Investing in skills and talent crucial for online gaming: Sumanta Dey

The senior director, public policy and corporate affairs, Head Digital Works, talks about challenges the gaming industry faces.

By  Storyboard18Dec 14, 2023 9:00 AM
Investing in skills and talent crucial for online gaming: Sumanta Dey
The RMG sector’s revenue and profit significantly influence the progress of the casual gaming sector as well, as these funds lead to game development, seed investments and ecosystem development that could drive future innovation. (Representative Image: Omid Armin via Unsplash)

By Sumanta Dey

India’s online gaming industry has experienced unprecedented growth in recent years, thanks to a perfect concoction of a large youth population, rising income levels, and the high penetration of smartphones and mobile internet. According to a Google-Lumikai report, there are nearly 500 million online gamers in India, with the sector boasting a market size of $2.5 billion in FY23.

Within online gaming, the real-money gaming (RMG) segment constitutes 83 percent, and has been the torchbearer for much of the growth seen in the past three years. That is also the segment most impacted by the tax policies imposed in 2023, specifically the levy of 28 percent goods and services tax (GST) on all player deposits—a nearly fourfold jump from the previous regime.

While a goldilocks external environment has driven much of the sector’s growth in recent years, the industry’s ability to attract and retain top-quality talent has provided the foundation on which rapid innovation could happen. However, the sudden and massive tax increase on the sector has created both direct and indirect roadblocks to skill development in the gaming industry.

An industry focused on minimising the business fallout of a new tax would find it hard to concentrate on sector development, talent programmes, investments or initiatives that benefit the broader industry. The RMG sector’s revenue and profit significantly influence the progress of the casual gaming sector as well, as these funds lead to game development, seed investments and ecosystem development that could drive future innovation.

In addition to these challenges, the industry faces ripple effects in other areas as well.

Research and development capabilities

India requires robust R&D capabilities to compete in the rapidly evolving global gaming industry. Despite having the world’s second-largest online gaming userbase, India accounts for a mere 1.1 percent of global online gaming revenue. To compete more effectively on the global stage, a dedicated focus is needed on R&D to develop new gaming technologies, improve user experience and introduce revolutionary gaming concepts.

Talent pool in frontier-tech

As a nation, India needs to build a large talent pool in frontier-tech areas such as game development, AVGC, Web 3.0, artificial intelligence, machine learning, cybersecurity, data science and cloud computing. The online gaming sector now faces hurdles in investing to build this talent pool, and the limited opportunities may drive skilled resources to seek career opportunities in other sectors or in other global markets.

IP creation, export and progression to large-format games

Despite the massive user base and explosive growth, online gaming in India is still at a nascent stage. There is a long runway of growth possible if the market and users mature to higher-engagement games. So far, most of the large-game formats played by Indian gamers are based on intellectual property (IP) developed in countries such as the US, China, UK, etc. The indirect consequence of the new GST on RMG companies means fewer funds earmarked for new IP, as studios are compelled to opt for safer, tried-and-tested formats, thus hindering the organic development of new skill sets in the sector.

Decline in investor activity, further impacting growth of the industry

The Indian online gaming industry witnessed significant investments in recent years, totalling approximately $2.75 billion between FY20 and FY24. However, the unfavourable taxation and regulatory environment is dampening investor interest to the point where investors are now preferring to wait for clarity before making new investment commitments. This will impact market expansion pursuits of incumbent gaming companies, besides throttling innovation.

Since October 1, when the new GST policy kicked in, RMG companies have displayed remarkable tenacity to adapt to the new framework. They have changed business models to bear the tax burden instead of passing it on to users. Several companies have scaled back on growth investments, while others have tried to swiftly improve bottom lines by adopting cost-cutting measures. Still, the short-term outlook for RMG companies continues to be fraught with challenges even if the industry eventually overcomes the present odds in the long term.

India can indeed become the global gaming hub, with online gaming being a major contributor to our $1 trillion digital economy aspirations. For that to happen, however, it is critical to have a favourable and predictable regulatory and taxation framework, both on the demand as well as the supply side. Yes, we have unparalleled advantages—demographics, digital literacy, internet connectivity. But the real tailwinds that propel the sector to a higher orbit will come from the people who work in the sector, the skill sets they possess and the investments companies make in developing them to world-class standards.

Sumanta Dey is the the senior director, public policy and corporate affairs at Head Digital Works. Views expressed are personal.

First Published on Dec 14, 2023 9:00 AM

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