India's digital dilemma: Balancing growth with gaming governance

India has the second largest global internet user base of over 1.2 billion users as of 2023. India also has a large youth population. The prevalence of digitally savvy population the government’s focus on initiatives such as Digital India and Start-up India, has helped the Indian economy to transition into a digitally empowered society and knowledge economy.

However, with growing technology adoption also comes the responsibility of the government to protect and safeguard citizens against online risks associated with data privacy, money laundering, and frauds through suitable regulatory measures.

Take for instance the recent growth of online gaming users. Notwithstanding the current GST woes of the sector, the government has recognised the sector’s economic potential and hence created a proper regulatory framework to enable its orderly growth. However, this framework is still to be made operational due to which the Government has not been able to objectively differentiate legitimate gaming platforms from betting and gambling platforms. This has resulted in proliferation of illegal offshore online betting and gambling activities and many other fly by night operators.

These platforms pose significant threats to unsuspecting users in the form of financial frauds and scams. Various studies and reports have estimated the betting and gambling market in India to be worth USD 150 billion or approximately INR 10 lakh crore. Since this sector exists outside the ambit of regulation and the government, there is a huge loss in revenue for the exchequer.

Offshore gambling and betting companies are not subject to Indian regulation. Hence very little is known about their antecedents, financial wherewithal, corporate governance principles, or ownership. An Indian citizen participating on these platforms has no means of legal recourse. Hence, the bigger and more concerning problem is that of money laundering and terror financing.

Many of these platforms can pose potentially serious threat to national security. Several studies have discussed the threat of illegal betting and gambling platforms acting as a channel for terror financing and money laundering. By exploiting the anonymity provided by VPNs, these platforms can manipulate games and often unsuspecting users without detection. Funds are transferred through structured payments to evade regulatory scrutiny, effectively turning what was once a localised crime into a global problem. The OECD and the UK Gambling Commission have already flagged offshore online gambling as a significant risk for money laundering, terrorist financing , and financial fraud particularly with regard to compromised financial data of participating citizens.

Additionally, these platforms have implemented practices that present significant regulatory and legal challenges. One prominent tactic is surrogate advertisements, where betting and gambling sites are indirectly promoted under the guise of unrelated products. This strategy complicates regulatory efforts and makes it difficult for consumers to recognize the associated risks. Moreover, many illegal platforms exploit vulnerabilities in payment systems to facilitate seamless transactions while bypassing regulatory scrutiny.

A key reason behind the emergence of these illegal platforms is the lack of a robust regulatory framework that removes all extant ambiguity. Without an objective regulatory framework that can categorically distinguish permissible online gaming (i.e. games of skill) from betting and gambling (i.e. games of chance), these platforms can always lure users with surrogate advertising and modified game formats, under the guise of games of skill.

The government has taken significant steps to address the issue of burgeoning illegal online betting and gambling platforms, particularly because of the risks they present with regard to terrorist financing and national security. The appointment of the Ministry of Electronics and Information Technology (MeitY) as the central regulatory authority for online gaming and the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules (2021), were steps in the right direction to ensure that the online gaming sector can grow responsibly. These Rules, however, are yet to be made fully operational.

In the meanwhile, the Ministry of Information and Broadcasting (MIB) and the Central Consumer Protection Authority (CCPA) have issued advisories to curb the promotion of illegal betting and gambling platforms. In a decisive move to protect citizens, the government blocked over 200 websites and apps under Section 69(A) of the Information Technology Act (2000), thereby preventing access to these illegal platforms and mitigating risks of financial fraud and money laundering. However, the sheer numbers of these platforms and ability to quickly re-emerge under new guises present challenges.

To effectively curb this persistent issue of illegal betting and gambling platforms in India, it is imperative to strengthen and streamline regulatory measures. The current regulatory framework is not equipped to combat the rapid proliferation of these platforms, which exploit technological loopholes and regulatory gaps. While strengthening regulatory measures would help systematically identify illegal platforms, it is through education, awareness, and access to information that will help citizens to make informed choices and protect themselves from fraud, scams, and financial fraud. It would also prevent these platforms from exploiting users as conduits for money laundering and terror financing.

A simple step of establishing a registration mechanism to whitelist legitimate online real-money gaming platforms will help distinguish legal gaming operations from illicit betting and gambling ones, providing clarity and protection for users engaging in lawful online gaming activities even as blocking access to illegal platforms continuous and under Section 69A of the IT Act (2000). The registration mechanism will also be useful for enforcing blocking orders promptly by helping internet service providers (ISPs) identify and blacklist illegal websites and applications.

Implementing the IT Rules 2021, specifically tailored for online gaming intermediaries, would further clarify the boundaries between permissible online real money gaming and illegal betting and gambling.

Another step that can be taken by the government would be to examine online betting and gambling activities under the ambit of Prevention of Money Laundering Act, 2002 (PMLA).

If illegal betting and gambling is brought under the purview of PMLA, authorities would have greater power to investigate financial transactions, trace illicit proceeds, and impose suitable penalties on those involved.

The regulatory framework should also ensure stringent action against illegal online betting and gambling advertisements. Industry and the Advertising Standards Council of India should work together to develop and enforce suitable advertisement guidelines. This would help mitigate the risk of citizens being exposed to illegal platforms. These combined efforts would ensure a more regulated and secure online gaming environment, protecting users from the risks of participating in illegal betting and gambling platforms.

The author of the article is Nirupama Soundararajan, Co-Founder and Partner, Policy Consensus Centre. Views expressed are personal.