The Commonwealth 2.0: An Opportunity for India to Lead

For almost 70 years the Commonwealth of Nations, formerly the British Commonwealth, has linked together one third of humanity in a loose confederation of states based on shared history and shared values. While there are many international institutions, such as the World Bank that have specific mandates and a few others, such as the United Nations, that are more universal, the Commonwealth remains unique as a project to foster free trade, democracy, good governance and liberal values across the world’s six inhabited continents. However, the Commonwealth project for decades has fallen short of its potential, due to both a lack of leadership and to the nature of the institution itself, being a free association of equal members with no permanent governance organs. Nevertheless, the economic, political and security potential of the Commonwealth remains considerable at a time when existing geopolitical alliances and institutions generally are in flux with a vacillating America and an increasingly assertive China. With its more informal titular ‘leader’, the UK, currently extricating itself from the European Union and with the UK’s economic and political linkages in a period of global transition, a revitalised Commonwealth will require fresh and proactive leadership if it is to develop into an effective alliance which can actually deliver on a more ambitious agenda for its members. India, the Commonwealth’s largest and arguably most dynamic member, has seen its prospects and standing revitalised under the current government and therefore has an opportunity to step up and be one of the leaders in the transformation of the bloc into a positive force for development, security and prosperity in the world. This month’s Sign of the Times examines the untapped potential of the Commonwealth and what it would take to unlock it under the leadership of India and other key members.

Introduction - The Untapped Potential of the Commonwealth

This month the United Kingdom hosted the bi-annual summit of the heads of government of the Commonwealth, during which leaders discussed a variety of issues ranging from the recently concluded Commonwealth Games, cybersecurity, environmental protection, and the impact of Brexit on the group’s trade with the European Union. Accounting for over one third of the world’s sovereign states, ranging from among the most developed (Singapore) to the least (Bangladesh), the Commonwealth stands out as a unique animal among today’s multi-lateral institutions. The Commonwealth’s lifespan has been almost contemporaneous with the reign of its current head, Queen Elizabeth II, who has ruled as head of state and monarch of 16 of the bloc’s members for over 66 of the Commonwealth’s 69 years. Starting life as an association of former colonies and dominions of the British Empire during the middle of last century, the Commonwealth has evolved beyond its colonial legacy with the admittance of new members and the ongoing decoupling from the UK as the latter sought increasingly close European and Atlantic ties in the EU and NATO, respectively.

Today, the point of the Commonwealth is being increasingly called into question. United by its members’ shared history, language, culture and values, and committed to free trade, sovereignty and security, it remains a free association of states that does not create legal obligations or mechanisms to enforce agreements among its members. The untapped potential of the Commonwealth however is significant. Covering almost 2.4bn people across all six inhabited continents, its members generate c.15% of global GDP and nearly 15% of global trade, making the bloc both one of the largest and most diverse in the world. Further, Commonwealth members as a group would be among the world’s largest market ranking just behind the US and the EU, are significant international investors, contributing 8% of global FDI, and spend 11% of global defence dollars annually. Most importantly, time and demographics are on the Commonwealth’s side: in 2040 the bloc’s position, both absolute and relative, along all the above indicators, will have improved. This points to the increasing geopolitical, geostrategic and geo-economical potential of the Commonwealth, if it were more than a loose association. The tables below capture the Commonwealth’s growing potential across a number of financial, trade, political and security indicators.

As diverse as the membership of the Commonwealth may be (see figure 1), its countries more importantly share a number of critical attributes that provide a strong basis for close collaboration. The group has the benefits of a common working language, a common legal system, and a common democratic governance framework, which all members practice. The benefits of these similarities are known as the “Commonwealth Advantage” and are estimated to reduce bilateral transaction costs between members by up to 20% vis-a-vis non-members, yet only approximately one-fifth of members’ external trade today is with other members. More importantly, the members’ shared commitment to democracy, freedom of speech, human rights, and the rule of law, enshrined in the Commonwealth Charter, provide a strong platform of values upon which to base broader collaboration across political, security, investing and environmental issues, all of which are beyond the practical scope of today’s Commonwealth, whose biggest accomplishment in terms of joint action appears to be the organisation of the quadrennial Commonwealth Games sporting event. Given its potential, it may well be time to consider and review the Commonwealth’s objectives and potential future.

