Koan Advisory’s Vivan Sharan on Modi govt’s role in regulating India’s online gaming industry

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Rooted in a strong economics background, Vivan Sharan who is a public policy expert and a partner at Koan Advisory Group has been regularly advising various sectors on policy matters. Over the years, he has worked on numerous policy initiatives with the Indian Government too, particularly with the Ministry of External Affairs and the Ministry of Finance.

Having served as a chief executive of the prestigious Observer Research Foundation’s Global Governance initiative, Vivan has been invested in India’s external and domestic economic engagements; the energy sector, corporate governance, and sustainable development.

Even though Indian online gaming has been repeatedly dubbed as a booming sector, it continually goes through major upheavals in form of court cases, regulations, and bans; the latest one being the Karnataka Police Amendment Act. With this sector’s fate resting on shaky grounds, experts emphasize the need for a policy and framework that can crystallize its future.

Vivan graced as a guest on G2G News’ flagship video series Game on with Jay Sayta, wherein he touched upon the online gaming industry and the issues surrounding it and dived deep into policies and workable solutions in which the sector can navigate the challenges it faces on the regulatory front.

Cooperative Federalism

Speaking about his view on the ambiguity and confusion that has led to such antagonistic stances taken by state governments, regulators, and policymakers against the online gaming sector, Vivan shares that the issue traces its roots in the federal issues around the internet and the way it is governed.

“Under the constitution, union exercises jurisdiction over telegram and posts. And that’s how we have an IT which governs a large part of how digital applications operate in the country,” he shares.

The IT act is the one that governs people’s access to the digital world. Internet, he informs, runs atop telecom infrastructure, and by inference, unless framing a constitutional amendment where it is squarely put within the union list, we will continue facing the same challenges. However unlikely may its implementation be, Vivan, nonetheless, feels that digital applications should fall within the union list.

Touching upon the string of bans imposed by southern states, he shared that the question of online betting and gambling is something that the law commission in 2018 seemed to recognize. The problem lies in the powers state uses through which they erroneously brand any game of skill as betting and gambling.

Vivan expounds, “The states, of course, under the state’s list, have jurisdiction over betting and gambling. The weird thing is that states because they have jurisdiction over betting and gambling can always term whatever they like to, as betting and gambling and basically expand the jurisdiction.”

Exactly the issue that has been emerging despite the litany of cases where certain classes and formats of games are being categorized as being predominantly based on skill and therefore exempt from some of the determinations that states frequently make.

Speaking about the concerning absence of a central framework, he continues, “It is an anomalous situation as it exemplifies this challenge of how we will govern many many activities on the internet, especially when parts or those activities are either governed by states; say public health, agricultural, both in the states.”

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With the help of a hypothetical scenario, he explains, “And so you can imagine a future where the government of India comes out with a particular health digitalization scheme like it already has. It gets so fragmented when the states are executing it that there is a complete lack of national data that can be exploited in the public interest. And similarly, the whole logic of digitization itself and why telegram and posts were put into the union list; extends into the logic of digitization. It is based on a common protocol and shared infrastructure.”

He shares that digitization has many upsides. It doesn’t just offer a natural unified market like G.S.T does but also instills a calming degree of certainty.

“We know the benefits of GST as it has a great degree of certainty with which businesses can operate across jurisdictions; editorial or otherwise.”

The internet, in his view, was supposed to create one big global market. However, right now, the internet stands divided into various units. He shares, “You will have to move from the state to the union to the globe, at least trusted parts of the world where we have free and democratic internet as we largely do in India.”

According to him, the states will have to come together for a program while making sure that the federal impulse is respected. Explaining how centre and states could work harmoniously to resolve the issues in a systematic manner, he shares, “Something that we have in the union jurisdiction even as it exercises powers under the IT act like for instance the takedown of application. Now that’s the kind of a function which actually states should have more of a say in because their people need to be able to exercise their voice on whether they wish they want access to a particular class of applications or not.”

It has to inexorably be a synergy between the centre and the state, he shares, with the centre laying down the protocol, the standards, the hygiene, the quality, the housekeeping, and the rules, etc and the states exercising full jurisdiction over different aspects of it as long as the very construct of a national market is not disrupted.

Reasons behind online gaming bans

Do policy-makers and politicians who hold considerable powers really understand the issues surrounding these emerging segments? Does their impulse to ban stem from their inability to fully understand the online gaming sector?

While Vivan doesn’t favour the complete outsourcing of IT processes to young people of the private sector as that can be subjected to politics and manipulation too, he strongly feels the need for the current leaders to take a backseat to some of the larger strategic questions like the direction in which the country wants to go in as a digital economy.

Without that, he cautions, the country will have prevalent biases across the board; biases not limited to gaming but all areas of economic activity whenever an incumbent is threatened.

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Tackling the menace of online gaming-related financial losses

While online gaming has been a bourgeoning sector with a 40 percent growth year on year, one can’t deny that there have been legitimate concerns where people have suffered financial losses, leading to the grave and unintended consequences. 

