New Delhi, May 12 -- The Securities and Exchange Board of India (Sebi) on Tuesday proposed allowing cash-based settlement in select agricultural commodity derivatives contracts to boost participation and revive activity in thinly traded farm commodities.

In a consultation paper, the markets regulator said exchanges may be allowed to launch or revive delivery-based agri-commodity contracts that initially trade as cash-settled products before mandatorily transitioning to physical settlement after meeting predefined liquidity thresholds.

The proposal marks a significant policy shift for India's agricultural derivatives market, where compulsory physical settlement has long been mandatory to ensure alignment between futures and spot prices a...