The Need for India to Step up in Providing Leadership

As the head of the Commonwealth, H.M. Queen Elizabeth II’s nomination of H.H. Prince Charles has been confirmed by members’ leaders as the next head of the Commonwealth, and this may well provide a natural spur, if one is needed at all, to consider how best to unlock the potential of the body. There were calls among UK opposition leaders for a rotating presidency rather than an automatic succession as in the past but more important than the nominal figurehead of the bloc is its actual leadership, and the UK is no less aligned on this matter, either. The Brexit referendum has exposed deep fissures in the UK on views over Britain’s position in Europe, broader role in the world and future positioning, fissures that have continued to deepen through the current day. With the Brexit deadline fast approaching, the UK is no closer to determining what its strategy vis-à-vis the EU or the Commonwealth for that matter should be. A portion of the country’s leadership favours a customs union with the EU, another sees the Commonwealth as the ‘saviour’ to the soon to be economically isolated UK, while others yet again favour a series of bilateral engagements with major partners, who include both Commonwealth members and non-members. The hope of a special relationship with the US continues to recede as the US’s priorities along the path of ‘America First’ become clear and as the EU’s leaders outmanoeuvre the UK in building their direct links into the US. Given this lack of consensus and the continuing drift of the UK away from its historic power positions, it is clear that the UK’s political leaders today lack both the willingness and the capacity to reshape and lead the Commonwealth, and so is most likely to be a member state - albeit in titular and historic terms an important one - providing an opportunity for other countries to step up.

India today is an outsized member of the Commonwealth, the largest by population (contributing to over half the bloc’s total) as well the second largest by GDP (soon to be the largest given projections place its GDP to exceed the UKs in 2018). And while across a number of other metrics statistically India appears to be a first among equals rather than an 800-pound gorilla (like the US in NATO), the country’s growth and development potential as well as its geostrategic positioning fundamentally transform the economic and strategic opportunity represented by the Commonwealth, making it a natural leader, for now, of a bloc with an expanded scope and ambition. From India’s perspective there are several compelling reasons to play a proactive leadership role in a revamped Commonwealth:

1. Opportunity for Broader Leadership Role. India has long sought broader recognition as an emerging power in the world, along with enhanced global right and responsibilities, e.g. a permanent seat on the UN Security Council. However, India’s actual leadership initiatives to date have fallen short of its potential. Driving a scaled and diverse multi-lateral institution like the Commonwealth would demonstrate India’s leadership potential and capabilities and act as a stepping stone to an enhanced global role generally.
2. Counterweight to China. India today finds itself isolated in Asia, surrounded by countries that are members of the China led Asian Infrastructure Investment Bank (AIIB) and the One Belt One Road initiative. With another seven Asian countries (all of them AIIB members) in the Commonwealth, the bloc provides a rare forum for regional multi-lateral engagement where China is not participating, allowing India to set its own agenda.
3. Potential Alignment with Strategic Priorities. Further, the Commonwealth touches upon many of India’s own strategic priorities from regional free trade (with ASEAN members like Singapore) to security (the proposed Quad including Australia). Tying these priorities and initiatives into the broader collaboration framework of the Commonwealth can provide additional momentum and incentives to its partners to progress these initiatives.
4. Links to the Indian Diaspora. Due to the colonial heritage of the Commonwealth, its membership maps neatly to the Indian global diaspora, as source of significant potential value to India today. Excluding the more recent (and mainly blue collar) emigration waves to the Gulf states, Commonwealth members represent 11 of the top 15 countries with Indian populations, providing India with a consolidated forum to strengthen links to its global diaspora
5. Need for External Growth Drivers. Despite being the world’s fastest growing economy India is not yet fulfilling its development potential in terms of scale and speed. While the government has implemented several ambitious structural domestic reforms, the international environment is turning less conducive to growth given rising protectionism than it was during the rise of the Asian Tigers, for example. India will need lead equally bold international initiatives to ensure that external growth factors support its development ambitions moving forward.

