Regulating online gaming industry

The draft rules for online gaming will be incorporated into the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, after considering feedback and making amendments.

What are the provisions?

• Sites and mobile apps offering online gaming will be treated as intermediaries.
• The key proposals include what is described as a self-regulatory mechanism, as well as mandatory know-your-customer (KYC) norms, and a grievance redress mechanism.
• In addition, the rules propose to outlaw betting.
• The self-regulatory body or bodies will have a board of directors with five members who may be drawn from fields like online gaming, public policy, information technology (IT), psychology, and medicine.
• Such bodies should ideally be headed by a retired judge or another eminent person. These bodies would be constituted by online gaming firms themselves, and they should be registered with MeitY.
• Any site that offers online gaming must register with one of these bodies, and each body must report detailed criteria of the games registered with it.
• These bodies will ensure games don’t have anything “not in the interest of sovereignty and integrity of India, defence of India, security of the state, friendly relations with foreign states or public order, or (which) incites the commission of any cognizable offence relating to the aforesaid”.

Strict regulation of the industry –

• The government has also said it may step in to regulate the content of online gaming to “ensure games do not have violent, addictive or sexual content”.
• Like other intermediaries, online gaming firms will be required to undertake due diligence, including the KYC of users, in accordance with Reserve Bank of India norms, as well as maintain the transparent inflow and outflow of funds, and ensure fair distribution in winnings.
• Games may have cash prizes. But betting on outcomes of even games of skill will not be allowed.
• Each gaming firm must also appoint a chief compliance officer to coordinate with law enforcement. Firms must also have a nodal contact officer for interaction with authorities and it must have a physical contact address within India. This criterion is the same as with other intermediaries.

Criticism of the provisions –

• While some of these proposals sound sensible, the risk is overregulating a nascent industry. The regulation process is cumbersome and there are significant costs associated with appointing full-time compliance and nodal officers. For a new industry with loss-making start-ups, these costs will be burdensome.
• Also, if the government can step in to censor content, the role and brief of self-regulatory bodies appear somewhat limited.
• If there are games offering cash prizes, the necessity for KYC is obvious and, presumably, winnings would continue to be subject to taxation as they already are. If this is the case, outlawing online wagering, especially wagering on games of skill, appears unnecessary. From the taxation angle, digital transactions can be easily tracked, collated, and taxed. If gamblers are driven underground, tax revenues are lost, and a parallel clandestine ecosystem for laying bets inevitably develops, as has occurred with Indian Premier League betting.

Way forward –

There is a strong argument in favour of allowing transparent legal betting and levying taxes instead. The government could also consider lightening up on the appointment of compliance officers, for instance, perhaps by setting a threshold revenue for such requirements.

Source – Business Standard

QUESTION – The regulation of a nascent industry like the online gaming is important but the government should resist from over-regulating it. Discuss in light of the recently released draft of rules regulating the online gaming industry.