(Reuters) - India's cotton prices are likely to decline in the current week due to lack of demand from mills and higher arrivals in the spot market, analysts and traders said.

"Despite the government's decision to allow additional exports, prices are not likely to move up as every body is sitting over huge stocks," said Nirav Sejpal, director with Bajrang Cotgin Pvt Ltd, a cotton trading and pressing firm based in Gujarat.

On Tuesday, the most traded Shankar-6 variety was steady at at 30,000 rupees per candy of 356 kg each, data from trade body Cotton Association of India showed.

The cotton prices have fallen over 50 percent from a record high of 61,700 rupees per candy, hit on March 30.

India is the world's second biggest grower and exporter of the fibre.

According to traders, demand from yarn makers is very low as they are burdened with unsold stocks following the decline in the prices of yarn in the global market.

Due to the record production in 2010/11 cotton year, which began in October last year, arrivals are still strong in the market and are impacting the prices, Sejpal said.

Cotton output in India, the world's second-largest producer, has been revised to 32.5 million bales for 2010/11 year against 31.2 million bales estimated earlier, A.B Joshi, chairman, Cotton Advisory Board (CAB), said on Monday.

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

Earlier, it had allowed shipment of 5.5 million bales of 170 kg each in the current cotton season.

Cotton acreage in India is likely to rise up to 15 percent in the 2011/12 season as farmers, lured by high prices in the current season, might plant the natural fibre in more areas.

India has restored tax incentives for raw cotton and cotton yarn exports with retrospective effect, an official release said on Tuesday.