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Indian Silicon Valley – the state of Karnataka has proposed a ban on online games involving betting and wagering, citing concerns that growing state regulations could hit the budding but booming sector.

Karnataka is proposing an amendment to the Karnataka Police Act include such online games, seeking to ban "any act of risking money, or otherwise on the unknown result of an event including on a game of skill," according to the bill seen by Reuters. Many offenses under the law already enticed prison time, and the bill proposes to intensify these forfeits.

The Karnataka government has said the bill is needed as youngsters from rural areas, mostly idle in the city during the COVID-19 pandemic, "have shown a tendency of becoming habitual gamblers."

It comes as online fantasy gaming platforms such as Tiger Global-backed Dream11 and Sequoia Capital-funded Mobile Premier League (MPL) that offer fantasy cricket and football games and have become gradually popular in India.

Karnataka is the fourth Indian state to propose a ban on online games involving prize money after Telangana, Tamil Nadu, and Andhra Pradesh.

"Business of MPL, Dream11, and everyone in the sector will suffer," said one gaming industry source, who declined to be named because the person was not authorized to speak to the media. "These states are important - they roughly account for 20 percent of (the total) business for such companies."

The online gaming industry in India is booming over the past few years. Foreign investors have invested significantly in Indian gaming start-ups as the COVID-19 pandemic forced people stuck indoors with such games.

India currently has more than 400 online gaming start-ups and, as of 2020, had around 360 million gamers, according to an EY-All India Gaming Federation report. Online gamers are expected to grow to 510 million by 2022 and the industry will be worth $2 billion (roughly Rs. 14,750 crores) by 2023, the report said.

The Dream11 and MPL platforms, offering paid contests with a cash prizes for players, have expanded rapidly in recent months with extensive marketing and hires. Dream11 is seeking a US listing by early next year, local media has said.

This growth has flashed concerns that these platforms, like gambling, are addictive and can cause financial harm.

Sandeep Chilana, a New Delhi-based lawyer, said such laws have a weak legal standing given the Supreme Court has repeatedly said skill games - like fantasy cricket - are not like gambling which remains largely prohibited across India. "Indian states are overreaching and will face legal challenges by banning such skill games," said Chilana.

A second industry source, who asked not to be identified said, the Karnataka proposal comes at an inconvenient time for the industry, during the popular Indian Premier League cricket tournament. Fantasy gaming competitions around the tournament are one of the biggest fee generators for online gaming companies.

The potential ban will also hurt professional players, said Esports Players Welfare Association, a non-profit for online gamers. "Games and esports are areas where skill can be developed as a result of which it is not a sin activity," the group said.

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