Online Gaming - Genie in a bottle

Story by  ATV | Posted by  Aasha Khosa | Date 23-08-2021
Online game gizmos
Online game gizmos


 Rajeev Narayan                     


Ashwin Kumar, all of 27 years of age, is an avid online gamer. So much so, in fact, that three months back, he built himself a lavish studio room with glitzy devices and gizmos to put any geek to shame; a Gamepad, Consoles, Controller Devices, Gaming Headset, Broadband Wi-Fi Connection with frightening data speeds, state-of-the-art Gaming Monitor and, yes, a good comfy chair. Giving up a lucrative Corporate job, Ashwin now spends hours each day in his studio, doing what he loves and making a comfortable living out of it. He is not alone. Just last year, the number of online gamers in India jumped to 350 million.

It is quite dramatic how things have moved in the Indian Online Gaming space, despite the chaos and chagrin we have learnt to live with over the last 18 months, as the sector quietly but staunchly soldiers on. Even in these tremulous times, online gaming has been growing at a CAGR (Compound Annual Growth Rate) of over 20 per cent year on year, notching up nearly US $1 billion in revenues in 2020-21 and seeing the number of gamers galloping to new highs. Last week, Ernst & Young (EY), partnering with the All India Gaming Federation (AIGF), released its report on Online Gaming in India, and some of the insights are quite economy-defying.

The numbers are not to be taken lightly, for they come at a time when most segments of the economy have been flagellating through the COVID-19 crisis, with myriad industry sectors such as telecom, aviation, hospitality, chemicals, infrastructure, real estate, manufacturing and automobiles hitting a southward spiral.

This is one for the history books, as things are panning out. At a time when most industry segments are sliding, online gaming is growing by over 20 per cent annually and providing healthy tax contributions to the exchequer. Given a judicious regulatory push, things will only get better  

More numbers, you say? Internationally, the market size and annual growth reflect a robust upward trend in online gaming revenues, estimated to grow from the US $38 billion in 2019 to US $122 billion by 2025. In India, the online skill-gaming industry is not moving on similar lines; it is even faster. The domestic market is estimated to grow from US $906 million in 2019 to over US $2 billion in 2023, a CAGR of nearly 22 per cent. Clearly, the domestic industry has the potential to scale double-quick and become a meaningful contributor to jobs creation and employment, skill development, surging export potential and a hefty contributor to the exchequer in terms of taxes and levies. What has worked is digitization, ushering in easier user access and greater accountability to a hitherto unorganized sector. What has also worked is the explosion in Smartphone numbers, with over 90 per cent of online gamers using this device for gaming.

It is paradoxical then that an industry that provides employment to people, growth to its employees and rising GST contributions to the Government remains oft-misunderstood, with variegated debates around ‘games of skill’ and ‘games of chance’. In fact, some states have even passed ordinances questioning the veracity of the online gaming sector, leading to the Madras High Court’s historical judgment earlier this month, which slammed and set aside the Tamil Nadu Government’s decision to ban online gaming. On four different occasions, the Supreme Court has also ruled that online gaming is far distanced from gambling.

But the debate rages on, to an extent that the Central Government has been forced to take notice and ask NITI Aayog (the erstwhile Planning Commission) to look into the nuances of the industry and come up with recommendations. After deliberations, NITI Aayog stated in a recent report that the number of users in the online gaming and fantasy sports sector has increased significantly over the years, adding that “the sector has tremendous potential to attract foreign investment, increase innovation, generate employment in India and (of course) contribute to the exchequer in terms of taxes and levies”.

Further, NITI Aayog, taking note of the surging growth in online gaming, recommended the setting up of a universal, centralized self-regulatory body to govern the sector, an independent board that would hover over oversights of any kind. It also put in some disclaimers, including an age cap on Fantasy Games, capping the limit at 18 years and above. It is now drafting uniform operating rules for online gaming players, countrywide.

Back to EY-AIGF Report for a mince, whose report states, “Considering the growth prospects of the industry, it is imperative to analyze the GST implications and impediments that may impact business operations for the industry. It is also worthwhile to evaluate global best practices for taxation and provide much-needed clarity on aspects related to valuation and applicable GST rate.”

I particularly like this observation, because it is backed by serious numbers. Online gaming is already scaling revenues of US $1 billion, set to expand to US $5 billion by 2024-25, with the overall size of Real-Money Gaming (RMG) and Skilled Gaming sectors now in the region of US $2.5 billion annually. Both are big employment-generators and tax-payers.

Ernst & Young’s Bipin Sapra elaborates, “The lack of clear valuation principles and ambiguities in levying GST have caused regulatory uncertainty and dampened the industry to an extent. It is crucial that we (India) adopt globally consistent standards in the tax treatment of the industry.” In turn, AIGF Chief Executive Officer Roland Landers sums it up: “To spur investments and realize the true potential of Online Gaming in India, we recommend crystallization of valuation principles by adopting internationally-accepted best practices and the levy of standard GST and VAT by treating it on par with other industry segments.”

All said and done, we seem to have found a genie in a bottle. How we treat and nurture this bottle and the genie lurking inside is up to us. In times good or bad, any industry segment that provides employment to people, revenues to the Government, rising export potential and stokes national pride is a welcome happenstance. This happened with Information Technology three decades back and India has since emerged as a superpower in that field. We may have a similar opportunity here; we just need to be able to recognize this small fish for what it is and turn it into a whale.

The author is a communications consultant and a clinical analyst