Indian Online Gaming Startups Bat For Government Oversight To Regulate Sector

• Dream11 cofounder Harsh Jain and Games24x7 cofounder Trivikraman Thampy proposed a three-tier regulatory mechanism where SRBs would report to a government-led oversight panel
• Thampy said the industry is seeking a regulatory regime to weed out the bad players from the ecosystem
• Members of the IAMAI, the FIFS, E-Gaming Federation and the AIGF also announced the signing of a voluntary 'Code of Ethics for Online Gaming Industries'

Online gaming firms have reportedly proposed government oversight to regulate the burgeoning sector, which is in a state of flux currently. 

Dream11 cofounder and chief executive (CEO) Harsh Jain and Games24x7 cofounder and CEO Trivikraman Thampy told The Economic Times that the industry is proposing a three-tier regulatory mechanism where self-regulatory bodies (SRBs) would report to a government-led oversight panel. 

Conventionally, under a three-tier system, the first layer comprises the company’s own grievance redressal ecosystem. The second tier comprises SRBs, modelled on the lines of OTT space, which are then overseen by a third tier comprising a government oversight committee that deals with appeals and compliance-related issues.

“The way SEBI (Securities and Exchange Board of India) unlocked the financial potential of the country through the stock market, that’s the kind of regulation we need. The government has proposed an SRB for the gaming industry, but there can be a three-tier structure with government oversight, where it’s not just an independent SRB…this is a tried and tested model where you have a three-tier structure that can regulate gaming,” Jain told the publication.

Curiously, this comes a couple of months after reports surfaced that the Centre had postponed plans to establish SRBs for the online gaming space. The idea of such a body was envisaged under the amended Information Technology Rules, notified in May this year. The SRBs were supposed to be the nodal agency for the industry and would comprise an independent board. 

While the government had then directed the industry to submit proposals for the self-regulating body, the Centre eventually deferred the plans despite receiving recommendations from major players. 

Jain also added that the government’s intervention in establishing clear boundaries and regulations can help unlock the sector’s ‘untapped’ and ‘true’ potential.

Similarly, Thampy said that the industry is seeking a regulatory regime to weed out the bad players from the ecosystem. 

“We’d like the SRBs to be notified, but it’s not as if the government’s concerns are misplaced. Their concerns are…around whether the operators are controlling the SRBs. Obviously, the way the rules were set up, an SRB needs to have an independent board of directors,” Thampy reportedly said. 

He further added that the industry is ‘very open-minded’ about the government-led approach and is willing to adhere to either an oversight committee or a government regulatory body.

The duo made the comments on the sidelines of the Indian Gaming Convention, organised by the Internet and Mobile Association of India (IAMAI) in partnership with other industry bodies. 

During the event, members of the IAMAI, the Federation of Indian Fantasy Sports (FIFS), the E-Gaming Federation and the All India Gaming Federation (AIGF) signed a voluntary ‘Code of Ethics for Online Gaming Industries’.

As per a joint statement, the signatories said that the code will commit the players to building a safe, trusted, and accountable digital gaming industry.

“With close to 50 Cr actively engaged users, India’s gaming industry is a sunrise sector. The ‘Code of Ethics’ for online gaming intermediaries reinforces the industry’s commitment towards growing the sector, contributing to the Hon’ble Prime Minister’s vision of becoming a $1 Tn digital economy and creating a safe, trusted and accountable gaming ecosystem,” said FIFS director general Joy Bhattacharjya.

Chiming in, Minister of State (MoS) for Electronics and Information Technology Rajeev Chadrasekhar, in a written message, said, “I would like to reiterate and reaffirm that the Government of India considers online gaming as an important part of our $1 Tn digital economy goal.”

This comes at a time when the online gaming space has been reeling under the impact of the recent GST changes, as per which 28% tax would be levied on the full value of bets placed in online games, regardless of whether it involves games of skill or chance.

Making matters worse has been a slew of show cause notices sent to online gaming companies for alleged tax evasion to the tune of INR 1.2 Lakh Cr. Previously, the Directorate General of Goods and Services Tax Intelligence (DGGI), Mumbai Zone, issued a notice totalling INR 28,000 Cr to gaming giant Dream11.

Prior to this, the parent entity of Games24x7 also received a notice amounting to INR 21,000 Cr from tax authorities.

This has resulted in downward projection for the Indian gaming sector. The gaming-focused venture capital firm Lumikai revised the revenue projections for the homegrown online gaming industry to $7.5 Bn from $8.6 Bn previously due to recent tax changes in the sector.