By Vishwadha Chander and Aditya Kalra

BENGALURU (Reuters) – The Indian state of Karnataka, home to India’s Silicon Valley, has proposed a ban on online games involving betting and wagering, sparking concerns that growing state regulations could hit the nascent but booming sector.

According to Reuters, Karnataka proposes an amendment to Karnataka Police Act that would ban online gambling. This bill seeks to prohibit “any act of risking money or any other on the unknown outcome of an event, including on a skill game.” Many of the offenses under this law are already punishable by prison sentences, but the bill seeks to raise these penalties.

Karnataka’s government stated that the bill was necessary because many youngsters, especially those from rural areas, who became accustomed to gambling after the COVID-19 outbreak, were left in the city.

This comes at a time when online fantasy games platforms like Sequoia Capital-funded Mobile Premier League and Tiger Global-backed Dream11 have grown in popularity.

Karnataka, which is home to many of India’s most prominent tech firms and Bengaluru’s capital, has become the fourth Indian state to try to ban online gaming that involves prize money.

According to a gaming industry source, “MPL, Dream11 as well as everyone else in this sector will be affected,” the source declined to name because they were not allowed to discuss the matter with the media.

These states are crucial – around 20% (of the total) business of such companies is done in them.”

Over the last few years, India’s online gaming market has seen a significant increase. As the COVID-19 pandemic forced people to stay indoors, investors from abroad have been showing increased interest in Indian startups.

EY All India Gaming Federation reported that India now has around 400 online gaming businesses and there were approximately 360 million users as of 2020. According to the report online gamers could reach 510 millions by 2022, and industry revenues will exceed $2 billion by 2023.

With extensive marketing and hiring, the MPL and Dream11 platforms have seen rapid growth in recent months. They offer paid contests that pay cash prizes to players. According to local media, Dream11 seeks a U.S. listing in the early part of next year.

These platforms are similar to gambling and have been growing in popularity.

Online gaming has been banned in India by Telangana, Tamil Nadu, and Andhra Pradesh over recent years. But, the high court of Tamil Nadu was able to strike down Tamil Nadu’s bill.

Sandeep Chilana, an Indian lawyer based in New Delhi, stated that such laws are weak because the Supreme Court repeatedly declared skill games, like fantasy cricket, were not gambling, which is still largely banned across India.

Chilana stated that Indian states have gone too far and would face legal problems if they ban such skill games.

The Karnataka proposal is also coming at a difficult time for industry. It falls during the Indian Premier League cricket championship. According to a second source in the industry, the fantasy gaming tournaments are one of largest revenue generators for online gambling companies.

Esports Players Welfare Association is a non-profit that supports online gamers. Professional players will be affected by the ban.

According to the group, “Games and Esports can help develop skill. It isn’t a sin activity.”