Market focus: India

The Indian constitution divides law-making powers between the federal government and state government, giving state governments authority to regulate all matters relating to betting and gambling. At the federal level, the only legislation covering gambling is the Public Gambling Act of 1867, which has been adopted by some states in India.

There are 29 states in India, each with their own constitution and approach to gambling. Gowree Gokhale, partner at Nishith Desai Associates, offers this insight into how this affects operators: “At present, fragmented state-specific laws are creating uncertainties for businesses. Most states exclude skill games from prohibitions under gambling laws.

“However, in some states this exclusion is not clearly laid out. Different states are taking a different approach on skill element of games, such as in the case of poker. Therefore, operators have to implement mechanisms such as geo-blocking.” Only two states, Sikkim and Nagaland, have passed legislation and regulation that deals with egaming explicitly.

Sikkim

The Sikkim Online Gaming (Regulation) Act (SOGA) 2008 and the subsequent rules put in place by the Sikkim government encompass games such as online poker, roulette and blackjack. The Act defines online games as any game of chance or games involving a combination of skill and chance, including poker, roulette, blackjack, and any card, dice or gaming with any machine or instrument by means of money or money’s worth.

Any company or partnership registered in India can apply for an online gaming licence and any application for a licence must be made directly to the state government. Licensed online games include card, dice games, virtual sports and sports betting. Once an application is received, the government can grant a provisional licence on payment of a fee of INR10m to enable the licensee to set up the infrastructure to be able to commence operations.

Once the government is satisfied that the applicant has complied with SOGA, it can grant a regular licence for the operation of online games and sports games. Licensed operators in Sikkim are overseen by a central authority consisting of technical, administrative and legal officials, which regulates the functions of gaming operations and, in turn, companies involved in online games and sports.

Under tax laws, operators in Sikkim must also pay 10% of their GGR, or INR50m, whichever is higher, to the state government annually. The 2008 act was amended in 2015 to include the proviso that any casino or sports games operated by an online licensee in Sikkim cannot then be offered outside the state.

Nagaland

Legislation governing egaming in Nagaland is contained in the Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act 2015 and its accompanying rules. It defines gambling as betting on games of skill rather than games of chance and provides a list of those games which are deemed to be skills games. Among these are poker, bridge, chess and virtual sports.

Games that are reclassified as games of skill by Indian or international courts or other statutes can be added, while games for which there are domestic and international competitions can also be included. Licence applications must be made to the director of lotteries, with licences covering a single game or multiple games depending on requirements. However, the applicant must identify the games in which it seeks a licence. All applicants must pay a non-refundable fee of INR50,000.

Supervision of this process falls to an expert panel of lawyers, accountants and IT companies who are also responsible for ensuring that the operation of games of skill complies with the provisions of the Nagaland Online Gambling Act (NOGA), as well as analysing developments in the sector and suggesting possible legislator amendments. All new applications are passed to this panel, with the standard timescale for a decision capped at 30 days. Once the decision is received, the director of lotteries must decide whether to approve the licence within six months.

Under the regulations, a licence can only be granted to an individual or company incorporated in India and with a substantial holding and controlling stake in the country. In addition, only entities that have no interest in any online or offline gambling activities in India or overseas can apply for a licence.

Licences are valid for a five-year period and are automatically renewed every year on payment of an annual licence fee. Annual fees are INR1 million per game for the first three years, and INR2m thereafter. It’s INR2m for three or more games for the first three years, and INR5m thereafter. In addition, a licensee must pay 0.5% of gross revenue as a royalty to the state.

So, which one presents the better regulatory model for a federal gambling framework? Ranjana Adhikari, a senior associate at Nishith Desai Associates, says: “Comparing the two would be a case of comparing apples to oranges. My recommendation would be to adopt an approach of starting afresh and adopting best practices from the other countries [where online gaming is already regulated]. If one had an option to choose between the two states, Nagaland may serve a better regulatory model compared to Sikkim for online gaming.”

Reform opportunities

Efforts to reform India’s gambling regulatory framework have been numerous but have had little success. For Adhikari, it’s not a question of resistance to change, but governmental priorities: “When you look at a country where most of the people are still living in rural areas, where issues of basic infrastructure still exist, a sizeable population is still below the poverty line and illiteracy levels are high, the priorities of a government are different.”

The most prominent recent example of indifference by Indian authorities occurred in 2013 when the Indian Supreme Court appointed the three-member Lodha committee to investigate the problem of corruption in cricket. The committee recommended legalisation of cricket betting in India, stating in its report that legalising betting would have long-term beneficial effects on the game and on the Indian economy.

It also proposed measures for a legal framework for betting, namely the creation of a regulatory entity in charge of licensing, the adoption of KYC requirements and the monitoring of both sports betting companies and players alike. However, to date the Indian government has yet to adopt the recommendations of the Lodha committee.

There have been many court cases involving international operators attempting to have their games reclassified as games of skill, rather than games of chance in order for them to be included on the list of permitted activities. These cases have met with varying success over the last five years. Earlier this month, the Indian Law Commission issued a report calling for the legalisation of egaming and sports betting as “the only viable option to control gambling, if it is not possible to enforce a complete ban”.

Soliciting opinions from regulators and companies all over the world, the Commission asserted that a properly regulated industry would ensure transparency in the market, help fight problem gambling and clamp down on illegal gambling, much of which is run by India’s criminal underworld. It remains to be seen whether the Indian government will adopt these recommendations into law.

For Gokhale, the legalisation of all forms of egaming in one go is not currently workable: “We have to adopt a staggered approach. Games that are purely chance-based shouldn’t yet be legalised for the online medium.” So, despite the lack of any action on reforming the Indian gambling market, there is clearly an appetite for doing so, but when this will take effect is uncertain.

Betgenius’ special counsel for sports integrity, Kevin Carpenter, offers this small crumb of hope to operators: “It is said that it takes an average of 261 days for a law to come into force in India once it has been passed by parliament. Therefore, when considering the timeline of the legislative process, it is conceivable there is a fully regulated sports betting market in India within five years.”

So, in five years’ time, there could be a potential new market of over 1.3 billion players, or the debate could still be rumbling on. As with a lot of the Indian regulatory scene, it will take either an element of luck or skill to push centralised gambling regulation over the line.