Indian traders have sought permits to export a record 12.5 million bales, making up for more than a half of the fresh crop arrivals so far this year, due to an absence of curbs and poor demand from the cash-strapped textile industry, government officials said on Friday.

India, the world?s second-biggest cotton supplier, had exported around 7 million bales in the year through September 2011 after restricting shipments for most part of the year to control domestic prices following a global shortage. The government freed cotton exports in 2011-12 anticipating a record harvest, aiding exporters who are lifting a bulk of the crop after a pick-up in the Chinese demand. China, the world?s largest textiles exporter as well as cotton buyer, accounts for more than 70% of the Indian exports of the key raw material.

As much as 8.3 million bales of cotton were shipped out by February 17, official data show. ?Cotton export registration has leaped like never before in the past few days. On the other hand, textile mills are facing a severe working capital shortage and, hence, are in no position to stock up. Many are purchasing in smaller lots, for only 15 days? requirement each,? said a senior government official, who didn?t want to be named.

Official sources said a panel of secretaries, headed by commerce secretary Rahul Khullar, will discuss cotton supplies as well as exports later this evening.

Textile mills have barely managed to stock up around 8 million bales so far out of the fresh crop arrivals of around 23 million bales, said one of the sources. State-backed Cotton Advisory Board (CAB) has forecast a 2.5% dip in domestic consumption this year at 26 million bales. Improving global stockpiles due to a bigger harvest this year have dragged down cotton prices significantly from last year?s record levels, but exports are still more attractive than domestic sales.

Cotton futures for May delivery on the InterContinental Exchange declined 0.9% in intraday trade on Friday to 89.67 cents a pound. Spot prices in India have crashed by 40% in the past one year to R55,500 per candy of 356 kg each.

The country?s cotton production is expected to rise to 34.5 million bales in 2011-12 on higher planting and wide-spread rains, compared with 33.9 million bales a year before, according to the CAB. The agriculture ministry, however, has pegged the output estimate for this year at 34 million bales.

Textile mills were caught off-guard by a fall in local prices of cotton after they bought the raw material at high prices last year. A fall in export demand for textile products due to the macro-economic crisis compounded their worries.

On the other hand, cotton exporters raked in huge mullah last year, cashing in on the global shortage before prices crashed in 2011-12 due to a recovery in global supplies.

Global cotton output is expected to rise by around 7% to 26.78 million tonne in 2011-12 in reaction to the high prices received by farmers last year, while a slowdown in major economies will likely reduce mill consumption to 23.73 million bales from 24.45 million bales a year before, according to the latest forecast of the International Cotton Advisory Council (ICAC) released this month.

Global cotton trade is expected to remain flat at 7.70 million tonne in 2011-12, supported by good demand from largest textile exporter China, the ICAC said.