Online Gaming in India: Decoding the 'Game' in Draft IT Rules

The rules are predominantly user-centric, but there are a few lingering concerns about industry growth.

The draft amendment proposes additional due diligence for online gaming intermediaries. 

(Photo: Namita Chauhan/The Quint)

The intent of the latest draft amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules 2022 to include online gaming seems to be twofold – it seeks to address the concerns around user safety and to help the growth of the sunrise sector.

The draft amendment proposes additional due diligence for online gaming intermediaries such as registration of an intermediary with a self-regulatory organisation (SRO) and setting up of a two-tiered grievance redressal mechanism.

This comes after the Ministry of Information and Technology (MEITY) was appointed the nodal ministry for online gaming in India after the amendment to the Allocation of Business Rules by the president.

On the other hand, the Department of Sports, under the Ministry of Youth Affairs and Sports (MYAS), has been appointed the nodal ministry for e-sports.

This is a positive move for the online gaming sector as it gives some semblance of recognition because earlier, it was operating only under the “exception” to the gambling laws.

The draft rules are predominantly user-centric as it accords transparency and accountability by requiring the intermediaries to inform the user of its policies related to the calculation of winnings, privacy, and the risk of financial loss and addiction involved, among others.

But there are still a few lingering concerns when it comes to fulfilling the objective of industry growth. There are two core issues – definitions and know-your-customer (KYC) obligations – that will impact the implementation of the rules if published.

Defining 'Online Game'

The draft rules define ‘online games’ as games "offered on the Internet and are accessible by a user through a computer resource if he makes a deposit with the expectation of earning winnings."

Three criteria needs to be fulfilled to be qualified as an online game:

1. It should be offered on the internet

2. There has to be a deposit

3. The deposit should be made with the expectation of earning winnings

The plain reading of the definition interprets it as regulating only real-money games. However, there needs to be more clarity on what the regulation means by 'in kind' as mentioned in the definitions of 'winnings' and 'deposits'.

‘In kind’ can be interpreted as coins that a user collects while unlocking various levels and deposits them to win upgraded weapons. Similarly, there are games that award tokens, which can then be used to unlock new levels or materials. Such tokens could also come under the definition of ‘in kind’ even though it may not be the intention.

This may even go on to include the tournaments held by e-sporting platforms if there is a “distribution of winnings” among the participants; that may then overlap with the sports ministry’s jurisdiction.

The wide net cast over the definition of online gaming intermediary, which is stated as an "intermediary that offers one or more than one online game," goes as far as to include platforms that may not be online gaming platforms, predominantly, but are offering gamification as a way of customer acquisition or retention such as social media intermediaries or e-commerce platforms.

While it mentions towards the end that the ministry may notify any other game as an ‘online game’ if it risks posing any other harm, even if it does not involve monetary benefits, this moves away from the debate of games of skill versus chance and brings all formats under its ambit.

State Vs Centre

Not just narrowed definitions but the distinction between online games, excluding e-sports and gambling, is important as well. Currently, in a few states, games like online rummy or poker are banned under state gambling laws. The Centre cannot impinge on the states’ jurisdiction over gambling laws but they can regulate online gaming as per various judicial pronouncements.

Even with the publication of these amendment rules wherein the online gaming platforms have to register themselves with self-regulatory bodies, the prerogative is still with the states to decide if they consider certain games to be gambling since they are not explicitly defined or categorised.

In that case, the judicial remedy is the only option with online games, as is the situation currently, which disincentives gaming platforms, especially small and medium online gaming platforms, for whom investment opportunities also decrease due to ambiguity.

The draft rules impose the responsibility on the SROs to determine which games will constitute ‘online games’. But it needs to be noted that betting and gambling are state subjects, and if the SROs will be taking the final call, then the purpose of the draft rules to promote the online gaming industry and have uniform legislation is not fully resolved since the ambiguity around online gaming and gambling still remains.

Ultimately, the differential state laws on betting and gambling can create more confusion, irrespective of the SROs’ certification, which may hamper the growth of this sunrise sector.

Additional Due Diligence

Most of the intermediaries offer free-to-play games or part of a game for free (without any deposit of money or distribution of monetary winnings).

Under the new rules, the intermediary will have to carry out KYC at the beginning when the user creates their account on the platform. This may deter users from going forward to create the account, which in turn will affect the intermediaries and impact their growth. Also, while setting up the account, the user might not even be entering the platform with a monetary expectation of winning.

This would be an added compliance burden on both the users, who will have to adhere to the KYC norms for each intermediary, and the platforms that will collect and secure personal data on every user that creates an account with them.

Moreover, the draft rules mandate age-gating online gaming platforms at 18 years of age and more, which would mean that users below 18 years of age may not be able to play even if they are not depositing any money and playing for the sole purpose of entertainment. If the intent is to prevent users below 18 years of age from using these platforms, then there can be different mechanisms deployed, like age verification and parental controls.

Currently, platforms already verify users based on their mobile numbers, which forms the first layer and will be continued as per Clause 4 (A) (e) of the draft rules. Since the purpose of the draft rules is to promote growth and innovation of the industry, it is suggested to have a KYC procedure, if at all, at the time of withdrawal of winnings or define a threshold of deposit. This would help balance user safety and not impact the growth of the platforms as well.

As for the intent to protect user interest, the draft rules address them with a government-appointed board member as part of the registered SRO. However, to ensure the continuity of the growth and innovation of the sunrise industry, the ambiguity surrounding the definitions needs to be addressed, which will pave the way for a framework that the SROs have to develop and also provide a safety net from differential state laws.

(Kazim Rizvi is the founding director of The Dialogue, an emerging policy think tank that was established in 2017. Kriti Singh, The Dialogue's chief of staff, heads the online gaming, sustainability verticals along with the communication and human resource departments. The views expressed above were the author’s own. The Quint neither endorses nor is responsible for the same.)