Regulating Gambling in India

Introduction

If the advent of the pandemic has taught the world something (of course, other than the importance of cleanliness!), it is the importance of technology, especially as an equaliser and a disruptor.  With much of the world locked away inside their homes, it is the boom in the video conferencing and virtual private network technologies that kept the world connected, and the work ongoing.  Similarly, it is technological advances such as those in the “edu-tech” space that helped the poorest of the poor stay connected and continue their education.

As SevenJackpots stated in a previous article, technology finds a way to revolutionise the economy.  It has always challenged status quo, and as such, has seemingly found a way to confound existing rules and regulations quite regularly.  One such technological disruption has been the emergence of the online gaming and gambling platforms.  Research suggests that the global online gaming market grew approximately 22 per cent. between the year 2019 and 2020 and generated over US$21 billion in revenue.  We believe that there are about 1 billion “gamers” who regularly sign into online games, of which, the largest proportion reside in China, South Korea and Japan.  Even India has managed, to a limited extent, to jump on to this gaming growth train.  It is estimated that, as of summer 2020, the number of online gamers in India had reached approximately 400 million, with most users playing from Mumbai, Delhi, Kolkata, Chennai, Bengaluru and Hyderabad.  As per a recent study, mobile gaming in India generated revenues of around USD 1.5 billion in 2020, and this is expected to reach USD 5 billion by 2025.

The preceding paragraph may present a very rosy picture of the framework that India provides to the gaming and gambling industry, however the reality is starkly different.  Gambling in India is governed by the Public Gambling Act, 1867 (the Gambling Act).  Whilst the Gambling Act applies to all states in India, certain states have made state specific amendments to the Gambling Act that also governs gambling in those states.  In addition, certain other states have adopted completely different standards altogether.

Accordingly, the gaming and gambling industry ends up having to contend with a highly fragmented regulatory approach, coupled with an otherwise archaic and moralistic notion of gambling.  We see growth in this industry not because of the Indian regulatory landscape, but despite it.  A large number of foreign players have also entered this space due to the grey area that exists in the existing Indian regulatory framework which does not specifically bring foreign players (especially those providing online gaming options) within its ambit.  As such, we have, in this article, tried to analyse certain reasons for why the gaming and gambling industry faces such challenges, along with analysing the means of providing a regulated structure not unlike some of the other regulated industries around the world.

The Baggage with Gaming

The Gambling Act generally prohibits all gaming activities that are not classified as “games of skill”.  Section 12 of the Gambling Act excludes the applicability of the prohibitions in the Gambling Act to any “game of mere skill” and this exemption has been adopted by states such as Delhi and Maharashtra.  Certain states, such as West Bengal specifically exclude games such as Rummy and Poker from the applicability of the state’s gambling legislation, whilst certain other states such as Sikkim and Nagaland permit the playing of Rummy and Poker upon obtaining requisite licences.  However, it is important to note that certain states, such as Andhra Pradesh, Assam, Odisha and Telangana have repealed the exclusion for “games of skill” and accordingly, wagering on a game, even if considered as a “game of skill”, will, in theory, not be permitted in such states.

As is evident, not only is the problem that each state gets to make its own rules when it comes to gaming and gambling (which, in itself, may not have been that bad!), it is the fact that most states have, at least historically, taken the moralistic view that gambling is a “bad” activity which needs to be stopped.  To that extent, most states adopted their own variation of the Gambling Act whilst maintaining the blanket ban on all forms of gambling.

To understand this moralistic stance, it may help to analyse a similar moralistic stance that the Indian state took a long time back (not unlike many other countries such as the US or Canada).  Article 47 of the Indian Constitution states that, “…the State shall endeavour to bring about prohibition of the consumption except for medicinal purposes of intoxicating drinks and of drugs which are injurious to health”.  Yes, you got that right – prohibition.  While the contents of Article 47 do not force the Indian state to mandatorily make a law prohibiting alcohol consumption across the country (given these are Directive Principles of State Policy, and as such, non-justiciable), it does provide a certain “moral path” that the country must endeavour to undertake.  Accordingly, especially right after independence, many states such as Bihar, Gujarat, Mizoram, Nagaland, Andhra Pradesh, Haryana, Kerala, Manipur, Lakshadweep and Tamil Nadu banned the consumption of alcohol to various degrees.  Even today, Gujarat, Bihar, Mizoram and Nagaland practice prohibition to varying degrees.