India appears to have recognised the potential of the Commonwealth and seems to be preparing to play an enhanced role within it. Prime Minister Narendra Modi attended the Commonwealth Heads of Government Meeting (for the first time in nearly a decade for an Indian PM) and indicated that India is prepared to double its financial contributions to the bloc’s budget, two strong indicators of its willingness to take on a more proactive role. Of course, it is important to realise that for all its advantages and importance, India is unlikely to play the same pre-eminent role that say the US would in a reconstituted Trans-Pacific Partnership or Quad, given the sheer scale and diversity of the Commonwealth and the fact that it does not bring the financial and military clout that the US does. Indeed, for India to lead, others must be convinced of the merits of its leadership and also be convinced of the merits and terms of their followership. In that regard, India will need to work closely with several other important members to shape and execute an enhanced agenda for the bloc, in particular Australia, Canada and Singapore as highly developed members with economic, financial and political clout as well as potentially South Africa and Nigeria, both among Africa’s largest, fastest growing and most resource rich nations who will play increasingly important global roles over time. The need to create alignment among an advocating group is necessary and rather than detracting from India’s position in the driving seat, it will provide the support needed to push through ambitious initiatives.

An Enhanced Commonwealth 2.0

The economic, political and geo-strategic potential of the Commonwealth is significant. With the unipolar post-Cold War order clearly in decline, the emergence and increasing assertiveness of China and the uncertainty over the shape of America’s long-term leadership of the liberal order , nations the world over will need to reassess their existing commitments and alliances and reorient themselves accordingly. The Commonwealth, anchored by language, history, governance and values, is a clearly a potentially attractive mechanism for its constituent members to forge new alliances and create scale in the face of two mega-powers, the US and China, whose priorities may not be aligned with their own. The potential areas of engagement for an enhanced Commonwealth therefore cover the breadth of the world’s most critical issues, with India having the potential to making unique contributions to the major initiatives addressing these issues:

