From: nikhil.kamath
India’s gaming industry is a rapidly expanding sector, with a significant component being real money gaming (RMG). This segment has recently faced substantial changes due to government regulation and taxation.
Market Size and Demographics
The number of gamers in India is substantial, with figures stating 400 million in 2021 and 560 million in 2023, and these numbers continue to grow annually [01:41:40]. This broad figure, however, is believed to combine real money gaming (RMG) with skill-based games [01:41:40].
The vast majority of gaming in India occurs on mobile phones, accounting for an estimated 95-97% of the total gaming population [01:43:18]. Among these, approximately 80 to 100 million players are willing to pay for gaming, whether through in-app purchases or other mechanisms [01:44:11].
Demographics of Gamers
Contrary to common perception, games in India are not exclusively played by kids or youngsters [01:45:23]. The gaming demographic now cuts across various age groups and genders [01:45:31]. While younger individuals might spend up to 12 hours a week gaming, adults also engage for different use cases, such as word games for entertainment [01:45:37]. The gender split is estimated to be around 75% male and 25% female for mid-core games (which require more time and focus), while casual games tend to have a more balanced split [01:47:32].
Government Regulation and Taxation
A significant recent development in India’s RMG sector has been the introduction of a 28% Goods and Services Tax (GST) on deposits [01:51:53]. This is a change from the previous system where gaming companies paid 18% GST on their rake (the commission they took) [01:52:00].
Impact of Taxation
The new tax policy, implemented almost overnight, has been described as “too harsh” on the profitability of real money gaming companies [01:48:23]. Companies like Dream11, MPL, and Winzo have been significantly affected [01:48:47].
While some platforms, like Dream11, managed to implement strategies (e.g., coupon codes) to mitigate the direct impact on the end-user, the profitability of the companies themselves took a hit [01:48:37]. Many believe this correction was necessary for the industry, as it disincentivized companies looking for “quick money” during the COVID-induced gaming boom, encouraging a more long-term, sustainable approach [01:40:02].
Perspectives on Regulation
One perspective is that the government’s move to formalize RMG with taxation is a positive step. Historically, betting in India, such as on cricket, existed in a black market, and formalizing it ensures the government receives its fair share of tax revenue [01:50:17].
However, there’s a strong argument for less government control in a free market capitalist system. Excessive regulation can hinder innovation and the evolution of an industry [01:49:31].
The challenge lies in finding the right balance:
- Consumer Demand: There is clear consumer demand for participating in real money games [01:50:01].
- Underground Operations: Banning games in certain states has shown that businesses often go underground, leading to more irresponsible practices and exposing users to risks [01:51:00].
- Responsible Gaming: A balanced approach involves appropriate regulation and frameworks that allow companies to operate responsibly while ensuring the government collects its fair share of tax [01:51:18].
The industry’s main contention with the current tax structure is that it is levied on the total deposit amount rather than on the rake (the company’s revenue), which they argue is analogous to taxing the gross merchandise value (GMV) in e-commerce rather than the platform’s cut [01:52:19]. More clarity on this issue is anticipated in the coming months [01:52:39].