Aug 30 (Reuters) - Indian cotton prices are expected to remain subdued this week on estimates of higher production in 2011/12 season beginning October 1 and lower demand from yarn makers.

"There is surplus cotton and the government estimate shows that there will be surplus cotton in the next season also. It will put pressure on prices," Vinay Chopra, owner of a Delhi-based trading firm.

The state-run Cotton Advisory Board (CAB) estimates country's cotton output to touch a new record high for the second consecutive year at 35.5 million bales of 170 kg each.

Besides surplus availability, lower demand from yarn makers is also hurting the sentiment, Chopra said.

Everybody is waiting for the government decision on allowing cotton exports for the next season as only one month is left for the new crop arrival, dealers said.

India, the world's second largest grower and exporter, could export 7 million bales of 170 kg each in 2011/12 season, CAB said on Tuesday.

On Tuesday, the most traded Shankar-6 variety closed flat at 36,500 rupees per candy of 356 kg, data from trade body Cotton Association of India showed.

Earlier this month, India allowed unrestricted exports for the remainder of the current season due to abundant availability of stocks.

India could export an additional 255,000 tonnes of cotton in these two months, traders said.

India's cotton output estimate for 2010/11 has been revised to 32.5 million bales from the earlier 31.2 million bales.

In June, responding to a demand from traders and farmers, the government had allowed shipment of an extra 1 million cotton bales of 170 kg each, following a 30 percent decline in domestic prices since March.

India had already allowed shipment of 5.5 million bales in October last year.