Online gaming

Karnataka’s online gambling ban is unconstitutional, industry associations say

New Delhi: Business bodies and digital industry experts are baffled by the new law, highlighting its negative impacts on Indian tech startups. While a High Court is almost certain to overturn the blanket ban in the end, it is likely to have immediate and lasting negative impacts on the industry.

Businesses see bill amendment flawed and ineffective

The Confederation of All Indian Traders (CAIT) and the Internet and Mobile Association of India (IAMAI) are urging the Karnataka authorities to reconsider the new regulations banning all online gambling. The recently adopted amendment to the State Police Act was a response to populist sentiment and is neither legal nor effective in their eyes.

The definition of gambling, as confirmed by numerous Supreme Court and High Court decisions, has a legal segment based on jurisdiction. Gambling, on the other hand, is left to state regulation, with around half of India deciding whether to allow lotteries, horse racing and various casino and card games.

Imposing a blanket ban on all online games will now make it popular power ball lotteries and games of skill such as rummy or illegal poker. More importantly, it will prevent many businesses from functioning as hundreds of Bangalore-based desi game development studios are expected to lose their contracts and customer base as the legal battle continues.

The new law provides for penalties of up to Rs 1 lakh and even prison terms of up to three years. Industry experts have warned that this will force users to play on offshore platforms and foreign gaming applications, resulting in lost revenue for the state and businesses.

Perennial doubts about Luck vs Competence

Critics have insisted that skill-based gambling has been repeatedly defended by the courts, as it is constitutionally permitted. Lottery is the most popular form of gambling in India and it’s a huge market because it’s regulated and available in 13 states. Other games of chance are also left to the discretion of state authorities.

The national secretary of CAIT wrote to the CM of Karnataka to recall the legal distinction between chance and competence. Ultimately, companies expect the law to be repealed, but it will likely involve a protracted legal battle that could cause irreparable damage to the digital industry and the consumer market.

Traditionally, online skill games and mobile apps have had flexible monetization of their services, with some offering in-app purchases or subscriptions, others hosting paid sessions or peer-to-peer transactions. Yet the new regulations ban all digital currency exchanges, putting a large number of desi businesses on the wrong side of the law.

Strong business at risk

The last thing India’s booming tech industry expected – in a time of continued digital transition for almost every market – was a blanket segment ban. IAMAI recalls that Karnataka is a national leader in technology startups, with 92 registered in Bangalore alone (out of more than 600 game development studios).

Support services such as animation, fintech and content support will also be affected by the latest legal amendment. Experts estimate that around 4,000 jobs are at risk and that recent investments of over Rs 3,000 crore will be canceled, damaging the digital business ecosystem beyond what lawmakers might have thought.

While these regulations will directly affect desi businesses, they will have no effect on foreign apps and platforms offering casual or skill games for real money. An increase in black markets and other illegal offshore gambling is also expected. The loss of the nation’s competitive advantage in a growing business segment will not only disadvantage Indian tech companies in global markets, but will cause them to lose money and consumers in their backyard.

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