Real-money gaming, which includes fantasy sports and other paid contests was once seen as the big bet to monetise India’s massive gaming audience. But regulatory ambiguity, especially around GST on real-money transactions, has created headwinds
Funding for gaming start-ups in India has dropped nearly 90% in just three years due to regulatory doubts around GST on real-money gaming, the absence of a national policy framework for the sector and gaps in the business models of startups in the sector.
Investments in gaming start-ups in India plunged from over $610mn across 71 rounds in financial year 2022 to only $55.9mn over 34 rounds in financial year 2025, according to data from Tracxn.
“The fundamentals are still solid. We are a mobile-first nation with the lowest data costs globally and a growing appetite for interactive entertainment. The only thing missing is stability,” says Anuraag Saxena, chief executive of the E-Gaming Federation, an industry body that represents online gaming companies and advocates for fair regulation and responsible gaming.
Much of the funding freeze can be traced to the shaky foundations of many gaming start-ups, particularly those focused on real-money gaming. Also, industry experts say that during the pandemic boom, several Indian gaming companies prioritised rapid user acquisition and engagement over building robust monetisation strategies.
“The primary reason for the funding dip is the lack of focus on revenues,” said Bhaskar Majumdar, managing partner at Unicorn India Ventures. “Too many companies were chasing vanity metrics, leading to massive cash burns and eroded valuations.”
Real-money gaming—which includes fantasy sports and other paid contests—was once seen as the big bet to monetise India’s massive gaming audience. But regulatory ambiguity, especially around GST on real-money transactions, has created significant headwinds.
“The GST issues around that subsector have slowed investment. Free-to-play gaming has always attracted smaller investments around $40 to $50 million. It's a slightly smaller industry, more early-stage than mid or late stage. That segment is still growing, which is why we are looking at this market with interest,” says Anuj Tandon, partner at Bitkraft, a venture capital firm that invests in gaming startups.
The lack of a unified national policy has made long-term planning risky for start-ups and has deterred both venture capital and private equity investors. Margins for real-money games have also come under pressure. Many firms relied heavily on advertising revenues and promotional spends to sustain user interest.
But as Majumdar cautions, “Just depending on ad revenues is not enough anymore. Founders need to rethink how games can simultaneously drive traction and deliver real monetary returns.”
While funding has dried up, artificial intelligence continues to quietly reshape the gaming ecosystem. AI is no longer just a futuristic promise—it is actively enhancing core development processes, from creating lifelike non-playable characters (NPCs) to building dynamic game worlds. Tools like Unity ML, DeepMotion and Eleven Labs have become standard in modern studios, helping developers detect bugs in real time, generate immersive voiceovers and design smarter in-game interactions.
“AI algorithms improve gameplay by analysing player preferences, setting difficulty levels, and enabling NPCs to learn from player behaviour,” said Bhaskar Majumdar, managing partner at Unicorn India Ventures. But he warns that many start-ups still treat AI as a buzzword in their pitches rather than integrating it meaningfully beyond the early stages of development. “The platforms that stand to benefit from generative AI to those building tools and infra for the gaming ecosystem are more attractive to us than game studios,” Majumdar added, noting how Unicorn India Ventures’ own focus has evolved.
Anuj Tandon, partner for India and UAE at Bitkraft Ventures, adds global context. He points out that AI is indeed transforming both game development and consumer-facing apps—but not all investors or founders can distinguish genuine innovation from surface-level adoption. “That is where you can separate the wheat from the chaff,” he said. “The real challenge is that many people cannot identify meaningful AI integration without global context. Sector-specific VCs can.”
Experts agree that while AI promises faster development, cost efficiency and more personalised gameplay, it cannot compensate for weak monetisation models or regulatory uncertainty. As Chandrashekar Mantha, partner at Deloitte India, puts it: “AI can enhance development efficiency, personalise gameplay and scale operations. But it does not solve for regulatory uncertainty or poor monetisation models.”
For now, AI may be expanding the boundaries of what’s possible in gaming, but it has yet to unlock investor confidence on its own.
Despite the funding freeze, insiders remain cautiously optimistic about the road ahead. The consensus? Gaming is not broken; it is just waiting for the right conditions to scale again.
“The fundamentals are still solid,” said Anuraag Saxena. “We are a mobile-first nation with the lowest data costs globally and a growing appetite for interactive entertainment. The only thing missing is stability.”
That “stability” largely hinges on regulatory clarity. The call for a central regulator and a transparent pan-India framework echoes across boardrooms and investor decks. “We need the equivalent of an ISI [Indian Standards Institution] or FSSAI [Food Safety and Standards Authority of India] mark for gaming,” Saxena argued. “A right-listing mechanism would legitimise operators and unlock capital.”
Once that happens the sector could enter its next growth phase, one defined not by hype cycles but by sustainable innovation-led models. AI will play a critical role here not just in development but also in driving operational efficiency, improving player safety and enhancing monetisation strategies.
Already some start-ups are pivoting in this direction. Instead of chasing viral hits they are doubling down on proven formats, maintaining core games while quietly experimenting with new intellectual properties, AI-driven content pipelines and untapped demographics. Others are building “innovation centres” to integrate AI across verticals like fraud detection, user behaviour modelling and retention analytics.
Tandon believes the India-to-India opportunity will come into its own soon.
“At Nazara there were just 50 to 70 studios in India; now there are over 500. India-to-world is growing but India-to-India will be a bigger opportunity in the next three to five years. The base has shifted.”
Investors are paying attention. While capital may not be flowing as freely many VCs are tracking these pivots closely. Infrastructure-focused plays, especially those offering AI tools for asset generation, performance optimisation or live game ops, are slowly making their way back into pitch meetings.
There is also a significant international tailwind. Majumdar pointed out that Unicorn India Ventures’ esports portfolio company is seeing rapid traction in West Asia, an emerging hotspot for gaming investments. With India’s cultural depth and young digital-native population there is every reason to believe Indian studios could tap global markets if given the right runway.