Banning gaming, promoting AVGC: India’s policy contradiction in the digital economy

 India’s online gaming sector faced one of its most consequential inflection points when the Promotion and Regulation of Online Gaming (PROG) Bill, 2025, was passed by Parliament in August 2025. The legislation stated that it was “…designed to curb addiction, financial ruin and social distress caused by predatory gaming platforms that thrive on misleading promises of quick wealth.” Yet, in its effort to safeguard users, the government may have underestimated the deeper and more systemic consequences of an absolute prohibition.

When the ban on real money games (RMG) came into effect, several leading gaming platforms ceased operations almost overnight, leaving as many as 100 million gamers in a quandary. This, however, was only the immediate and visible impact. The more persistent and less visible consequence was behavioural displacement: users began migrating to unregulated, offshore platforms operating beyond India’s legal jurisdiction, a risk the government is neither equipped to monitor nor mitigate.

The Government’s Paradoxical Rationale

Ironically, the government’s own assessment of the sector exposes this contradiction. An official press release acknowledged online gaming as “…one of the most dynamic and fast-growing segments of the digital and creative economy,” highlighting its potential for innovation, employment generation and global competitiveness. At the same time, it cited the absence of a coherent and enabling legal framework and argued that urgent legislative intervention was required.

Yet, legislative intervention does not have to mean prohibition. If anything, the acknowledgement of scale, growth and employment potential should have strengthened the case for regulation, not bans. Bans do not reform markets; they merely displace them.

Budget 2026 and the AVGC Contradiction

This contradiction becomes even more pronounced when viewed through the lens of the Union Budget 2026. For the first time, the Budget made a concerted push to position AVGC (Animation, Visual Effects, Gaming and Comics) as a strategic pillar of India’s creative and digital economy. The announcements around AVGC labs, skilling pipelines, creator ecosystems and global competitiveness were widely welcomed by the industry as long-overdue recognition of India’s creative potential.

However, this policy enthusiasm sits uneasily alongside the continued ban on RMG, which remains a foundational revenue model for India’s gaming ecosystem. For many domestic studios, especially early-stage and mid-sized firms, RMG revenues historically subsidised experimentation, IP creation, casual gaming formats, animation capabilities and immersive technologies such as AR/VR. Removing this financial backbone without offering a regulated alternative weakens the economic viability of precisely the ecosystem the Budget claims to nurture.

The risk, therefore, is not merely regulatory overreach but policy incoherence. On one hand, the state seeks to build a globally competitive AVGC workforce and attract investment into creative technologies. On the other, it constrains the sector’s most established domestic monetisation channel, creating uncertainty for investors, founders and talent alike.

Several post-Budget analyses have flagged this execution risk: while skilling and incubation are necessary, they are insufficient in the absence of predictable market structures. Talent pipelines without sustainable business models inevitably lead to talent flight to offshore studios, foreign platforms and jurisdictions with clearer regulatory signals.

Why Bans Rarely Work: Evidence from CUTS Surveys

Bans do not eliminate demand; they simply push it underground. Consumer behaviour rarely changes in response to prohibition, it adapts. And new empirical evidence from surveys conducted by CUTS International reinforces this pattern.

According to a detailed survey of online gaming users in Delhi NCR, offshore betting platform usage increased sharply after the RMG ban, rising from 68.3% before the ban to 82.0% afterward, representing a statistically significant behavioural shift toward unregulated platforms. Daily engagement on offshore sites and time spent per session also increased markedly, indicating deeper and more frequent offshore participation rather than a reduction in gaming activity.

Likewise, a parallel survey in Tamil Nadu found offshore platform usage rising from 67.8% pre-ban to 83.0% post-ban, underscoring that even outside metropolitan regions, the ban did not diminish participation but redirected it to offshore markets. The data shows that not only did existing users intensify their offshore engagement, but a significant share of users who had not previously used such platforms adopted them after the ban.

These findings suggest that the prohibition has influenced where and how users engage with gaming platforms, not whether they engage at all and exposes users to environments with far less regulatory oversight.

The Unintended Consequences of “Good” Intentions

Once users migrate to unregulated markets, the risks intensify. Offshore platforms are under no obligation to implement safeguards such as e-KYC, age verification, self-exclusion tools or responsible gaming nudges. This disproportionately exposes minors and vulnerable users to harm, the very outcome the ban sought to prevent.

There are also broader structural costs. Tax revenues evaporate as economic activity moves offshore. Law enforcement faces heightened challenges in tracking illicit financial flows, and cybersecurity risks multiply as user data circulates through opaque international networks. Policymakers lose visibility into user behaviour, transaction patterns and harm indicators, making evidence-based interventions nearly impossible.

From an AVGC lens, this displacement has another cost: it drains domestic platforms of users, capital and data, all of which are critical inputs for building competitive gaming, animation and interactive IP at scale.

Regulation as a Better Path

Transparency, not opacity, is the foundation of effective governance. Regulation enhances visibility; bans destroy it.

Globally, jurisdictions confronting similar concerns have chosen regulation over prohibition. The United Kingdom relies on licensing, advertising restrictions and consumer safeguards. Australia combines regulatory oversight with public awareness campaigns. In both cases, governments retain oversight while preserving legitimate market activity.

India itself was moving towards a co-regulatory framework, one where the state set guardrails and industry implemented safeguards under supervision. That approach allowed for data sharing, compliance, consumer protection and adaptive policy design. The ban represents a retreat from this more nuanced model.

The Moral Responsibility of the State

India’s regression from regulation to prohibition has amplified the very harms it sought to reduce. As users move to illegal markets, they lose access to grievance redressal mechanisms, consumer protections and accountability structures.

At its core, the debate around online gaming is not merely about entertainment or morality. It is about how the state manages digital behaviour in an era of ubiquitous connectivity. Addiction is a symptom of deeper challenges, digital overuse, financial vulnerability and low online literacy none of which are addressed through bans.

In a fast-growing digital economy, governance cannot rely on fear and exclusion. It must be built on trust, transparency and informed participation. If Budget 2026 truly envisions AVGC as a growth engine for India’s creative economy, policy must align with that ambition. Otherwise, bans will continue to function not as solutions, but as accelerants of the very problems they aim to solve.
 
(Nirupama Soundararajan is the Co-founder and CEO of the Policy Consensus Centre. Views are personal.)