The Art of a Good Unicorn: Sudden regulatory shift triggers downturn, hardships

India’s 2025 online gaming ban has upended real-money play, forcing startups to pivot to social gaming, e-sports, and new business models amid legal battles

August 2025 brought a seismic shift for India’s booming online gaming startup ecosystem. The Promotion and Regulation of Online Gaming Act, 2025 — which bans all real-money online games, regardless of whether they are skill- or chance-based — has redrawn the industry’s boundaries overnight. For a sector that had been riding high on investor confidence, innovation, and rapid user growth, the new law represents both a challenge and an inflection point.

While uncertainty looms, new opportunities are emerging in game development, e-sports, and immersive social gaming experiences. (Representative photo)

As the dust settles, startups find themselves navigating a transformed landscape — pivoting from real-money models to subscription-based, ad-driven, and social gaming formats. While uncertainty looms, new opportunities are emerging in game development, e-sports, and immersive social gaming experiences. In this interview, we explore how this landmark legislation could reshape the startup ecosystem, what it means for innovation and investment, and how founders are reimagining the future of gaming in India. Aarushi Jain, Partner (Head – Media, Education & Gaming) at Cyril Amarchand Mangaldas, provides clarity on the way forward.

The new gaming act came as a sudden move. So what exactly is now allowed under the law, and what falls under the realm of a ban?

August 2025 came as a turning point for the online gaming industry. India banned online skill gaming by virtue of the Promotion and Regulation of Online Gaming Act, 2025.

While gambling and betting were always unlawful, “skill”-based gaming — or games where skill superseded chance — were permitted in several states in India by the applicability of state gaming laws (gaming being a state law subject). Landmark judgments of the Supreme Court and courts across the country validated the legality of skill gaming.

This new law marks a decisive shift – it does away with the legacy demarcation of skill vs chance games, declaring all forms of online gaming – money in, money out – as unlawful. The skill element to play these games doesn’t matter anymore. Only social games and e-sports models are now permissible to be offered online, albeit with due licensing, as applicable.

Does this law impact gaming in the real world as well?

The new law is ‘online’ specific. Games of skill continue to be permissible in the brick-and-mortar world, subject to state-specific regulatory regimes.

What was the thought behind this sudden ban, and what happens to the sector now?

The negatives of online gaming were not lost on the government. The ban is a conscious effort to solve the issues connected with online gaming and direct focus on structured growth of the legitimate e-sports and social gaming ecosystem.

The sudden change in the regulatory regime has resulted in various downturns and hardships. The industry, however, continues to show resilience. Real-money offerings were stopped almost immediately, with pivots to free-to-play games taking force. New business models continue to spring up. Subscription fee, ad-driven revenue models, and educational game models could be some options. With the focus on online social games and e-sports, emphasis will shift towards game development and making the gaming experience superlative to ensure user engagement.

To think of it, IP will continue to be created, games will still be developed, gaming platforms will continue to market, and players will continue to play. Business, as such, continues with the elimination of the element of ‘money in–money out.’

With the Act already under challenge before the Supreme Court, what key arguments do you likely see to be advanced, and what possible outcomes should we anticipate from the Court’s scrutiny?

The challenge to the new law was not unexpected. Several petitions challenging it on varied grounds have been filed across the country, and the matter is now before the Supreme Court. Petitioners have primarily challenged the constitutionality of the law, highlighting violation of certain fundamental rights (freedom of trade, disproportionate impact of law on online vs offline industry, etc.). Arguments have also been advanced to highlight legislative overreach, given that the new law ignores recognition of skill-based money games by law and courts, and the rules under the Information Technology Act, 2000.

Substantive hearings are yet to happen in this case. Whether such a sweeping measure is proportionate, or if narrower safeguards could have sufficed, is now for the courts to decide.

Having said so, the question of what could, should have been seems last season for the sector which is seemingly progressing towards its version upgrade.

How does this play out with investor and consumer confidence in this sector?

The sudden turn of events in the real money gaming segment did leave industry, investors, and consumers in a difficult position. It upturned many plans, possibly putting jobs at risk and causing hardships for many.

Things have progressed positively since then. The draft rules under the law, which are intended to bring operational clarity, are now open for public consultation until October 31, 2025, demonstrating the government’s commitment to implementing this new regulatory framework through transparent stakeholder participation. This process gives industry, investors, and other stakeholders a chance to voice their concerns and shape the final framework.

“The draft rules, amongst others, also set out a process for (a) registration of e-sports; (b) voluntary registration of online social games; (c) provide for an ability for the online game server providers to seek the gaming authority’s view on whether the game qualifies as an online social game.”

The clarity on what’s allowed and what’s not, and the guardrails of registration-driven processes, are expected to bring stability and infuse investor and consumer confidence in this sector.

(Shrija Agrawal is a business journalist. The views expressed are personal)