Context:

• Market failures occur in situations such as monopolies, externalities, and information asymmetries which  not only diminish economic value but also erode societal well-being, which results in decline in the trust of users.
• The article discusses an impending market failure in the Indian online gaming industry

Need for Government Regulation in the industry:

• The rise of illegal offshore gambling and betting markets: This poses significant financial and security risks, and leads to lost tax revenue.
• Information asymmetries: Users lack the knowledge to differentiate between legitimate and illegal platforms, leading to potential harm.
• Lack of enforcement: The absence of a specialised regulatory authority and effective enforcement mechanisms allows illegal operators to thrive.
• Negative externalities: Addiction, mental health issues, suicides, and financial fraud are some of the harmful consequences of unregulated online gaming
• Protecting public interest and trust: Regulation can create a safer and more transparent online gaming environment, thereby building user trust.
• Boosting economic growth: A well-regulated industry can attract legitimate businesses and investment, leading to job creation and GDP growth.
• Preventing money laundering and national security threats: Effective regulation can curb illegal activities and protect national interests.

Measures required:

• A dedicated regulatory body: This could be a central government agency or an independent commission with expertise in online gaming, technology, and law. This body would be responsible for developing and enforcing regulations, issuing licences, and resolving disputes. 
  • The UK has a centralised regulator whose effective functioning has led to a decline in both disordered gaming and medium-to-low risk gaming behaviour.

• Classification of games based on type and risk: Games could be categorized as games of skill, games of chance, or a combination of both. Different regulations and restrictions could apply to each category based on the potential for harm.
• Strengthen data protection and privacy: Regulations should be put in place to protect players’ data and ensure responsible data collection and usage by gaming platforms. Suitable additions into Digital Personal Data Protection Act, 2023 should be done. 
• Implementation of age verification and parental controls: Platforms should be required to implement robust age verification systems to restrict access to age-restricted games and gambling. Parental controls should also be readily available to allow parents to set limits on their children’s gaming activity.
• Combat illegal offshore gambling: This could involve measures like blocking unauthorised platforms, working with financial institutions to restrict transactions, and cooperating with international law enforcement agencies.
• Implement transparent tax regimes: Clear and fair tax structures should be developed for the online gaming industry, ensuring adequate revenue for the government while avoiding stifling legitimate businesses.
• Encourage self-regulation: The industry should be encouraged to develop and implement self-regulatory codes of conduct, complementing government regulations and promoting responsible practices.
• Promote public awareness and education: Public awareness campaigns can be launched to educate users about the risks associated with online gaming, responsible gaming practices, and how to identify illegal platforms.
• Continuously monitor and adapt regulations: The regulatory framework should be regularly reviewed and updated to keep pace with the evolving online gaming landscape and address emerging risks.