regulatory organization that is registered with the IT ministry. The self-regulatory group will consist of five people from various backgrounds, including online gaming, public policy, IT, medical, and psychology. Multiple self-regulatory bodies (SRBs) are possible.

Overall, these perspectives highlight the complexity and evolving nature of the legal landscape for online gambling in India. Whether it’s a skill-based or luck-based game, one thing is certain—online gaming is extremely addictive. People who are addicted to internet gaming have been known to wager their entire life savings on different games on multiple occasions.

Our government’s nonchalant attitude contributes to the proliferation of online games, as they are a significant source of tax revenue. However, to avoid the negative effects of this fantasy gambling, regulation of gaming is necessary, particularly in cases where there is a significant financial risk and gamers have a propensity to develop addictions. The lack of regulation in the online gaming industry has severe repercussions for individuals and families, especially regarding how companies advertise themselves in India. Enacting appropriate restrictions can significantly shield individuals from these negative impacts.