The lure of e-lottery

The ethics and economics of online lotteries, which have begun to fetch substantial revenues for the Karnataka government, are at the centre of a heated debate in the State.

in Bangalore

NEXT only to the ubiquitous STD-ISD booth, the online lottery kiosk has become a fairly prominent marker of the urban and semi-urban landscape in Karnataka. A typical kiosk attracts a steady stream of players, comprising mostly daily wage-earners, willing to wager a significant portion of their meagre earnings on the luck of the draw. In the one year since its introduction by the State government, online lottery has seen a remarkable growth, as attested to by the sharply rising graph of revenue generated from the sale of its tickets. The access and procedural ease that online and Internet lotteries offer is one reason for new sections of people taking to it. There are multiple draws in a day, results are announced in the mass media, and the prize money is usually disbursed over the counter. Economic hardship is undoubtedly another reason for the phenomenal increase in the lottery-playing population. It appears to be the urban and rural poor who constitute the largest segment of new recruits to online and Internet betting. Drought and related factors have resulted in growing unemployment and mounting debts over the last two years in the State, particularly in the rural sector. These factors underpin to a significant extent the growing popularity of the lottery and the unrealistic expectations it creates amongst sections of the poor who see it as a way out of debts and financial hardship.

The ethics and economics of online lottery is at the centre of a raging political debate in the State today. Women's organisations, Non-governmental Organisations (NGOs) and political parties have drawn attention to the harmful effects of lottery playing on the finances and cohesion of the family. In Bangalore, two kiosks of Playwin, the government-licensed online lottery company, were ransacked by activists of the Kannada Rakshana Vedike, a recently formed organisation that has demanded that the government ban lotteries. On his recently concluded Janaspandana (people contact) tour to mark the completion of four years in office, Chief Minister S.M. Krishna for the first time acknowledged the mounting public criticism of online lotteries by offering to "regulate" them in the next budget.

Amongst those who welcomed the Chief Minister's offer was, rather surprisingly, Subhash Chandra, the chairman of the Zee group. Ultra Entertainment Solutions Pvt. Ltd, a Zee group company, was awarded the licence in August 2002 by the State government to act as its agent in the online lottery business after an open tendering process. Ultra Entertainment Solutions is the sole agent for the Karnataka government for online lottery run by the State government. The company in turn appointed Playwin to provide the required infrastructure and marketing services. In a letter to the Chief Minister, Chandra "whole-heartedly" welcomed Krishna's promise of regulation of lotteries and in fact asked for these measures to be initiated immediately.

While online lotteries have by and large replaced paper lotteries the world over, it is only recently that they have made their appearance in India. Only State governments are by law permitted to run lotteries. Karnataka, which started paper lotteries in 1970, was one of the earliest States to introduce online lottery. Being the most visible of the online and Internet lottery names, Playwin has been at the centre of the anti-online lottery campaign in the State. Soon after it set up its operations, Playwin hoardings appeared all over Bangalore, the State capital, announcing that a part of the proceeds from online lottery would go to fund the midday meal scheme for schoolchildren that the State had introduced. Indeed, after the first year of operations, the government claimed that Rs.100 crores of online lottery revenues had gone towards funding the Rs.300-crores-a-year noon meal scheme.

Reacting to the hoardings, a group of NGOs under the umbrella of the Right to Food Campaign wrote to the Chief Minister expressing their shock at the government's decision to use the proceeds from what they characterised as a social vice to fund an important programme of public provisioning. "Even stopping the midday meal programme is better than continuing online betting," B.T. Lalitha Naik, former Karnataka Minister, who is at present in the Janata Party, told Frontline. "Many families are being destroyed because of this. Anyone can play this lottery, and a person can win, or as more often happens, get pauperised, in a matter of seconds. Men will put their wives up for sale in order to satisfy their addiction. We have launched campaigns amongst women against this in Raichur and Bellary," she said.

