By Madan Sabnavis, Chief Economist, Bank of Baroda
A ban on online gaming involving money is interesting as it has been proposed not from a moralistic point of view but because it could lead to big losses for those involved. Gaming for money is a euphemism for gambling. Interestingly, gambling isn’t totally banned in India. Lottery is still popular and legal in some states while gambling in casinos is permitted in others, as is horse racing. Gaming was banned in some southern states but flourished in others. Its size, according to market estimates, is upwards of Rs 20,000 crore.
The decision to ban is bold and probably timely. The apologists argue it will hit the economy in several ways. First, the government will lose revenue as tax was levied on the amount involved and not just the gain. Second, a lot of investment including FDI has entered and will dry up. Third, many jobs will disappear. Fourth, the ad support to high-profile games like the IPL will take a hit. Fifth, financial channels that have offered payment gateways have to be doubly sure of their use by the firms. Finally, the counter argument is that business will shift to overseas platforms. Clearly, the government is aware of the fallout and is prepared to deal with it.
Even today, while there is stock and commodity trading on exchanges, a large domestic illegal market exists—popularly called “dabba” trading—where exchange prices are used for settlement. Likewise, forex can be bought and sold in shops where unauthorised dealers help out. Also, while there are curbs on investing overseas in say futures and options (F&O), nothing stops one from buying dollars under the liberalised exchange window and spending them overseas within limits. The point is, the impossibility of controlling the shadow market does not justify allowing an activity that is seen as undesirable.
The government decision is based on the logic that relatively poor people get caught in it and end up losing wealth. After all, any such game is a zero sum one where winners make money because there are losers while the platform or enabler takes commissions. While proponents of gaming talk of skills being involved, this also holds in casinos. So it is hard to distinguish between a gamble and skill. This spirit has been followed in the securities market with the regulator getting after “finfluencers” to ensure the F&O segment isn’t one that is used by retail investors. Coming down heavily on gaming for money falls in a similar category where the small player may make high losses. So, there is nothing amiss in allowing a financial activity and then creating a regulatory framework as lessons are learnt along the way.
With this big step, the discussion on cryptocurrency is back. It is one of the biggest flourishing markets that could be classified as a gamble. There is no basic underlying value and it is based on external factors. The question to ask is if it should be banned. If one thinks deeper, stock market investments made directly by retail investors can be similarly questioned. The IPO story has been a major success in the retail segment, as everyone seems to be putting in money and hoping prices spike upon listing so they can cash out. More often than not, they follow a herd mentality rather than detailed analysis before investing. Should there be any restriction or cap?
The ideological questions that arise are twofold. First, to what extent should the government be involved in protecting people who have little knowledge of the market? Second, how much freedom should be given to individuals to take decisions? The larger issue is whether people have the right to make choices or is the government going to decide. Parallels are seen in sin goods being permitted albeit they are harmful to consumers.
There can be no clear answer to curtailing freedom, especially where the choices affect the individual and family concerned but not society in general. This will be an endless debate.