The entire online gaming ecosystem is built under the public gambling act; a model that is adopted by the states from the antiquated British era. According to Vivan, states will get the much-needed certainty only when the centre lays down some broad ground rules.

He shares, “Variants of this act are used to exercise this jurisdiction and the determinations around what is gambling and betting. If not guidelines, some sort of a model act which the centre needs implement and so can the states. That would be the centre’s role.”

Guidelines are not sufficient; legislative framework is the way to go

While he indicates support for a central framework, he is skeptical of mere guidelines or discussion papers. Instead, he suggests more concrete legislation that is long overdue. Explaining why he doesn’t bat for guidelines alone, he says, “If you look at what has happened to the IT guidelines, many states have questioned the centre for exercising powers which it may not have been given through the subordinate legislation. It gives you a greater sense of certainty if you make a legislative framework.”

For a long time, states have cited the preamble of their IT act through which they trace their powers in the high court cases because the preamble encompasses e-commerce and transaction. Is citing the preamble enough to prove that they have jurisdiction?

Vivan thinks it is not. According to him, a legislative framework is an answer to the conundrum of centre vs state issues. He opines, “Temporally, these things will happen at different junctures so I don’t imagine that in this term of the government, there will be a new IT act which, to my liking, follows the best practices from around the world and defines intermediaries into different classes like Europeans may have done.”

Games of Skill or Game of Chance

Vivan asserts that states will have to create a reasonable and intelligible differentiation between different categories of games. “Following from what the centre lays down, the states will have the model too comes to these determinations as what is online games of skill and what is not. These are questions that need some amount of taxonomy categorization, to begin with,” he asserts.

In light of the court cases and bans around online gaming, Jay shared that Prime Minister’s office recently showed interest and IT minister Ashwini Vaishnaw exchanged letters with Andhra Chief Jagan Reddy on the issue of online gambling and betting.

Vivan espouses that a better approach to reign in the excesses of the online gaming sector would be to look at the possible harms from these different kinds of categories of games.

“There are card-based games which are based on 52 cards. There are virtual sports and online fantasy sports which are based on offline live events. Then there are other kinds of games that are heterogeneous and amorphous like casual games where you may or may not have money involved and so on. There are two of three permutations and combinations which could potentially work to give you a semblance of organization,” he shares, highlighting that mechanisms to identify and classify these games should be evolved.

According to him, states must engage with civil society as there are more informed views coming from younger people than the secretary-level of officials from the government. According to him, most of the government officials unfortunately only see this in a rather paternalistic manner.

“And that is the case with the entire digital economy even though it is thriving,” he rues.

Safeguarding people from heavy losses

“How do you protect people from themselves, the illusion, the games, and the operators who don’t belong in the ecosystem?” he asks rhetorically. Calling out the callous ways in which real money games are advertised, he expresses concerns about the irresponsible behavior of operators.

“Look at the advertisements that you see around some games. Come. Win Big. Enjoy. Solve your life’s problems. That is extremely irresponsible behavior!” he exclaims. “Like any other segment or the sector of the economy, the long tail is wagging the fatter and the more meaningful part of the bell curve because you often see that these kinds of anomalies are the operators who have not reached the global scale commendably in terms of volumes of participation and are maintaining the kinds of protection that you would expect best in class operators to maintain,” he adds.

But can a few bad apples become the reason to shut down an emerging and growing sector?

According to Vivan, an enlightened policymaker should refrain from clamping down on the entire ecosystem in a bid to deal with a few errant operators. Instead, these issues should be tackled using various means like KYC and risked-based regulations.

Lauding NITI Aayog’s efforts in bringing in useful recommendations, he shares, “NITI Aayog has commendably come up with the construct of risk-based regulation to be applied even in artificial intelligence; it is quite prevalent in financial markets, it is not NITI AYOG’s invention. At least there is a body within the government of India that is recommending approaches where harms are mapped to the kind of liabilities a platform may have.”

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Vivan shares that if a company has infinite liability and it is allowing players to keep putting in money and potentially bankrupt themselves, they should not only have their disclose my information in that sense to the player and get their consent but also have very different advertising obligations.

Discussing more ways to grapple with the menace of people falling prey to errant operators, he shares, “We need a proper rating system where the risk is clearly quantified almost like an energy rating akin to ESRB and PEGGY ratings which have become household names in the case of console games, etc. When I used to go a little bit of gaming, I remember clearly looking at the number of stars. Even our parents knew that there is some sort of a rating system to look at in terms of violence and gory experiences.”

He reiterates the need to think across various classes of games as to how we can map the risk and convey it sensibly to a potential consumer. “They should not be incentivized towards risk-taking and then it is a free country and people have to be able to exercise choices,” he opines.

An outright ban is what he is against however, according to him, there should be strong disincentives in place for players to prevent them from investing their hard-earned savings and going bankrupt in the process of it.

“I am libertarian enough to say that people should be able to exercise their choice to even take their lives so far it is for me to say that they should be prevented from putting in all their savings. There should be strong disincentives in place to doing so,” he concludes.