Explained: Has Indian gaming industry got what it takes to catch up?

India has half the number of gaming tech startups that China has, and also lags behind in funding for the sector

Although gaming startups in India have generated considerable investor interest over the years, the sector has not attracted enough attention from the government. Karnataka, one of the few states to have announced an Animation, Visual Effects, Gaming, and Comics (AVGC) policy, has been the notable exception. In January this year, it launched its first centre of excellence for gaming, albeit nearly a decade after the policy announcement.

The union minister for commerce and industry, Piyush Goyal, highlighted the AVGC sector’s significance at a Confederation of Indian Industry event last year.

“AVGC is growing at 9 per cent and is expected to reach about Rs 3 trillion ($43.93 billion) by 2024, a compounded annual growth rate, or CAGR, of 13.5 per cent,” the minister said, adding that the sector had the potential to become the torchbearer of “Create in India” and “Brand India”.

This year’s Budget expands on the idea. Announcing an AVGC promotion task force in her Budget speech, Finance Minister Nirmala Sitharaman said, “The animation, visual effects, gaming, and comics sector offers immense potential to employ youth. An AVGC promotion task force with all stakeholders will be set up to recommend ways to realise this and build domestic capacity for serving our markets and the global demand.”

Long way to go

However, India has a long way to go in matching the might of other nations in the field. Although data on animation, visual effects and comics are not available separately, an analysis of data from Tracxn Technologies, which tracks tech companies, shows that India lags behind China, the United States and the United Kingdom in terms of both number of gaming startups and fund flows into the sector.

While India has 64 startups in the gaming tech sector, China, with 137, has more than double that number. The UK has 139 startups in the field; such startups in the US number seven times more.

The situation is no different in gaming, which represents the larger set of gaming startups. While the number of such startups in India and China are comparable (920 and 985 respectively), the UK has 1,216 gaming startups and the US has 3,374. The US boasts of some of the biggest names in gaming, such as Epic Games (the makers of Fortnite), and Niantic Labs — the makers of the popular game Pokemon Go.

On funding, India’s gaming sector lags far behind China, the UK and the US. Data from Tracxn reveals that the average funding size of the top 10 Indian startups in the sector up to December 2021 was a mere $77.3 million. China, on the other hand, had an average funding size of $141.7 million, while in the US, the top startups got funding to the tune of $809.6 million on average.

The funding data in the case of India are skewed, since the highest-funded startup had garnered more funding than the other nine startups combined. The UK is the only other country that shows such disparity. If the highest-funded startup is removed from the equation for each country, India’s average funding slips further to $42.7 million. China’s funding size comes down to $123 million, and the US’s declines to $85.1 million.

Rich potential

However, in purchasing power parity (PPP) terms, India and China are on a par in funding. But India lags far behind the US, having garnered just over a fourth of the funding. Indian companies averaged $240 million in financing in PPP terms, compared to an average of $809.6 million in the US.

However, experts say that Indian gaming has got what it takes to catch up. A BCG-Sequoia report, released in November 2021, said that the gaming industry, with its mobile-first push, had the potential to earn $5 billion in yearly revenues by 2025, up from the current $1.5 billion.

The report also said that even though the sector was tiny, it had registered a CAGR (over 2017-20) of 38 per cent, compared to 10 per cent for the US and 8 per cent for China.

The US and China account for nearly half of the global gaming market, whereas India’s share is a negligible 1 per cent.

The problem for Indian startups has been monetisation of content. The average annual spend per mobile gamer in India (PPP-adjusted) in 2020 was just $3-10, a fraction of China’s $57-66 and America’s $73-77.

Clearly, India has a long way to go to play catch-up.