By Ranganath Tannir
One of the biggest highlights of the draft regulations on online gaming announced by the Ministry of IT has been light touch regulations for the gaming industry. Among other measures, it proposes self regulating organizations (SRO) as a key element of ensuring that the industry follows the rules and regulations and keeps the interest of gamers paramount. This has been welcomed by all stakeholders as it ensures compliance without over-regulation and encourages innovation much required to enable the Indian online gaming industry to flourish.
There have been some doubting Thomases who have attempted to cast doubts on the concept and role of SROs. They attempt to divert attention from the fact that this is an institution that goes back as far back as the 19th century. The American Bar Association founded in 1878, is an SRO for the legal profession in the United States. For close to 150 years, it has been setting academic standards for law schools in the United States and formulates model ethics codes for the legal profession.
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In 1934, the US Securities and Exchange Commission (SEC) was set up as an independent agency of the United States Federal Government. It has a three part mission – to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. This is obviously an onerous task that cannot be fulfilled by SEC alone. It takes the help of SROs to fulfill the three roles. The NYSE, NASDAQ and many others are all listed as SROs under the SEC. Together, the SROs along with the SEC have ensured the US dominates the global equity market consistently with 40% to 60% of global stock market value over the last ninety years.
Would the US capital market flourished with just one regulator operating with an iron fist? The answer is a clear no. The soft touch regulations with clear confidence on SROs to implement the mission of SEC, is perhaps the most important factor that has enabled the US capital market to maintain its pole position over nine decades.
The one question that has been raised is about the viability of Industry associations to be SROs. In the 2010s, the microfinance industry (MFI) in India was in crisis. There were allegations of coercive debt collection. There was a mass default of loans. The Andhra Pradesh government even promulgated an ordinance to curb the activities of microfinance companies. The Reserve Bank of India stepped in and put regulations for the industry. Among the governance mechanisms it put in place was an SRO for the micro finance industry.
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MFIN, the industry association of micro finance companies, was recognized by the RBI as an SRO in 2014. Its role is to help members adhere to regulatory and industry standards, with focus on customer welfare and protection. Nine years, hence, the MFI industry has played an important role in the Indian financial inclusion movement. Many of them have become small finance banks and one of them (Bandhan) is now a full fledged bank.
The Indian gaming industry stands at interesting times. There are 400 million gamers in India. According to Lumikai, India’s gaming market stood at $2.6 billion in 2022. This is a fraction of the Chinese gaming market which is close to $22 billion. However, the Indian gaming sector is growing 27% year on year unlike China which is seeing little or no growth.
It is important to keep in mind that while there are 400 million gamers in India, many of them play games owned and operated by global companies from China and the US. It is only in the last few years that Indian gaming companies have developed games that have become popular among gamers in India. Many gaming tech startups have now shown their capability and expertise in developing good competitive online games.
If the Indian gaming industry has to fulfill its potential and Prime Minister Narendra Modi’s vision of dominating the global online gaming industry, it is necessary to foster innovation and have right regulations. SROs could be an important factor in ensuring the common interests of all the stakeholders – gamers, industry, game developers and society.
The author is Secretary General, Think Change Forum