The country’s e-gaming industry, which employs over 130,000 skilled workers, has seen phenomenal growth in recent times, despite battling several challenges. However, the tax regime has led to funding challenges, revenue decline, job losses, and an uncertain future for the e-gaming sector. In this exclusive interview with Fortune India, Manoj Sharma speaks with Roland Landers, CEO of the All India Gaming Federation (AIGF), the apex industry body representing over 150 online gaming companies and game development studios across India. Landers discusses the evolution and scale of the $3.9 billion Indian gaming industry, its legal complexities and the roadblocks posed by tax regulations.

Here are the edited excerpts:

How did FY25 turn out for the gaming sector?

In FY25, we saw a decline in the number of new unicorns. Previously, the industry had three unicorns MPL, Dream11, and Game24x7. While some companies were close, they did not achieve unicorn status, primarily due to the GST impact. Despite this, the number of gamers has continued to grow, with the industry now having over half a billion gamers, a significant percentage of whom are transactional players.

What’s the current state of FDI in gaming, and what’s impacting it?

FDI in the gaming industry has been significant. We maintain a close relationship with investors, offering newsletters and hosting events for the investor community. However, two main issues have impacted investor sentiment recently. First, there is the retrospective tax demand dating back to 2017, which is currently before the Supreme Court. This demand is roughly 10 times the industry’s size, creating uncertainty.

Second, the introduction of the 28% GST on player deposits has caused significant financial strain. Gaming platforms are now paying GST from their own funds to maintain player loyalty and avoid losing customers to the grey market, where operators pay no taxes. This has led to muted investor sentiment. However, if the Supreme Court resolves the retrospective tax issue favourably, or if the GST framework is reviewed, investor confidence could quickly rebound.

Which gaming segment is growing the fastest?

The transactional gaming segment, which includes real-money gaming, is by far the largest, account for around 85% of industry revenues. Other segments, such as esports and free-to-play games, have immense potential but are still developing. While there are commendable efforts to create world-class AAA games in India, significant investments are needed, and we are yet to see any major success.

Why hasn’t there been a strict framework to curb illegal offshore operators?

The intent is there from the government. We, in fact, work with the government and provide them with lists of the perpetrators from the offshore sector. They can block them, but the challenge is that these operators have thousands of mirror sites. For instance, if one site like 1X Bet is blocked, they immediately launch another with a slightly different URL. This makes it difficult to completely curb them. Moreover, while the Ministry of Information and Broadcasting (MIB) has issued several advisories to the media, asking them to refrain from taking advertisements from these entities, the problem persists.

Why are celebrities still endorsing illegal gaming platforms?

Absolutely. Earlier, several top actors were blatantly advertising for these platforms. Over time, awareness has grown, and such endorsements have reduced significantly. Today, you might only see some outdoor advertisements, especially during events like IPL. So, the first challenge is awareness. The second challenge is access these operators now use Telegram channels and other encrypted platforms, making it harder to track their activities.

Is the government serious about tackling offshore gaming threats?

No, the intent is there. Various stakeholders are trying their best, but the issue is that the problem is vast and multi-faceted. The technology these illegal operators use makes it a continuous and a central regulation is needed to solidify these efforts and bring about a systematic framework that whitelists legitimate and Indian skill gaming companies.

How is AI being used to improve gaming experiences?

The gaming industry is highly data driven. Technology, including AI and machine learning, is heavily utilised for various aspects from acquiring customers to enhancing the user experience. These technologies are also crucial for fraud detection and ensuring a safe gaming environment. They help us better understand player behavior and optimise the platform accordingly. Many gaming companies are adopting the latest technologies to both protect and serve their users.

What’s the 4-5 year outlook for India’s gaming sector?

The government has made significant efforts towards central regulation, starting from May 2022. However, the final piece the Self-Regulatory Body (SRB) notification is still pending. This lack of completion is a major gap, allowing the grey market to thrive, which impacts legitimate businesses.

If a clear central regulatory framework is implemented and the industry receives support on taxation and relief on retrospective matters, I believe this sector can become a significant contributor to the exchequer. It already contributes around 1% and has the potential to significantly increase this share. Moreover, it can establish itself as one of the top industries within the tech-led media and entertainment space.