Regulation, Not Prohibition, the Safer Bet for Online Gaming

India’s online gaming industry, once hailed as a sunrise sector, has been dealt a fatal blow. The Parliament has outlawed all real-money online games, barred financial institutions from processing related transactions, and imposed penalties including imprisonment for violations. With the President’s assent secured at breakneck speed, the legislation is now law. 

The government presents the ban as a moral shield. Real-money online games, it says, feed addiction, exploit the vulnerable, and inflict financial, psychological, and social harm. That concern is not misplaced; no one would argue against protecting those at risk. But does protection have to mean prohibition? A calibrated framework of regulation could just as easily have curbed excess while allowing a young, fast-growing industry to breathe.

Missed Opportunity
This was not some sideshow industry. India’s online gaming market touched $3.7 billion in 2024, with real-money games accounting for 86% of revenues, as per a report by WinZO and Interactive Entertainment and Innovation Council. The online gaming industry was projected to become a $9.1 billion market by 2029. Along the way it created jobs, attracted capital, and boosted tax revenues. Instead of steering that momentum into a clear system of rules, the government has brought it to a shuddering halt.

True, the growth was turbocharged by a regulatory vacuum. States tried piecemeal approaches, but enforcement was patchy and inconsistent. Domestic platforms thrived because they were easier to access than shadowy offshore sites, and players poured in. Industry voices repeatedly asked for a central law to replace this messy patchwork. What they got was not the clarity they sought.

In one sweep, the law collapses the distinction that India’s courts have long recognised between games of chance, which fall under gambling restrictions, and games of skill, which have historically been taxed and regulated.

That distinction matters. Games of chance have long been classified as gambling, and thus prohibited. Games of skill, by contrast, were taxed and regulated. In fact, the GST Council only recently hiked the tax on real-money gaming. Bringing specific activity under indirect tax does not make it legal, but the suddenness of an overnight ban can be unsettling. Ongoing litigation in the Supreme Court over retrospective tax demands had already rattled the industry. The new law not only undermines that judicial process but renders the taxation debate redundant by criminalising the activity altogether.

Blunt Instrument
This, then, is the true weakness of the government’s approach: it has chosen a blunt instrument where nuance was required. Addiction and harm are legitimate concerns. But so are livelihoods, investment flows, and the credibility of India as a destination for digital innovation.

Industry-led attempts at self-regulation were imperfect, but they were not irrelevant. They provided a foundation upon which government oversight could have been built. Instead, prohibition erases progress and sets the stage for an underground market beyond the reach of both regulators and tax authorities.  The first legal challenge has already arrived, with a gaming company approaching the Karnataka High Court against the constitutional validity of the legislation.

Others will surely follow. But while the judiciary weighs its verdict, the industry faces a race against time. Startups that once were part of India’s digital future may not survive long enough to see if the courts grant relief.

India has a choice: to treat online gaming as a moral aberration to be excised, or as a complex but legitimate industry to be supervised. For now, it has made a choice that may comfort moralists. But it leaves innovation, investment, and employment stranded at the altar of prohibition.