India’s gaming boom: Growth surges despite high taxes and regulatory hurdles

TWENTY-FIVE YEARS AGO, being a gamer in India meant being caught in a time warp. The most common game ‘system’ was usually a Chinese knockoff of a 16-bit console from the 1990s; serious gamers played on PCs, but most top-tier games never released in India; and slow internet speeds meant multiplayer games were played on the local area network (LAN).

Cut to now and the gaming industry in India has experienced exponential growth, driven by technological advancements and increased Internet penetration. Between FY20 and FY23, the online gaming sector — which includes mobile gaming — witnessed a CAGR of 28%, according to a report by professional services firm EY. Despite the highest GST slab being imposed on online gaming, the sector saw revenues hit $3.8 billion in FY24, a growth of 23% year-on-year, according to a report by VC firm Lumikai. The industry is set to experience more than 100% growth in the next five years, reaching $9.2 billion, the report says.

But it can do better. The sector is undergoing a challenging transition following the imposition of 28% GST on online gaming in October 2023. Despite that, India added 23 million new gamers in FY24, bringing the total number of gamers in the country to 590 million, second only to China, which has 750 million, says Lumikai. But India contributes less than 2% to the $200-billion-plus global gaming market — much lower than the U.S. and China, which contribute 25% each. Experts say this disparity underscores the high growth potential of India’s gaming industry.

Big players like South Korea-based Krafton Inc., the maker of the globally popular PUBG games and BGMI for India, see immense potential in India’s e-gaming market. “It has been phenomenal to build and grow the business in India for the past four years… India is one of the fastest-growing gaming markets across the globe. We want to tap into the opportunity,” says Sean (Hyunil) Sohn, CEO of Krafton India.

Both mid-core gaming and e-sports are the fastest-growing segments within e-gaming in India, which is creating new opportunities and livelihoods for gamers and creators. “We account for about 16-17% of the global gaming community… Over the next 5-10 years, I see the industry experiencing strong double-digit growth, even as the global gaming market faces headwinds,” says Rajan Navani, founder & CEO, JetSynthesys, a Pune-based digital mobile gaming, e-sports, and digital content creation company.

With e-sports alone, the prize pool has grown 10x in five years. “With 15 billion mobile game downloads annually, India leads in mobile gaming. Cloud, AI, high smartphone penetration, and low data costs are driving growth,” says Abhishek Binaykia, partner, Grant Thornton Bharat. The government now recognises e-sports as a multi-sport event, offering gamers incentives and career opportunities on par with traditional athletes, he adds.

Additionally, women gamers are becoming a major part of India’s growing gaming scene, with nearly 42% or 246 million identifying as female. “The rising female participation is expanding the gaming community, making it more inclusive and dynamic,” says Dilsher Malhi, founder of Zupee, a skill-based gaming platform. Zupee leads Fortune India’s list of startups in the e-gaming space, reporting ₹865 crore as revenue in FY23.

India’s gaming industry, especially real-money gaming and fantasy sports, faces dual challenges: illegal offshore entities operating unchecked, and high taxes squeezing domestic companies. Illegal gaming platforms process $100 billion (₹8.3 lakh crore) in deposits annually, according to think tank Centre for Knowledge Sovereignty (CKS).

Siddharth Sharma, SVP-business strategy at Head Digital Works, warns that illegal operators not only disrupt India’s financial ecosystem but also hurt legitimate businesses. “Companies must compete with both legal and illegal operators. If customers lose money to illegal platforms, they lose faith in online gaming,” says Sharma, whose company runs platforms like A23.com and cricket.com.

Illegal gaming lacks a clear definition but typically includes unregistered, untaxed activities like offshore betting platforms. Government rules classify these as self-regulatory organisations.

The high GST rate is another challenge that’s adding to the gaming industry’s woes. With GST of 28% being imposed on the full face value of bets in online gaming, the industry was aligned with casinos and horse racing, which also face similar tax structures. Earlier, games of chance — betting and casino games — attracted 28% GST, while skill-based games were taxed at 18%.

Within months of 28% GST being imposed, the tax consumed 50-100% of revenue for 33% of the companies, pushing them into losses or closure, say industry sources, adding that GST costs were 15.25% of the revenue earlier. On top of that, the sector faced a funding winter, leading to job losses. Since 2019, gaming had attracted $2.6 billion in FDI, but no capital flowed in after the GST rate was raised, says an EY-USISPF report. The government’s retrospective tax demand, which exceeded ₹1 lakh crore, hit even major players like Dream11 and MPL.

GST remains the biggest hurdle for the industry, says Sharma of Head Digital Works. Despite India’s vast population, average revenue per user remains among the lowest in the world, he says. “India’s wallet share has stagnated, while offshore entities are capturing a significant portion of the market. They operate without GST, have simpler, low-skill formats, and access to unaccounted money and capital,” rues Sharma.

Facing challenges at home, gaming companies are expanding offshore to explore new markets and revenue streams. Bengaluru-based MPL is diversifying its business and strengthening its global footprint. “F2P (free to play) now contributes significantly to our revenue and is expected to grow further. Over 30% of our revenues now come from international markets, including strong growth in Germany with GameDuell. We are also expanding in the U.S. and Nigeria,” says an MPL spokesperson.

Some startups like Bengaluru-based STAN have doubled down on a community-first approach while leveraging technology and an RII (relationship, identity, incentives) framework. “We make onboarding simple, reward gamers for their time, and connect all gaming stakeholders seamlessly, giving early monetisation opportunities for creators,” says Parth Chadha, co-founder & CEO of the blockchain-based e-sports fan engagement platform.

India’s online gaming industry employs over 100,000 skilled workers, and EY estimates this could rise to 250,000 in the coming years. However, the tax regime has led to funding challenges, revenue decline, job losses, and an uncertain future for the e-gaming sector.

Experts urge aligning India’s gaming regulations with global standards, and distinguishing between games of skill and games of chance for taxation and regulation. Anurag Saxena, CEO of the E-Gaming Federation of India, stresses the need for a whitelist to curb illegitimate operators. “Without a whitelist or blacklist, consumers remain unaware. There must be a system to separate legitimate from illegitimate platforms,” he says.

India’s thriving e-gaming sector may be battling challenges now, but it is set for greater things in the future.