Playwin officials describe the criticism as unfounded and ill-informed. "We have only 4,129 kiosks in the whole country of which 1,133 are in Karnataka and 670 in Bangalore," Gautam Machiah, a spokesperson of Ultra Entertainment Solutions, told Frontline. "We conduct the lottery for the Karnataka government and fully abide by the provisions of the Lotteries Regulation Act (1998). The procedure is transparent and fully accountable. Even though we account for less than 10 per cent of the lottery sales in the State, we have committed a revenue of Rs.1,098 crores to the State as its share during the five-year licence period, of which we have already paid Rs.100 crores. This is the highest revenue for any State government in one year from online lotteries."

According to government sources, the agreement with Ultra ensures the government between 21 and 24.5 per cent of online sales and between 45 and 47 per cent as prize money over the five years of the lease agreement. "Our revenues from paper lotteries, where our agent Mysore Sales International Ltd pays us just 1.5 per cent of sales, was between Rs.10 crores and Rs.13 crores in 2002-2003," an official told Frontline. "Because of several new schemes we have introduced since May, paper lottery sales have gone up considerably. The sale proceeds for paper lottery a day are around now Rs.5 crores. As against this, online lotteries generate sales of only around Rs.60 lakhs." He denies the allegation that government representatives are not present when Playwin conducts its draws four times a day. "According to the Act there must be at least four representatives of the government at each draw, one of whom must be the Principal Secretary, Finance, or his representative," he said. "Each computer-generated lottery ticket must carry the logo of the State government". Each lottery ticket has 10 security features that make it next to impossible to forge.

The regulated lottery sector comprises only a very small part of the lottery business in the State. Unofficial estimates put the lottery business at Rs.15 crores a day. Of this, paper lottery sales account for Rs.5 crores and online lottery for Rs.60 lakhs. The balance is generated by the unregulated lottery segment. State government officials have been drawing the attention of the government to the role of the "Internet" lottery segment run in the name of other State governments, which are doing roaring business in the State in violation of the rules. There are 14 States that run lotteries. Tamil Nadu banned lotteries in April this year and the business is believed to have now shifted to Karnataka. Each lottery-running State must allow other State lotteries to operate within its borders, according to the Act. However, these remain outside the control of the Department of Small Savings and State Lotteries of the State.

Internet lottery operates differently from online lottery. Worried government officials have in recent times drawn the attention of the Department of Finance to the irregular practices of Inlott Technologies Pvt. Ltd., which runs Internet lotteries for Sikkim, Nagaland and Arunachal Pradesh. According to them, Inlott Internet lottery tickets do not bear the logo of the State government in whose name it is running the lottery. Recently, the Sikkim government logo has been incorporated on Inlott tickets. "This is an even bigger violation of the Act, as a printout generated by a computer is not a valid ticket," says an informed source. There is no guarantee that an Inlott ticket is valid, as the company purchases paper lottery tickets in bulk and uploads the numbers on the Internet. When a player selects a number, a computer printout with the number is generated, which is given to the player in lieu of a ticket. There is no guarantee, however, that such a ticket actually exists, as it is only a printout. The company allegedly conducts over 1,000 draws a day, including single-digit lotteries, which are banned by the Act. Government sources allege that although the company tries to conceal single digit draws by fixing two dummy numbers before the single-digit, this is obviously a clear violation of the Act.

Karnataka earns no revenues from Internet lotteries conducted by other States. "Internet lotteries are also giving a bad name to Karnataka, as they are often mistaken for online lotteries," argues the official source.

There is undoubtedly a strong case for regulating the lottery business in the State. But this does not address the larger issue of whether this form of gambling should indeed be legalised at all. One view is that if lotteries are banned, it will only drive the business underground and into private hands, often those of the underworld. This would have far more serious social consequences than what can be expected from a regulated lottery system. As in the West, part of the proceeds from lotteries can be earmarked for supporting social sector programmes. Opposed to this is the view that lotteries should be banned and the ban strictly enforced. The case for this remains strong, particularly in societies where poverty and indebtedness are widespread.