So the Indian government is essentially backtracking on its attempt to outlaw crypto by legalizing it as a gambling tool? I'm not too sure this makes sense to me. Either it's too far out there or I just didn't find the logical relation between the two actions.

Just a few weeks ago they were trying to ban it from all banks because it wasn't a legal tender. Maybe one influential individual decided that the only way to transact in India was through bitcoin, so they needed another way to cover their story and decided to cover it this way? Or they just want to find another way to collect tax? Anything is possible in India, isn't it?