1. Free Trade Network. Representing nearly 15% of global trade in total, of which only a fifth is within the group itself, free trade is the perhaps the most obvious and valuable opportunity for the Commonwealth to focus on. The global dispersion of the Commonwealth means that its members are party to every major free trade agreement in the world, including ASEAN, the EU, NAFTA, and COMESA. Given the increasing trend toward free trade regions, there is an opportunity for the Commonwealth to create an effective global trade network, with its diverse members acting as the entry and exit points to their respective regional free trade areas. Commonwealth members like Malta or Cyprus can provide an unrestricted entry point for other members to the EU’s single market (much as the UK has traditionally done, driving significant local investment in and transit trade), while members in other parts of the world can provide members with preferential access to their own free trade regions, e.g. Singapore to ASEAN or South Africa to COMESA, while generating significant economic opportunities for the windows themselves. This global strategy would provide Commonwealth members access to both some of the world’s largest as well as key global growth regions such as South Asia or Sub-Saharan Africa, whose domestic markets are expected to growth by 7.8% and 4.0% respectively over the next five years, against global growth of 3.7%.
   India’s Role. With other key large Commonwealth members pre-occupied with their own trade negotiations – the UK with the rest of the EU, while Canada is re-negotiating the North American Free Trade Agreement (NAFTA) – there is a need for India to assume a leadership role in facilitating a Commonwealth trading bloc. India’s candidacy as the potential “commercial” leader of a Commonwealth trade block is further enhanced by recent data which revealed that the country has moved into the top five providers of intra-Commonwealth services trade and is expected to be an important driver of driving overall intra-Commonwealth trade and investment to over US$1.5tn by 2020.
2. Investment and Development Finance. The Commonwealth collectively manages a significant pool of global capital, representing four of the world’s largest 20 sovereign wealth fund operators (see table) as well as considerable additional financial assets. At the same time, other Commonwealth members require considerable investment for the ongoing development, particularly in South Asia and Sub-Saharan Africa, which are facing annual infrastructure funding gaps in excess of $200bn and $100bn respectively over the next decade. A Commonwealth Infrastructure Bank, modelled on the World Bank, funded by and primarily focused on development finance for members could provide an efficient capital allocation conduit in the bloc, and strengthen the ties within it, balancing the increasingly influence wielded by China and its AIIB. Beyond development finance, the Commonwealth can also implement several ‘free investment’ initiatives completing free trade, enhancing the flow of capital more broadly within the group, including preferential taxation rules for intra-Commonwealth investments and a relaxation of FDI caps.
   India’s Role. India holds a unique position in the Commonwealth allowing it to benefit from both sides of the cross-border investment opportunity. While its capital requirement of over US$1tn in capital across various sectors over the next decade, it is a major investment destination for Commonwealth (and other) capital at a time when India’s corporations are increasingly going global themselves and making scaled overseas investments in both developed and developing countries (e.g. Tata’s acquisition of Jaguar Land Rover in the UK, and Adani’s proposed US$16bn infrastructure and resource investment in Queensland, Australia). India accordingly has a strong incentive to drive enhanced capital flows within the bloc).
3. Natural Resource Sufficiency. The Commonwealth represents one of the most significant blocs of natural resources on the planet, containing significant oil, mineral and land resources, which if properly leveraged provides it with a long-term strategic advantage over other countries and regions. In terms of oil, Commonwealth today produces 9.3% of global daily production (mainly in Nigeria, Canada and Brunei), but as consumer of 14.2% of production remains a net importer. However, considering potential energy production as a whole, including untapped hydro and solar resources, the Commonwealth has the potential to be effectively energy self-sufficient. Further, Commonwealth countries, particularly in Africa, are the source of a significant portion of the world’s supply of copper (13% of total), aluminium/bauxite (38% of total), iron (49% of total), manganese (59% of total) and cobalt (19% of total), not to mention gold (24%) and diamonds (40%). An enhanced and strategic Commonwealth should focus on ensuring energy security, through the development of renewable technologies as well as through the creation of infrastructure to facilitate energy trading between members . With energy supplies secured the Commonwealth can focus on closer collaboration on natural resources to ensure sufficient production, stabilise prices, share best practises on sustainability, and to reduce the dependency on non-Commonwealth members.
   India’s Role. India itself is a major producer of key natural resources with large reserves of iron ore, manganese and bauxite. More importantly perhaps, India owns the world’s largest area of arable land, providing potential food security to its trading partners and allies, while being among the world’s top three energy importers. As the country in the Commonwealth with among the largest natural resource flows India has a strong incentive to drive collaboration with both producers and consumers of key resources,
4. Solving Major Issues of Global Importance. Finally, the Commonwealth represents a significant and diverse bloc of countries for the tackling of global issues. Climate change is an obvious one: 25 of the Commonwealth’s members are islands and among the remainder a number, particularly Bangladesh, already face serious flooding. At current rates of polar ice melting, Kiribati is expected to be fully submerged in less than 30 years, making climate change an urgent issue for the Commonwealth. It has already launched a Climate Finance Access Hub, funded by the richer members for the benefits of the smaller island members and the Commonwealth Accord on climate change in 2015 was a major pre-cursor to the global Paris Agreement in 2016. The Commonwealth will need to continue to act as a pioneer in terms of climate change self-regulation to create momentum for further global change in this regard. The bloc has also initiated several additional environmental protection initiatives such as the Commonwealth Clean Oceans Alliance and the proposed global network of forest conservation initiatives, although collaboration has been largely of opportunistic to date. The Clean Oceans Alliance, although “Commonwealth” by name, consists of only five members while the forest conservation initiative simply links together existing conservation efforts by participating member states rather driving new efforts. Moving forward, an impactful and assertive Commonwealth should would clearly need to focus on creating more of the latter.
   India’s Role. India is the third largest global emitter of CO2 and has committed to spending US$2.5tn in in grid upgrades and climate mitigation actions between now and 2030 as part of the Paris Accords, making India the 800lb gorilla on climate change in the Commonwealth. Further India’s air pollution now rivals China as the world’s most deadly, causing 1.1 million premature deaths per year and making environmental protection a critical cause for India. India’s scale in terms of environmental impact as well as the significant relative cost it faces as a developing nation in enacting environmental protections make a highly credible leader for Commonwealth-wide collaborations in this area.

