India’s gaming ban: Breakthrough research rarely begins in isolation. Whether in defense electronics, financial technology, or gaming, innovation often arises from real-world use cases. Blockchain, initially developed for cryptocurrencies, now underpins secure digital transactions. Gaming platforms that developed advanced animation, strategy engines, and payment systems are now integral to fintech, digital design, and AI applications.
Countries that nurture such cross-pollination of ideas create strong research ecosystems. India, however, risks stifling this synergy by keeping fintech, crypto, and gaming in a policy grey zone, with flip-flops on taxation and regulation pushing innovation overseas.
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Fintech’s gains, policy gaps
India’s fintech revolution has been transformative. The Unified Payments Interface (UPI) has brought digital payments into daily life, saving banks and the Reserve Bank of India billions by reducing the need to print, move, and secure physical cash. Roughly ₹36 lakh crore circulates as cash outside the banking system, escaping both direct and indirect taxation. Every digital transaction reduces this leakage.
Yet, the system remains price-sensitive. A small commission on payments can discourage users from choosing digital modes. Banks and the RBI, which save significantly from reduced cash handling, should bear the cost of sustaining digital infrastructure. Instead, uncertainty over transaction charges has slowed innovation in use-case development and created friction between fintech firms and traditional banks.
Gaming: Innovation undermined
Online gaming, particularly real-money games, could have been a major source of technological innovation in India. The Ministry of Electronics and IT (MeitY) had crafted rules distinguishing games of skill from games of chance, reflecting court rulings. Games of chance were left to state governments under gambling laws, while games of skill were brought under central IT rules.
The framework also addressed public concerns. Three industry self-regulatory organisations (SROs) adopted know-your-customer (KYC) norms, set time and spending limits for players, banned cash transactions, and mandated AI-enabled monitoring to flag addiction risks. Payments were fully digital, creating transparency and reducing the scope for money laundering. For once, India had a foundation for responsible gaming.
But the system collapsed before it matured. The government did not formalise a statutory self-regulatory board. Instead, taxation took precedence over regulation.
The GST shock
In 2023, the GST Council raised the tax on online games of skill from 18% to 28%. Worse, it applied the tax retrospectively from 2017 and on the full value of deposits, not just the platform’s fee. This meant both the player’s stake (eventually subject to 30% income tax when winnings accrue) and the platform’s service were taxed as goods and services. Notices were issued demanding more in tax than companies had earned. Unsurprisingly, gaming firms went to court. The Supreme Court has clubbed the cases but has yet to deliver a verdict.
This regulatory overreach devastated the sector. A promising hub for gaming innovation turned into a litigation quagmire. Start-ups cut jobs, investors pulled back, and India lost credibility as a predictable policy environment.
A ban that hurts more than it helps
The latest blow came when Parliament passed legislation banning real-money online games altogether, overriding MeitY’s earlier rules. The government justified the ban citing addiction risks. But the measure has driven such games underground, into unregulated grey markets, making enforcement harder and addiction controls weaker.
The fallout has been wider than gaming. Real-money games drove large volumes of UPI transactions, supported payment processors, and sustained advertising on digital platforms. Their ban has cut into UPI growth, hurting fintech revenues and slowing digital adoption.
Gaming ban: Losing the innovation edge
India was on the cusp of becoming a global hub for gaming technology. Real-money platforms were investing in AI, blockchain, and advanced animation to enhance gameplay. These innovations had spillover benefits for fintech, design, and cybersecurity. By pulling the plug with retrospective taxes and sweeping bans, India has aborted an industry that could have been a key growth driver.
The better path would have been stricter awareness campaigns, mandatory KYC filters, and industry-regulator collaboration through statutory SROs. Addiction and fraud risks could be managed without killing innovation. Instead, India has handed over the opportunity to jurisdictions that have created clear rules and supportive ecosystems for gaming and fintech.
Fintech and gaming show how innovation emerges from unlikely places. India’s digital payment system itself was strengthened by the technology and design inputs of start-ups initially focused on niche gaming and blockchain applications. By banning instead of regulating, the country risks losing not just tax revenue, but also the innovation that drives long-term growth.
The choice before policymakers is stark: continue the flip-flop that chokes entrepreneurship, or build predictable, supportive frameworks that allow fintech and gaming to flourish responsibly. The second path is the only way India can avoid missing yet another bus in the race for global innovation leadership.