Web3 Advances as Real-Money Gaming Faces Regulatory Lockdown in India

Web3 and real-money gaming (RMG), two sunrise sectors of India’s digital economy, have had contrasting regulatory directions in recent months. In August this year, the Indian Parliament passed the Promotion and Regulation of Online Gaming Act, 2025 (Gaming Act), which notably placed a blanket ban on offering of pay-to-play games. In what came as a shock for the digital skill-gaming ecosystem in India, the ban on pay-to-play games does not differentiate between skill games and chance games, a marked departure from existing judicial precedent.

After a period of initial regulatory turbulence that culminated in the Supreme Court of India’s landmark decision in IAMAI v. RBI, Web3 regulation in India has stabilised. The reason for the differential treatment appears to be based on perception, global position, and jurisdiction.

Perception

While skill-based RMG in India has over 60 years of favourable jurisprudence from the Supreme Court, the segment continued to face perception challenges emanating from its conflation with betting and gambling activities. Various states have on several occasions attempted to regulate (and even prohibit) skill-based RMG under the garb of preventing betting and gambling in the state. Apart from the Supreme Court, various state High Courts, including in Tamil Nadu, Karnataka, Odisha, and Maharashtra, have consistently upheld the distinction between skill games and chance games; however, in political discourse the line between the two is often blurred.

Companies offering skill-based RMG are estimated to have employed over 2 lakh individuals across India and have contributed INR 20,000 crore in annual taxes prior to the ban. In spite of its significant scale and fiscal contributions, the anti-gaming narrative is popularly packaged as a social safeguard measure, with heightened concerns around addiction and financial distress. Before the courts, skill-based RMG operators have accused such concerns of being paternalistic, but the consumer-protection-based approach has allowed policymakers to justify prohibitions as welfare measures rather than curbs on technology and innovation.

This is not to say that policymakers have not been equally cautious of Web3 technology; in 2018, the Reserve Bank of India had imposed a prohibition on financial institutions, including banks, from working with businesses that deal in virtual currencies (the ban was subsequently reversed by the Supreme Court in 2020). However, Web3’s prominent use as a fast-emerging alternate asset class has steered Web3 policy towards regulation. Particularly post the November 2024 U.S. elections, India recorded a marked increase in Web3 activity, with trading volumes on leading domestic exchanges rising nearly four to five times and quarterly transactions reaching USD 1.9 billion by December. Notably, Chainalysis ranked India as the global leader in crypto adoption for the second consecutive year, surpassing the United States and many other rising markets. Grant Thornton estimates India's crypto market to grow to more than USD 15 billion in 2035 from USD 2.5 billion in 2024, at a compound annual growth rate of 18.5 per cent. This trend underscores the growing need for a calibrated regulatory framework that can balance investor protection with innovation, while ensuring that India’s leadership in digital asset adoption translates into long-term economic value.

Since 2022, there has been a steady movement towards compliance standardisation, with a focus on building stronger safeguards to deter money-laundering and combat financing of terrorism. As of March 2023, Virtual Digital Assets (VDAs) have been brought under the purview of the Prevention of Money-Laundering Act, 2002, with the Financial Intelligence Unit-India spearheading implementation of compliances at par with the global standards set by the Financial Action Task Force (FATF). Though there has been no significant movement towards the formation of a formal regulatory framework for VDAs in India (similar to the newly introduced GENIUS Act in the USA), India has been an active participant in FATF discussions, which confirm the Union government’s interest in establishing common standards for the industry to operate within. India’s active participation in G20 and FATF makes it clear that Web3 is here to stay.

Local entertainment v. Global infrastructure

As mentioned earlier, Web3 has become a key layer in the global financial ecosystem, with active real-world application. Financial institutions, including the likes of JP Morgan, Goldman Sachs, and BNY, are experimenting with on-chain solutions for services including real-time settlements. Similarly, many central banks are exploring central bank digital currencies (CBDCs) to modernise payment systems while maintaining control over digital assets. As per public information, there are over 50 countries that are currently developing CBDCs. Due to the scale of global interest in Web3 adoption, a complete ban on VDAs will mean India isolating itself from global innovation and financial leadership.

In contrast, skill-based RMG is largely a homegrown success, with limited international exchange. Indian skill-based RMG operators have expanded to other geographies; their product remains rooted in local consumer behaviour and subject to shifting regulatory requirements. The limited international exchange has capped the appeal of such platforms to individual domestic audiences. Compare this to titles such as League of Legends, Valorant, and Counter-Strike, whose uniform platform has created international communities and global esports tournaments. This is not to say that such titles are not prone to misuse; on the contrary, discourse around such games includes concerns of excess use and violent themes. Critically, the debate around esports is largely social, which is not the case with skill-based RMG.

Too many cooks

Another key deterrent for skill-gaming has been its state-specific regulation. Skill-based RMG in India is regulated under Entry 34 of the State List (List II) of the Seventh Schedule of the Indian Constitution, making it a state subject. For completeness, skill-based RMG operators have frequently argued that states lack jurisdiction to regulate skill-based RMG under Entry 34, as the latter covers “betting and gambling” and therefore cannot cover skill-based games. Legal arguments aside, most skill-based RMG operators have nevertheless abided by state-specific regulations. States such as Telangana and Tamil Nadu have used this provision to introduce sweeping bans on skill-based formats. While excessive measures adopted by states have been overturned by High Courts, their lasting impact has been a fragmented regulatory environment with abruptly changing rules and complicated state-specific compliances.

To its benefit, VDAs fall under the Union government’s purview, and their regulation has been anchored in discussions relating to financial integrity, cross-border trade, and economic stability. This centralised approach spares Web3 from the patchwork of state-level prohibitions and varying regulations that have impaired skill-based RMG.

The bottom line

Web3’s deep global integration and wide adoption make it apparent that the way forward for India lies in pragmatic regulation. As for skill-based RMG, challenges to the Gaming Act are currently pending before the Supreme Court, and a final judgement may take several months. At the same time, the Union government has revised the Goods and Services Tax (GST) on online real-money gaming to 40% – a slab reserved for so-called sin and luxury goods, which is a reflection of the industry’s continuing perception challenges. In light of the high GST, a reversal of the Gaming Act by the Supreme Court may not be sufficient to make skill-based RMG an attractive business.

For skill-based RMG, the match may be nearing an abrupt end, while for Web3, the game is still very much on.