₹23,000 crore invested in online gaming between 2020-24

In 2020, as people sought refuge from the pandemic indoors, it gave rise to a monumental spike in online game downloads. The allure of online gaming, predominantly in the young and male, offered a new avenue for entertainment and community engagement.

From FY20 to FY23, the online gaming segment in India has experienced a notable compound annual growth rate (CAGR) of 28% culminating in a market size of ₹16,428 crore in FY23, as per the EY's 'New Frontiers: Navigating the Evolving Landscape for Online Gaming in India' report. Industry estimates suggest it will reach ₹33,243 crore in FY28, showing a 15% CAGR.

Additionally, the report highlights that India hosts a substantial gaming community, comprising 42.5 crore gamers, the second largest globally after China. The segment has attracted consistent investments totalling ₹22,931 crore between FY20 and FY24 YTD from both domestic and foreign sources. Furthermore, it directly and indirectly employs around one lakh individuals, with the prospect of expanding to 250,000 job opportunities by 2025.

However, despite its ascent, India’s online gaming segment constitutes a mere 1.1% of the global online gaming revenue, according to the report.

"Advertisement-led monetisation holds significance in India, as the paid user base is predominantly concentrated within the RMG segment," explains Raghav Anand, partner and leader – Digital, new media and convergence EY Parthenon. "However, with the anticipated increase in supply of world-class titles, advent of cloud gaming and expanding scale of game development studios, India is poised to mark its global presence not only as a consumption hub but also as a monetisation epicenter in the coming years," he adds.

In another development, the online gaming industry also signed a voluntary 'Code of Ethics for Online Gaming Industries' at the Indian Gaming Convention (IGC), organised by the Internet and Mobile Association of India (IAMAI), the Federation of Indian Fantasy Sports (FIFS), and the E-Gaming Federation (EGF). The voluntary Code of Ethics, signed by the Federation of Indian Fantasy Sports, the E-Gaming Federation and the All India Gaming Federation (AIGF), will serve as a ‘Joint Declaration of Intent’ by the signatories to commit to building a safe, trusted, and accountable digital gaming industry with a focus on user protection.

Guardrails on online gaming

Being a 'mobile first' market, India’s total gamer base engaging in mobile gaming experiences stands at a whopping 94%. During the pandemic, the usage of online gaming soared by 65%, and it is majorly being fuelled by widespread smartphone penetration, enhanced internet connectivity, burgeoning youth population, heightened awareness and the development of local gaming content tailored to individual preferences.

Realising the potential as well as the detriments of this industry, the government has been working towards forming regulatory mechanisms to facilitate responsible and sustainable growth of this industry while safeguarding consumer interests.

Meanwhile, industry leaders are suggesting other interim measures to address addiction. "We can verify the age of the users, put controls on the maximum number of hours permissible on the platform in the form of session timeouts, and add guardrails pointing out the amount of money made or lost and let the user log in only 24 hours later," suggests Vineet Singh, founder & CEO of an escrow startup, Castler. Technology today, he adds, can solve so many problems.

Furthermore, the report suggests that the Intermediary Guidelines and Digital Media Ethics Code Rules, 2021 (online gaming rules) for online gaming issued by the Ministry of Electronics and Information Technology (MeitY) is being perceived by the industry as progressive. These guidelines aim to remove ambiguity, bolster investor sentiment, attract funding and encourage innovations in India’s digital economy while prioritising user safety. During the 50th GST Council meeting, the Group of Ministers (GoM) suggested increasing the tax rate on online gaming to 28%.

Although, due to a lack of consensus on the valuation base, the final decision on this was left at the behest of the GST Council. Consequently, in the 51st GST Council, decisions on implementation of increased rate and value along with the proposed changes in the GST law were finalised.

The industry stakeholders also highlight the industry's collective acknowledgement of the need for clear and comprehensive regulations.

"A huge value gets unlocked when the industry presents a united front to a broader set of stakeholders. It’s important to keep the conversation going with the regulators and the government to have regulatory clarity around operating," says Anurag Saxena, CEO, E-Gaming Federation.

While the gaming companies are racing to remake themselves for the online gaming 2.0 era, the current goal is to enable a robust and efficient implementation of the legislation and the redressal of obstacles to implementation.

"For the segment to truly thrive, a stable regulatory and legal framework is imperative. Uncertainties can impede the realisation of its full potential and hinder rapid scalability," opines Anand.