PROG Act 2025 and Online Gaming Dilemma

This editorial is based on “Regulation, not bans, can protect online gamers” which was published in The Hindu on 22/05/2026. The article highlights how a blanket prohibition on transaction-based online money games chokes tax revenues and triggers widespread job losses. Ultimately, the piece argues that shifting to a strict central licensing regime with robust user safeguards offers a more effective regulatory path.

The Promotion and Regulation of Online Gaming (PROG) Act, 2025, intended to shield vulnerable populations from the harms of money-based online gaming, appears to be inadvertently driving users toward unregulated offshore platforms, worsening risks of money laundering, cybercrime, and consumer exploitation. The PROG Act, 2025 is a landmark piece of national legislation enacted by the Parliament of India to completely overhaul the country’s digital gaming ecosystem. Its operational architecture is further detailed by the Online Gaming Rules, 2026.

What are the Key Features of the Promotion and Regulation of Online Gaming (PROG) Act, 2025?

Complete Ban on Online Money Games: All online apps or platforms offering cash rewards or requiring monetary stakes —including fantasy sports, online rummy, poker, and casual games with entry fees—are strictly prohibited . The law applies to any online money game, regardless of whether it involves elements of skill, chance, or a mix of both . The Act places a blanket ban on the marketing, promotion, and facilitation of these prohibited games, including endorsements by influencers, film stars, or athletes.

Tripartite Classification of Online Games: To avoid a blanket crackdown on the legitimate video game industry, the Act establishes a clear 3-way structural classification: Online Money Games (Prohibited): Any game involving financial stakes, betting, or cash rewards. E-Sports (Permissible & Promoted): To be registered, they must first be recognized under the National Sports Governance Act, 2025 . Online Social Games (Permissible & Promoted): Recreational, educational, or skill-development games with no real-money transactions involved.

Online Gaming Authority of India: The Act establishes a unified, digital-first statutory regulator called the Online Gaming Authority of India . Composition: Composed of a Chairperson and 5 ex-officio members from various Union Ministries. Judicial Powers: The Authority possesses powers equivalent to a Civil Court to conduct inquiries, summon individuals, examine evidence , and issue blocking orders for non-compliant platforms. Core Mandate: It serves as the primary body to verify and determine whether an incoming game is a prohibited money game or a permissible social game/e-sport, managing a statutory registration regime.

Strict Penalties and Enforcement: The Act treats predatory online money gaming as a major socio-economic offence, introducing severe criminal and financial liabilities: For Offering Prohibited Games: Conviction attracts imprisonment of up to 3 years and a fine of up to Rs 1 crore . Repeat offences carry a mandatory minimum of 3 years (extendable to 5 years) and fines between Rs 1 crore and Rs 2 crore. For Advertising Prohibited Games: Violators face up to 2 years of imprisonment and/or a fine of up to Rs 50 lakh . Nature of Offences: Offences under the Act are classified as cognizable and non-bailable . Cyber cell officers at the State and Union Territory (UT) levels are legally empowered to investigate, search, and seize assets.

How Promotion and Regulation of Online Gaming (PROG) Act, 2025 is Proving to be Counterproductive?

Proliferation of the Underground Gray Market: Legitimate Indian companies that complied with domestic tax (like GST ) and KYC laws have shut down. This vacuum is being rapidly filled by illegal, offshore betting syndicates operating from tax havens (e.g., Malta, Curacao, Cyprus) through mirror websites and virtual private networks (VPNs) . A CUTS International study reveals a massive post-ban surge in offshore platform usage across states, with participation rising from 68.3% to 82% in Delhi NCR, 67.8% to 83% in Tamil Nadu, and 66.7% to 91.7% in Maharashtra. Because these offshore entities operate beyond India’s extra-territorial jurisdiction, the government can neither monitor their financial flows nor protect Indian users from outright fraud, data theft, and extortion.

Cybercrime and Financial Fraud: It increases risks related to money laundering and terror financing . Despite the Ministry of Electronics and Information Technology (MeitY) blocking 8,376 URLs , illegal online betting networks continue to thrive. High-profile cyber frauds, such as the " Old Coin Purchase Task " racket in Tamil Nadu, exploit citizens via " mule accounts " to divert proceeds of crime.

Massive Economic & Fiscal Flight: By banning transaction-based games—which accounted for roughly 77% of the total Indian gaming market revenue —the government has wiped out a massive source of direct and indirect tax revenue. The online real-money gaming industry contributed an estimated Rs 20,000 to Rs 22,000 crore annually to the exchequer through GST and TDS . The collections were driven by a 28% GST on the full face value of bets and a 30% flat income tax (TDS) on net winnings. While the industry had attracted over Rs 25,000 crore in foreign direct investment (FDI) as of June 2022, total prohibition has since severely dented investor confidence. Global venture capital has dried up for the wider Indian tech ecosystem, as foreign investors fear arbitrary legislative pivots that can invalidate established business models overnight.

Constitutional Vulnerability: The Act discards 7 decades of Indian jurisprudence by erasing the distinction between "games of skill" and "games of chance." By treating highly strategic skill games (like fantasy sports or chess tournaments with entry fees) identically to pure gambling (like roulette), the Act faces intense scrutiny in the Supreme Court . Critics argue it unreasonably restricts the fundamental right to practice any profession or trade. Labeling an entire digital tech sector as res extra commercium (activities outside commerce, like liquor or opium) is being criticized as a disproportionate and legally unsustainable measure for platforms built purely on algorithmic and cognitive skill.

