The Role of Online Gaming in India's Digital Economy: Potential for Growth and Economic Diversification

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The Indian gaming industry, which is projected to reach over 500 Million gamers by 2025 and generate USD 6 Billion in revenue by 2028 (per Primus Report: India's Booming Online Gaming Industry) is increasingly leveraging emerging technologies, data analytics and cloud services to enhance player experience.

These technologies and rising industries hold immense potential to contribute to India's expanding digital economy, expected to reach USD 1 Trillion by 2025 (per Digital India Bill proposed by Government of India).

Currently, India ranks as the second-fastest digitizing economy among the 17 major economies globally where booming industries like online gaming can contribute immensely.

Online gaming sector, which grew at a CAGR of 28% from 2020-2023 has become the fourth largest segment of entertainment, and overtook filmed entertainment according to the report - 'Reinvent' released by FICCI.

Online gaming over the past decade has been growing exponentially, and one aspect of it is driven in part by the increasing availability of smartphones, shifting the focus away from consoles or repeatedly buying game cassettes.

Additionally, with the deepening internet access and digital banking services, online gaming has penetrated even in the remotest areas with rapid growth in data consumption in Tier 2 and Tier 3 cities, readily accessible in the palm of our hands, thanks to mobile devices.

How has Technology made Online Gaming more Accessible and Widespread?

The ease of transactions along with the expanding user base in iGaming has become even more significant in this digital era with the integration of UPI technology in payment systems. It has not just made registration and in-game purchases easier for the players on the RMG (Real Money Games) platforms but has also worked in favour of platform managers and online gaming developers alike.

The potential of online gaming has been a unifying factor in digital growth across the globe. Online games can be easily operated by players remotely from any country and across borders increasing accessibility and social engagement.

Increasing Traceability of Payments & Transactions in iGaming

Emerging technologies such as blockchain and AI have promised greater transparency in the entire transaction process, especially in the case of RMG platforms. Hence, online gaming platforms withhold complete records of transactions from the players to the winner along with accounting the TDS (tax deduction at source) for the winning amount. Thus, ensuring tax revenues are traceable and recoverable.

Moreover, as per the provisions of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 KYC verification is mandatory for players for registration and onboarding with online gaming platforms. Thus, since all players register under KYC norms, tracking the digital footprints of all the monetary transactions has become easier and quicker in case of tax avoidance or evasion.

The transparency introduced by digital processes helps alleviate concerns about iGaming being used for illicit activities like money laundering or unlawful funding. With KYC tracking beneficiaries and offering enhanced analytics, red flags are raised faster than in a cash economy, enabling quicker and more effective responses by authorities.

Innovations and emerging technologies such as AI & ML have assisted gaming companies in mitigating social concerns and negative impacts of gaming, but integrating filters (minimum age, time and money spent) in applications that ensure responsible and safe gaming.

Expanding Role of Online Gaming in Skilling and Innovations

Online gaming, as a learning tool, represents an untapped economic asset within the expanding digital economy. E-sports, fantasy sports, and similar games not only enhance skills like collective decision-making and understanding game dynamics but also maintain transparency through digital footprints, minimizing manipulation.
Fully digital games hold immense potential as learning tools.

Many free games help children develop essential skills such as colour and shape recognition, motor control, faster reactions, and understanding of concepts like traffic rules and town planning in an interactive way. When used effectively, the digital economy can bridge both learning and digital divides, making investments in human resources worthwhile.

Online gaming is not merely a quick-profit venture but a platform that fosters skill development and continuous learning. Additionally, developers and gaming platforms have signed codes of conduct under their respective self-regulatory organizations (SROs) to ensure adherence to industry standards and prevent illegal activities, thereby promoting transparency, player safety, and equal opportunities for gamers across India, especially in remote areas.

Policy Stimulus to Boost Growth & Investment in Online Gaming Sector

Currently, the online gaming industry in India is witnessing a rapid increase in the number of platforms, gamers and developers but the sustainability of these new ventures has become questionable. Primarily, the reason for this is unstable regulatory policies, poor tax rationalization and high and retrospective taxation.

Thereby, the need of the hour for governments is to facilitate a conducive growth environment for the talent pool within the industry. The foremost of these is to enable a stable and predictable regulatory environment to attract higher investments in an industry witnessing a 'funding winter'.

Secondly, allocating private and public funds for infrastructure development to foster faster connectivity and comprehensive telecom services could boost industry-wide skill-based employment opportunities while nurturing innovation in designing and developing games and gaming products for the global market.

India with its skilled technical manpower has the potential to become a hub for developers, particularly within the online gaming industry which has immense untapped potential to leverage India's tech minds. Consequently, this will diversify learning methods, skills set, and education opportunities as well as narrow the digital divide.

Additionally, shifting the policy focus towards increasing user awareness, through government and private initiatives to curb the menace of addiction and financial frauds would be a progressive step towards the right direction.

Conclusion

Thus, to achieve the goal of becoming a USD 1 Trillion digital economy by 2025 the Indian gaming startup ecosystem, which has attracted USD 2.5 Billion in investments, could become a significant driving force.

However, uneven policy, unfair and arbitrary taxation, and lacking distinguishing parameters to differentiate games of skill from chance could diminish foreign direct investment prospects for India. That being so, the potential of the online gaming industry should be gauged comprehensively, not just as a source of entertainment but as a significant contributor to India's digital economy.

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By: Aruna Sharma, Practitioner Development Economist and
Retd Secretary to GoI