The Finance Commission (FC) is a constitutional body in India tasked with recommending the distribution of tax revenues between the Union and states (vertical devolution) and among states (horizontal devolution). The 15th Finance Commission (FC) adopted a set of criteria for horizontal devolution, which, like its predecessors, generated both appreciation and contention.

Criteria Adopted by the 15th Finance Commission (2021-26) and Critical Examination:

1. Income Distance (45%): This criterion measures the distance of a state's per capita GSDP from the state with the highest per capita GSDP. It aims to promote equity by allocating a larger share to states with lower per capita incomes. While beneficial for poorer states, developed states often argue it disincentivizes their economic growth and efficiency.
2. Population (15%): The 15th FC controversially used the 2011 Census population data, a departure from the 1971 Census used by previous commissions (including the 10th to 14th FCs). This shift was a major point of contention, as states that successfully controlled population growth (primarily Southern states) felt penalized, as their share of the divisible pool would decrease due to their lower population share in 2011 compared to 1971.
3. Demographic Performance (12.5%): Introduced to address the concerns arising from the 2011 population data, this criterion rewards states for their efforts in controlling population growth, measured by the Total Fertility Rate (TFR). While a positive step, it did not fully assuage the concerns of states that felt penalized by the primary population criterion.
4. Area (15%): This criterion allocates funds based on the geographical area of a state, benefiting larger states. It acknowledges the higher costs associated with administering larger territories.
5. Forest and Ecology (10%): This criterion rewards states based on their share of dense forest cover, incentivizing environmental protection and conservation efforts. While a progressive step towards green federalism, some states argue it rewards natural endowments rather than active effort, or that it imposes a cost on development.
6. Tax and Fiscal Effort (2.5%): This criterion assesses a state's effort in mobilizing its own tax revenue. It aims to incentivize fiscal discipline and self-reliance among states. This is generally seen as a positive criterion, encouraging states to improve their own revenue generation.

Major Issues of Contention Since the 10th Finance Commission:

1. Population Data (1971 vs. 2011 Census): This has been the most persistent and significant issue. From the 10th to the 14th FCs, the 1971 Census was used to avoid penalizing states that had effectively implemented population control policies. The 15th FC's decision to use the 2011 Census, despite the inclusion of a 'demographic performance' criterion, reignited the debate, with Southern states arguing it was unfair and against the spirit of federalism.
2. Terms of Reference (ToR): States have frequently criticized the ToR given to FCs by the Union government, arguing that they are often biased or limit the FC's autonomy. For instance, the 15th FC's ToR included examining the impact of GST, providing grants for specific sectors, and considering performance-based incentives, which some states felt encroached upon their fiscal space.
3. Fiscal Federalism and Autonomy: States consistently demand greater fiscal autonomy and a larger share of central taxes. They argue that the Union government often imposes Centrally Sponsored Schemes (CSS) with conditionalities and inadequate funding, leading to financial strain and limiting their flexibility in resource allocation.
4. Revenue Deficit Grants: The methodology and quantum of revenue deficit grants have been a recurring issue. States often feel that their genuine revenue needs are not fully met, leading to persistent fiscal imbalances.
5. Special Category Status (SCS): The demand for SCS by various states (e.g., Andhra Pradesh, Bihar) has been a continuous point of contention. SCS entails more central assistance and tax concessions, and the criteria for granting it have been a subject of debate.
6. Impact of Centrally Sponsored Schemes (CSS): States often complain about the conditionalities and funding patterns of CSS, which limit their flexibility in resource allocation and sometimes lead to misaligned priorities. The 14th FC recommended reducing the number of CSS and increasing the untied funds to states, but the issue persists.
7. Horizontal Devolution Criteria: Beyond population, the specific weights assigned to other criteria like income distance, area, and forest cover have always been debated, with states advocating for criteria that favor their specific circumstances or development challenges.

In essence, the Finance Commissions operate in a complex political and economic environment, attempting to balance equity, efficiency, and fiscal prudence. The contentious issues reflect the inherent tensions in India's fiscal federalism, where states constantly seek greater autonomy and a fairer share of national resources.