Explanation:

• The report of the 15th Finance Commission, along with an Action Taken Report, was tabled in Parliament.The Commission has reduced the vertical devolution — the share of tax revenues that the Centre shares with the states — from 42% to 41%.The Commission intends to set up an expert group to initiate a non-lapsable fund for defence expenditure. It may do so by creating a separate fund from the gross tax revenue before computing the divisible pool — which means that states would get a smaller share of the taxes.
• It has considered the 2011 population along with forest cover, income distance, tax effort, area of the state, and “demographic performance” to arrive at the states’ share in the divisible pool of taxes.The use of 2011 population figures has resulted in states with larger populations like Uttar Pradesh and Bihar getting larger shares, while smaller states with lower fertility rates have lost out. Shares of the southern states, except Tamil Nadu, have fallen with Karnataka losing the most.
• In order to reward population control efforts by states, the Commission developed a criterion for demographic effort — which is essentially the ratio of the state’s population in 1971 to its fertility rate in 2011 — with a weight of 12.5%. But its impact is not entirely clear.
• The Income distance criterion: Income distance is calculated as the difference between the per capita gross state domestic product (GSDP) of the state from that of the state with the highest per capita GSDP, with states with less income getting a higher share in order to allow them to provide services comparable to those provided by the richer ones.