India's Online Skill Gaming Sector Shows Immense Growth Potential
India's online skill gaming sector has emerged as a sunrise sector with a user base second only to China. The industry has witnessed a continuous tug-of-war with the government, leading to ongoing debates and breaking headlines. The sector's impressive growth rate is evident, with a CAGR of 28 percent between FY 2020 and FY 2023, which has resulted in a market size of Rs 16,428 crore in FY 2023.
Investments in the sector have also soared, totaling Rs 22,931 crore between FY 2020 and FY 2024. Additionally, the sector has created employment for around one lakh individuals, a number that could skyrocket to 250,000 employees in the next decade. Foreign direct investment (FDI) in the sector currently stands at $2.5 billion and is projected to reach $4 billion in the next three years, according to a report by EY titled "New Frontiers: Navigating the evolving landscape for online gaming in India."
Several factors are contributing to the growth of the industry, including increasing youthful cohorts, higher disposable incomes, affordable internet connections, faster penetration of smartphones, and the widespread deployment of 5G technology across India. However, to fully capitalize on this potential, the sector requires an enabling ecosystem with favorable policies that foster ongoing innovation and skill development, encouraging more entrepreneurs and attracting greater investments.
At present, the sector is still grappling with regulatory uncertainties. The confusion between gaming and gambling due to differing interpretations of rules has created an atmosphere of uncertainty and distrust. However, it is crucial to educate that real money skill games are not gambling, as they rely on talent or ability rather than chance.
In line with this, the 21st Law Commission report recommended that skill-centric games should be exempt from gambling regulations, similar to horse racing. The Ministry of Electronics and Information Technology (MeitY) has also recognized the online skill gaming sector as a new and emerging industry, amending intermediary rules to provide regulatory certainty. However, the implementation of certain rules has faced delays due to concerns over the independence of self-regulatory bodies. Moreover, the industry was dealt a blow with the imposition of a 28% GST on deposits, resulting in the closure of several smaller players, layoffs at unicorn companies, and a downward adjustment of growth projections by investors.
Despite these challenges, 2024 marks a time of renewal for the online gaming industry. Companies are refining their business models and pivoting for growth. Government support is crucial to address issues such as the unfair imposition of retrospective taxes. By alleviating such burdens, the government can unleash the industry's full potential and greatly contribute to the Indian economy. Achieving regulatory certainty, particularly regarding permissible formats of skill gaming, is essential. Adhering to these guidelines could position India as a global gaming hub and help the government achieve its goal of turning India into a $5 trillion economy.
Disclaimer: Views expressed are the author's own.
Analyst comment
Positive news: The online skill gaming sector in India has experienced significant growth, attracting investments and creating employment opportunities. The sector is expected to continue growing due to favorable factors such as increasing youthful cohorts, higher disposable incomes, affordable internet connections, smartphone penetration, and the deployment of 5G. However, challenges such as regulatory uncertainty and confusion between gaming and gambling persist. Government support and regulatory certainty are needed to unlock the industry’s potential and enable it to contribute significantly to the Indian economy. Analyst: The online gaming market in India is poised for significant growth, driven by favorable market conditions and increasing investments. However, regulatory uncertainties and the distinction between gaming and gambling pose challenges. If the government provides clarity and support, the industry could become a global gaming hub and contribute to India’s goal of becoming a $5 trillion economy.
