The government is planning to liberalise and promote foreign direct investment (FDI) in the fast-growing online gaming industry, following Prime Minister Narendra Modi’s call to make India a “global gaming hub” by putting local talent into best use for game designing and conduct, official sources said.
The liberalisation could include shifting FDI in the sector to automatic route, and practically allowing 100% foreign ownership of the locally incorporated gaming entities if sought by overseas investors.
However, the changes would come with a rider, restricting the proliferation of “games of chance”, which is perceived to include indiscriminate betting and gambling, according to the sources.
The sources said a note circulated by the department for promotion of industry and internal trade (DPIIT) among different ministries also seeks to distinguish between online ‘games of skill’ and ‘games of chance’ for the purpose of FDI.
This could, however, be at variance with the policy adopted by the Goods and Service Tax (GST) Council for the purpose of taxation of the sector, where this distinction was done away via a clarificatory order.
Currently, 100% FDI is not expressly disallowed in the sector, but is seldom entertained.
Over the last five years, Indian gaming has raised $2.8 billion from domestic and global investors. Last financial year saw venture capital and private equity funds investing close to $85 million in the Indian gaming sector.
The new proposals regarding FDI rules for e-gaming is being discussed as part of the overall review of the foreign investment rules. While FDI in free online gaming would go through without hurdles under the new dispensation, the proposal under consideration talks of clearly defining sectors where foreign investment in real money gaming is permissible and where it is not.
“Sometimes concerns are being raised as they (gaming companies) equate online gaming with gambling and betting. We need an independent body to assess that,” an official said.
Prior to October 1, 2023, even the Goods and Services Tax (GST) rules differentiated between the games of skill and games of chance. The GST laws, going by industry practice, then mandated the companies to pay 18% tax on gross gaming revenue (platform fee) for games of skill and 28% on games of chance (gambling/betting). However, as per a July 2023 decision by the then GST Council, all online gaming companies are mandated to pay 28% GST on the “full face value of bets”, irrespective of the type of games.
Monthly tax collections from online gaming firms have jumped to around `1,150 crore since October 2023 from `250 crore earlier. This excludes the `1.12-trillion GST liability that e-gaming firms are facing for the period for the period from FY23 and FY24 (till October 2023). The gaming firms, however, have contested these claims and cases are currently sub judice.
The number of online gamers in India has soared to an impressive 442 million, making the country the second-largest gaming user base globally, surpassed only by China, according to a Grant Thornton Bharat report.
The online gaming industry is projected to experience a 20% growth in FY25, reaching `23,100 crore. Real Money Gaming is emerging as one of the chief revenue drivers within the industry. With users spending an “average of 8.5 hours per week in FY22″, this segment is gaining significant traction, the report added.
Boosted by the pandemic and an expanding user base, the global gaming industry is expected to reach $665.77 billion in the next five years, with India accounting for $8.92 billion. “Even after the 28% GST implication, investor sentiment remains strong in the industry, with deal activity reflecting confidence in its sustained growth,” Grant Thornton said.
Niko Partners – a research firm which covers video games and esports in Asia and North Africa – said in its report that the Indian video games market generated revenue of $830 million in 2023, up 16.9% on year. It said that 3% of the gamers spend money on video games with monthly average revenue per user of $0.29. According to Niko, India is the fastest-growing market tracked by it and it is expected to surpass $1 billion in 2025 and reach $1.4 billion in 2028, growing at the annual rate of 11.1%.
“I see a vast market emerging in the world of gaming. However, even today, the influence of gaming and the profits from creating these games are primarily held by foreign companies. Bharat has a rich heritage and we can bring new talent into the world of gaming. We can attract children worldwide to games made in our country,” the PM had said in his Independence Day speech.