Massive Job Losses: Beyond hitting app founders, the ban has caused mass layoffs among software developers, data scientists, UI/UX designers , and cybersecurity experts within an industry that supported over two lakh direct and indirect jobs. Animators and digital artists who relied heavily on the lucrative local gaming sector for employment are facing a severe domestic market contraction, forcing a " brain drain " of talent to foreign studios.

Decelerating the Growth of In-House Game Development: The Act explicitly states it wants to promote " Online Social Games " (recreational/educational games). However, its financial restrictions inadvertently choke them . Most global gaming studios fund their casual, non-monetized, or educational projects using the high profit margins generated by transaction-based or monetization features. By criminalizing the primary revenue engine of domestic gaming companies, local studios no longer have the capital required to build high-budget, culturally-rooted Indian social games or state-of-the-art e-sports infrastructure.

Expected Benefits of Promotion and Regulation of Online Gaming (PROG) Act, 2025 Mitigation of Financial and Mental Health Risks: By strictly prohibiting online money games, the Act targets the root causes of financial distress, debt-driven cycles, and the " gaming disorder " identified by the World Health Organization (WHO) . It aims to prevent cases of depression and suicide linked to predatory real-money gaming (RMG) platforms that lure users with "easy money" promises.

Creation of a "Safe Digital Space": By removing " dark patterns " (manipulative design features that exploit user psychology), the framework fosters a healthier online environment where technology is used for recreation and skill-building rather than exploitation.

Boosting the Creative Economy: By distinguishing between "prohibited money games" and "permissible social/e-sports games," the Act provides a clear regulatory runway for legitimate developers. This encourages investment in game design, animation, storytelling, and software development.

Formalization of E-Sports: The Act formally recognizes e-sports as a legitimate career pathway, similar to traditional sports. This is expected to stimulate the professional sports ecosystem in India, including training infrastructure, coaching academies, and international competitive participation.

Elimination of Regulatory Fragmentation: Previously, the gaming sector was governed by a complex, inconsistent web of state-specific gambling laws. The PROG Act provides a unified national standard , which reduces compliance burdens for companies and provides judicial certainty for investors

What Steps are Needed for Effective Regulation of Online Games and Consumer Protection?

Structural Measures: Instead of a total ban on transaction-based games, the state should replace the blanket prohibition with a strict, central licensing regime . Licensed platforms can be subjected to heavy audits, mandatory KYC, and a standard taxation rate (e.g., GST on net commission rather than the entire pool), ensuring billions in revenue stay within the formal Indian economy. Empower the OGAI with expert cross-functional panels—including behavioral psychologists, tech developers, data scientists , and consumer rights advocates—rather than leaving it solely to ministerial bureaucrats.

Mandatory Responsible Gaming Features: Much like the European Union 's frameworks, the law should mandate that gaming platforms build strict, non-negotiable user safeguards natively into their software code like

Mandatory User Safety Controls Dynamic Session Timers Alerts & automatic logouts after 2 continuous hours Hard Financial Caps Daily/monthly deposit limits that a user cannot override. Self-Exclusion Systems A prominent "panic button" to self-ban for 1-12 months.

To prevent minors from accessing adult or monetized gaming formats, platforms must be integrated with mandatory, real-time age verification links using e-KYC or Aadhaar -based secure verification protocols , coupled with parental consent tools.

Choking the Shadow Economy: Under the Online Gaming Rules, 2026, RBI-regulated banks and UPI payment gateways must act as active enforcement shields. Financial networks must deploy automated triggers to block transaction flows and merchant IDs tied to unlicensed offshore betting sites operating via mirror links or VPNs. Stricter enforcement mechanisms are needed under the Consumer Protection Act, 2019 and IT Rules, 2000 to penalize domestic media, proxies, proxy-networks, and social media influencers who promote surrogate advertisements for illegal offshore gambling portals.

Socio-Educational Measures: Online gaming dependency must be treated as a behavioral health concern rather than just a technical issue. A micro-percentage of taxes collected from the legitimate gaming industry should be legally directed into creating digital de-addiction helplines , institutional counseling centers, and awareness campaigns. The state should actively fund and incentivize localized e-sports and educational games that focus on cognitive growth, vocational skills , and Indian cultural histories , giving youth a positive avenue for engagement.

Adopting Global Best Practices: The United Arab Emirates (UAE) established a tightly controlled federal licensing framework in 2023 with deposit limits and strict compliance. Sri Lanka is setting up a centralised Gambling Regulatory Authority to bring offshore activity under a domestic framework.

Conclusion

While the PROG Act, 2025, aims to curb social harm, its blanket ban creates severe economic and security challenges. To prevent fiscal flight and cybercrime, India must shift from total prohibition to a strict, tech-driven central licensing regime that balances consumer protection with industry growth through global best practices.

Drishti Mains Question Critically analyze how the blanket prohibition under the Promotion and Regulation of Online Gaming (PROG) Act, 2025, has inadvertently catalyzed the growth of illegal offshore betting syndicates and underground gray markets.

Frequently Asked Questions (FAQs) 1. What is the classification of games under the PROG Act, 2025?

It mandates a tripartite division: prohibited Online Money Games, and permissible E-Sports and Online Social Games. 2. How does the PROG Act alter established gaming jurisprudence?

It discards traditional judicial precedents by erasing the legal distinction between "games of skill" and "games of chance." 3. What statutory powers are vested in the Online Gaming Authority of India (OGAI)?

It holds Civil Court powers to conduct inquiries, summon individuals, examine evidence, and issue platform-blocking orders.