* Indecisive policy could prove expensive for exporters

* Exports freed up well after cotton prices come off highs

* Buyers in China, Bangladesh and Pakistan will benefit

By Deepak Sharma

MUMBAI, Sept 9 (Reuters) - India's fickle policy on cotton exports has hurt its role as a steady supplier of the fibre, and saddled its exporters with huge stocks they will have to sell on punitive delivery conditions at lower prices through next year.

Cotton users in Bangladesh, China and Pakistan will benefit, but exporters in India, which harvested a good crop in the year to September 2011, will still feel the pain of curbs lifted only in August, after prices halved from March highs.

India contributes 22 percent of global output and is expected to have a bumper harvest of 6 million tonnes, federal officials say, besides a surplus of 1.2 million tonnes, ensuring it will have to compete with suppliers from Latin America, Australia and Africa, and put further pressure on world prices.

"The government's indecision in allowing exports has ruined us, as we not only suffered monetary losses, but our credibility as a reliable supplier to the global market suffered extensively," Arun Shekhsaria, managing director of exporter DD Cotton, based in the financial capital Mumbai, told Reuters.

Until 2009, India was the world's second biggest supplier of cotton, having emerged as a key exporter since 2005/06, but high cotton prices prompted the government to ban exports in April 2010 to hold down domestic prices.

The ban was lifted the next month, following protests by international buyers, and replaced with a limit of 935,000 tonnes on exports until Nov. 1.

In June this year, the government allowed an additional 170,000 tonnes to be shipped this season, before relenting and scrapping the curbs last month, following pleas from traders and farmers who saw supply outstripping demand and prices falling.

But by then, Brazil's bumper cotton harvest had cut global prices CTc1 by half from a record March price of $2.27 a pound. Drought in China and floods in Australia and Pakistan had carried Indian prices to an all-time high of 173 rupees ($3.85) per kg.

IMPORTERS RUFFLED

Global production of cotton in 2010/11 stood at 24.94 million tones, with India contributing 5.5 million, USDA data show. China remains the biggest producer and consumer of the fibre, accounting for some 40 percent of global demand.

But New Delhi's inconsistent policies have rattled Asian textile makers who depend on Indian supplies.

"It kills our time as well as hampers production," said Jahangir Alamin, president of a mill industry group in Bangladesh, which gets from India about 25 to 30 percent of its annual cotton imports of about 1 million tonnes.

"We suffer a lot from inconsistent export policies of the Indian government. All of a sudden when they impose a ban, we need to procure from other supplier countries."

Production is hampered because supplies from India take only two weeks to arrive, versus nearly two months for imports from Russian and central Asia countries, to say nothing of higher freight costs, Alamin said.

China, the largest importer of India's cotton, fills most of its needs with imports from the United States and through home production, which Dong Shuangwei, a manager with Capital Futures in Beijing, sees between 7 and 7.2 million tonnes this year.

POLICY VACILLATION

India's indecision on cotton shipments stems from opposition by domestic textile mills clamouring for raw material, Indian exporters said.

"Indian textile makers, who enjoy the advantage of cheap local supply, are dead against allowing unrestricted cotton shipments and their lobbying means the government is not able to take decisions," said Arun Dalal of exporter Arun & Co, based in India's top cotton-producing western state of Gujarat.

Another trader said the removal of the curbs followed the appointment of a new textile minister, whose predecessor had been sympathetic to the needs of the domestic industry since he hailed from the southern textile and garment hub of Tamil Nadu.

The industry is India's largest employer after agriculture and contributes nearly 4 percent to GDP.

Faced with falling public approval ratings, it is critical for the Indian government to win over farmers and domestic textile makers, as the ruling Congress party reels from a series of graft scandals that have rocked public confidence.

When India finally lifted export curbs this year, giving in to the pleas of traders and farmers who saw supply outstrip demand, traders were left with huge unsold stocks and importers in China, Bangladesh and Vietnam were uncertain about supplies.

Most Indian exporters are now shipping stocks at discount and readying to supply on a payment-on-delivery basis or pay punitive delay fines amounting to as much as half their margins.

"India's changing policy stance on most agricultural commodities has tarnished its reputation and reliability on the global scene," said Luke Mathews, a commodity strategist at Commonwealth Bank of Australia.

"We often see policies within the Indian agricultural sector change depending on their local supply."

GOVERNMENT RESPONSE

India says its priority was to ensure supplies to the domestic textile industry.

"There is a cotton budget, which the government needs to maintain. It's a fine balancing act between the demands of yarn and textile makers and the growers," India's commerce and textile minister, Anand Sharma, told Reuters.

"We calculate for domestic requirements because India cannot stop making textiles. Only the surplus will be allowed to be exported."

Such measures kept domestic prices high last year, benefiting farmers who are likely to boost acreage by up to 15 percent in the season to September 2012.

"Last year, I grew cotton in 10 acres and this year, I am planting cotton in my entire holding of 18 acres," said Virendra Saharan, a farmer in Abohar, in the northwestern state of Punjab.