What is it that prompted these states to bring in prohibition, other than the morality of course?  Votes.  The Indian polity saw in prohibition an opportunity to garner the newly enfranchised women’s votes.  Historically, the Indian family system has been heavily patriarchal.  The men in the house typically earn the livelihood while the women were expected to be “housewives”.  As such, these men would then go and spend the little disposable income they had (especially on pay day) on alcohol.  This would not only mean that there was little to no money at home, but also that instances of domestic violence and abuse were on the rise, especially when these men returned home drunk.  Accordingly, prohibition came to the aid of these women, even if to a marginal extent.  It was seen that states which implemented prohibition had a decline in domestic violence cases as well as a decline in the rates of drinking among the men.  There was also a massive uptick in the popularity of the politicians that propagated these policies, especially among the women voters.

Why then, did prohibition come to an end in many states?  Taxes.  It didn’t help that prohibition failed to stem the growth of a huge black market (or underground market) in alcohol that developed in these states and virtually kept the state outside the ambit of its economic growth.  Moreover, it was found that because of prohibition and the resultant ban on the entry of foreign made liquor (or even traditional Indian liquor) in the state, there was an uptick in the consumption of methyl alcohol leading to blindness and even death.  Accordingly, states such as Haryana, Kerala and Tamil Nadu saw it fit to reverse their stance on prohibition and regulate the consumption of alcohol instead.  This helped them to bring an otherwise underground industry out in to the open, tax its proceeds thereby earning from it, and also ensure that proper regulation in respect of addiction was in place.

A similar trend may well be seen in the case of regulating gambling, which for the large part, remains underground and outside the ambit of taxes.  It may help to understand how countries around the world have progressively dealt with the “devil” of gambling.

The International Examples

It would be wrong to assume that the moralistic stance taken by the Indian government is restricted only to India.  Governments around the world have tried to ban gambling, with varying degrees of success.  It is only recently that we have seen the rise of regulation via-a-vis blanket bans.  For instance, the UK has adopted what it calls the “Gambling Self Exclusion Scheme” or GAMSTOP.  It allows users to register themselves with the particular website and exclude themselves from having the ability to gamble.  GAMSTOP has ties with most of the big, registered gaming platforms which respect this self exclusion list and do not provide people on such list entry into their gaming platforms.  What’s more, they endeavour to not even advertise their platforms or games to such people.

Another robust example has been the regulations adopted by Sweden.  The Swedish legislature introduced a new gambling legislation on 1 January 2019 (the Swedish Gambling Act).  The Swedish Gambling Act included stronger regulation of gambling advertising as well as introduced a national licence system for gambling operators.  All gambling operators (whether domestic or foreign) were now required to obtain a licence from the Swedish authorities to continue their operations in the country.  Such licensed operators had the obligation to “protect players from excessive gambling”.  Swedish authorities now had the power to take actions against errant operators such as invoking injunctions, prohibitions, fines or penalties, and even revocation of their operating licence.  Additionally, the Swedish consumer protection legislation also brought such operators within its ambit providing Swedish citizens an opportunity to sue the operators for deficiency in services.  Sweden also adopted a similar standard to GAMSTOP where users could register themselves on a self-exclusion website and stop receiving any targeted advertisements.

Other reasons that make the Swedish Gambling Act so unique are the following measures that the Swedish authorities can undertake:

• Match-fixing has been introduced as a new offence and there are technological capabilities that the Swedish authorities can now exercise to investigate if match-fixing did, in fact, take place.

• Players have the ability of specifying a maximum limit beyond which they will not be permitted to make a bet.

• A prohibition against availing credit to gamble has been introduced.

• The Swedish authorities may exclude unlicensed operators by blocking payment transactions between users and such unlicensed operators, or even requiring internet service providers to place warning messages on such operators’ websites.

The Case For India

We believe there is a strong case for India to adopt a modern, robust and consistent legal framework to regulate the gaming and gambling industry, as opposed to the route of banning that the existing Indian regime adopts.  Perhaps the most lucrative reason is the economic windfall that such a regulation will signal.  It is estimated that when foreign operators and domestic operators are forced to pay taxes for the money made on their websites, the revenue collection is likely to jump by many multiples.  In addition to it being a huge source of revenue, this sector could even become a huge source of employment for the Indian youth.

Separately, if lessons are learnt correctly from foreign jurisdictions such as Sweden, India could make use of technological advances such as the implementation of a biometric identification number (the Aadhaar) for linking consumers with an India specific self-exclusion website – such that users will then be easily excluded from excessively gambling or even being served advertisements related to such gambling activities.  Lessons could also be learnt from having regulated alcohol consumption earlier.  Similar to “dry days”, the Indian state could adopt standards where certain days in each month (for instance when salary is most likely credited to people’s accounts) is kept as a day when no gambling can take place.

While certain states such as Nagaland, Meghalaya and Goa have shown that regulation can be implemented, we believe it’s time that the country adopts a more uniform approach to gaming and gambling so as to provide all of the benefits that, say, a regime such as the Swedish provides to its citizens.

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Written by Uday Walia & Surbhi Soni at Touchstone Partners.
This is a partnered post.