India’s gaming market to reach $9 bn in 5 years

India’s gaming industry has reached an inflection point, with exponential growth, shifting consumer preferences, and policy support helping to shape it as a formidable player in the global market. Valued at $3.8 billion in FY24, the industry has already outpaced initial projections, achieving a 23% annual growth rate. A recent report by Lumikai highlights that this momentum is far from waning, with the market anticipated to more than double to $9.2 billion over the next five years. “The sector's potential has consistently exceeded expectations,” says Salone Sehgal, founding general partner at Lumikai Ltd., highlighting the transformative scale of India’s gaming landscape.

The growth is primarily driven by the rise of in-game purchases, which surged by 41% in the last year alone, now projected as a dominant revenue stream for years to come. With this increase, in-app purchases and in-game advertising are expected to form the backbone of the industry’s earnings, particularly by FY29. Sehgal points out that mid-core games, led by titles like Battleground Mobile India, Clash of Clans, and Roblox, are integral to this surge, as they now contribute to 53% of the industry’s revenue growth. This trend, coupled with an uptick in digital payment systems such as UPI, has made it easier for consumers to make small, frequent purchases, bolstering the ecosystem.

Real-money gaming (RMG), which contributed significantly to the topline by adding $400 million, has also seen varied dynamics this year. While larger platforms managed to absorb the costs of user GST on their margins, smaller players felt the strain, with 25% of smaller firms facing working capital challenges. “The gap between gross and net earnings has doubled, reflecting how larger players can cushion the blow, whereas smaller companies are at risk,” says Sehgal. This uneven impact underlines the operational pressures within RMG, revealing both growth potential and the risks tied to this segment.

Alongside revenue growth, the gaming user base in India continues to expand, with 23 million new gamers added in FY24, raising the total to 590 million users. The market is also seeing diversification in its demographic makeup. Once a predominantly male domain, gaming now sees participation from a more balanced audience, with women comprising 44% of smartphone gamers. Further, 66% of these users are concentrated in metro cities, reflecting strong urban engagement, while 43% of all gamers fall within the 18-30 age bracket.

The length of gaming sessions has seen a sharp increase as well. Indian gamers now spend over 13 hours weekly on gaming, up from less than 10 hours, indicating deeper engagement levels. Sehgal views this as a positive shift, saying, “The increase in average playtime signals a stronger connection between gamers and the platforms they choose, a sign of industry maturity.”

Despite recent funding slowdowns, the investment climate appears to be rebounding, bolstered by interest from both international and local investors. Traditional partners from overseas, such as Griffin and Courtside, are now joined by Indian firms like Nexus, Blume Ventures, and Parasyte, showing a renewed commitment to the gaming sector. “There is now significant interest from local investors, a development that bodes well for sustainable growth and local innovation,” opines Sehgal. This shift in investor sentiment aligns with Indian government support, which has positioned gaming, animation, and VFX as “sunrise sectors” deserving of attention and growth opportunities.

On the tech front, gaming companies in India are increasingly integrating AI to streamline game development, leading to improvements in both production efficiency and innovation. Sehgal notes the importance of AI, explaining that it “has become a crucial tool in game development, allowing companies to enhance user experience and drive the industry forward.”

However, this promising landscape does come with its share of challenges. As the sector scales, competition intensifies, and the pressure to meet evolving user expectations grows. Additionally, mid-sized firms continue to grapple with operational constraints, which could potentially hamper the broader market’s expansion if not addressed.

“The path to maturity will require not only robust investment but also careful navigation of the regulatory and operational hurdles that lie ahead,” cautions Sehgal.