There are of course many other important initiatives and national priorities that an enhanced Commonwealth can and should focus on. In terms of social issues, despite every member of the group being a democracy, status linked to minorities, women and sexuality remains far behind global benchmarks. Similarly, the free(r) movement of people alongside the free movement of goods and services is another priority matter for many of the less developed members. While it is unlikely, given demographics and the wealth divide between members, that the Commonwealth will adopt a EU-style freedom of movement any time soon, India in particularly, has been arguing (unsuccessfully) for a loosening of student and work visas to countries such as the UK for several years. These issues will clearly need to be tabled by a revitalised and enhanced Commonwealth as well.

Conclusion

For all its potential, the reality of the Commonwealth has been fairly prosaic, and this month’s summit highlights the gaps in ambition and execution that need to be closed. Other than the confirmation of Prince Charles as Queen Elizabeth’s successor, it is unclear whether meaningful results were achieved: trade was discussed and several charters and declarations on environmental protection, governance and cyber issues Commonwealth Blue Charter on sustainability were agreed for adoption, and while that sounds important in the absence of major actions and implementation plans being agreed, it is unclear whether this was symbolic or significant. A Commonwealth with the capability to develop and execute a more ambitious agenda will look very different institutionally from the current one and will require a revamp of the existing Commonwealth into much more than a free association of members states with no legal obligations, which in turn requires a binding constitution as well as a series of supra-national corporate bodies to administer the bloc and govern the various initiatives. And this would need to be achieved without creating the bureaucracy, politics or apparent conflicts of interest or vision of an EU. Given the Commonwealth’s history, size and diversity, this may well be a step too far for many, if not most, of its members, irrespective of how logical the conclusion might be. A more calibrated approach is therefore required. Such an approach may begin with strengthening existing bilateral agreements on trade, investment, security cooperation and the like between the bloc’s major countries (India, UK, Canada, Australia, South Africa and Nigeria) and providing opportunities to its other smaller member states to participate in these. As the major initiatives gain traction and prove to be both beneficial and effective for its members, the bodies and agreements governing these can be expanded into more permanent organs incorporating a wider range of responsibilities and covering additional initiatives.

For over a century, India was the jewel in the Imperial Crown of Britain’s worldwide colonial empire, upon which the sun never set. This empire was the most powerful force the world had ever seen, politically, militarily and most importantly economically. And although the empire faltered following two world wars, the collapse of colonies and half century long cold war, a part of it lives on in the Commonwealth today, albeit in a different form but one that may be more important in that it encompasses the values of democracy, the rule of law and aspires to be compelling force for good in the world. Making the Commonwealth into a positive force and updating its mission to one that allows its members to flourish as equal partners in today’s environment is clearly a tall order and one that requires new leadership. India is a rising force in today’s world and one that will clearly play an important role in shaping the face of the world to come. The idea of the jewel becoming the bearer of the crown may be called for if the nobler of the many diverse values of old are to continue. India has the wherewithal and the potential to lead and if properly supported and guided it may rise well to that position. Given its ambition to play a bigger role in world affairs and its potential, reshaping the Commonwealth as a force for global progress is an opportunity that it should not let slip by.

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