By Madelene Pearson

April 20 (Bloomberg) -- India, the world’s second-largest cotton grower and supplier, halted exports of the fiber to stem an increase in domestic prices.

Registration of export permits have been suspended from yesterday until “further orders,” Textile Commissioner A.B. Joshi said by phone today. Contracts registered before yesterday and unused will need to be revalidated, according to a statement on the commissioner’s Web site.

Cotton prices in New York, a global benchmark, have risen 67 percent in the past year on speculation that global output will lag behind demand as the world economy rebounds from a recession. China, the biggest consumer of the fiber, may face a supply shortage on falling production and reduced international supplies, according to state-backed CNCotton.com.

“While this action may ease supply constraints in India, it is likely to exacerbate the situation for foreign buyers, particularly in China and Pakistan,” FCStone Group, a U.S.- based commodity researcher, said in a report. “By effectively removing a sizable portion of exportable supplies from the world balance sheet, this is likely to boost world prices as importers and exporters alike scramble to shift fiber sourcing.”

Long-staple cotton prices in India have gained 27 percent to 7,958 rupees per 100 kilograms in the past year, according to data on the Cotton Association of India’s Web site. Cotton for July delivery was little changed at 81.60 cents a pound on ICE Futures U.S. in New York yesterday.

Domestic consumption in China may outstrip available supply by 3.5 million tons in the marketing year ending Aug. 31, and supply will remain tight next year, Mei Yong, a director at CNCottom.com, a portal owned by China National Cotton Reserves Corp., said at an April 16 conference in Shandong.

The restriction comes after the government imposed a tax on cotton exports to check rising local prices, the Press Trust of India reported April 14, citing unnamed government officials.