Ernst & Young (EY) has evaluated the online gaming, real money gaming, online casinos and sports betting market in India. The sector faced a setback when Indian government introduced 30 percent GST on online betting revenue of platform owners. But, as the sector has strong margins, the growth has continued in this sector. Indian markets offer massive potential for growth in online gaming, sports betting and online casino segments.

Key Highlights

Market Size and Growth

The Indian online gaming segment reached a market size of Rs 16,428 crore in FY23, reflecting a robust growth trajectory.
The industry is projected to expand to Rs 33,243 crore by FY28, growing at a CAGR of 15%. The surge in smartphone penetration, improved internet connectivity, and growing youth population are primary drivers of this growth.

Real Money Gaming (RMG): The Dominant Segment

RMG Market Share

The Real Money Gaming (RMG) sub-segment accounted for 82.8% of the total online gaming market in FY23, with more than 400 start-ups operating in the space.
The RMG sector is expected to contribute approximately Rs 75,000-76,000 crore in indirect tax revenue (GST) between FY24 and FY28, alongside direct tax revenues of Rs 6,500-6,800 crore.
GST Impact on RMG Platforms

Recent amendments to the GST law, particularly the levy of 28% GST on the full-face value of deposits, are expected to reduce profitability for many RMG platforms.
This regulatory shift has led several platforms to reevaluate their operating models, with many opting for cost rationalization measures such as workforce reductions and reduced marketing expenditure.

Non-RMG and E-sports: A Growing Opportunity

Projected Growth

Non-RMG segments, including casual and hyper-casual games, as well as E-sports, are projected to grow at a faster pace, with a 24% CAGR over FY23–FY28.
As mobile internet usage grows, demand for mid-core and hard-core games will rise, particularly with the expansion of 5G networks and the adoption of cloud gaming.

Regulatory Developments

New Guidelines for Online Gaming

In April 2023, the Ministry of Electronics and Information Technology (MeitY) introduced Online Gaming Rules to distinguish skill-based games from gambling. These rules aim to provide regulatory clarity and foster a safe and accountable gaming ecosystem.
A major step in regulatory control is the proposed establishment of Self-Regulatory Bodies (SRBs), which will play a critical role in ensuring compliance across the industry.
Challenges with GST Implementation

The gaming industry faces challenges in implementing the new 28% GST on actionable claims, which applies to RMG platforms. The sector expects continued pressure from increased tax liabilities, which could impact user engagement and profitability.

Investment and Employment Impact

Investment Trends

The sector has attracted significant investment, with Rs 22,931 crore in domestic and foreign investments between FY20 and FY24 YTD. However, the current year has seen a slowdown due to macroeconomic headwinds and changes in taxation.
Job Creation

The online gaming sector employed approximately 100,000 people in FY23, with job creation expected to reach 250,000 by 2025, particularly in game development, technology, and marketing roles.

Actionable Insights for Investors and Stakeholders

Diversification and Innovation: Investors should focus on companies exploring non-RMG gaming formats, particularly mid-core games and E-sports, which are poised for substantial growth.
Regulatory Compliance: Stakeholders must prioritize aligning with the new gaming rules and consider strategies to manage the impact of the 28% GST on deposits, particularly in RMG operations.
Expansion and Innovation: Platforms should explore expanding into non-RMG offerings and international markets to mitigate domestic regulatory pressures.
This report by Ernst & Young provides a forward-looking analysis, emphasizing that with the right regulatory framework, India’s online gaming sector has the potential to significantly contribute to both the economy and job creation.