* Bangladesh surpasses China to become top buyers of Indian cotton
* India's 2015/16 cotton output to drop 4 pct to 36.5 mln bales
* India's 2015/16 ending stocks to drop 27 pct to 3.8 mln bales
By Rajendra Jadhav
MUMBAI, Nov 3 (Reuters) - India, the world's biggest cotton producer, is likely to export 6.8 million bales in the 2015/16 season, up 18 percent from a year ago as demand from Asia is expected to improve, a senior government official told reporters on Tuesday.
Higher exports will cap global prices, but raise domestic prices and help bring down government purchases at the support price.
"We are expecting higher demand from Bangladesh, Pakistan and Vietnam. This will offset poor demand from China," Textile Commissioner Kavita Gupta said after a meeting of the state-run Cotton Advisory Board.
In the 2014/15 season Bangladesh surpassed China to become India's top buyer of the fibre as the world's biggest consumer began cutting import quotas to stimulate demand for domestic cotton after it halted a state stockpiling programme.
China has in recent years taken more than half of India's cotton exports, propping up Indian prices despite record output. In 2014/15 India's exports dropped 51 percent from a year ago after China halved imports.
India's production in the new season started on Oct. 1, is likely to drop 4 percent from a year ago to 36.5 million bales due to a lower crop area, pest attacks and poor yields due to a prolonged dry spell, Gupta said.
In 2015 India suffered its first back-to-back droughts in three decades, hitting yields of summer-sown crops like cotton, rice and soybeans.
Higher exports amid a drop in production would bring down closing stocks for the 2015/16 season to 3.8 million bales, down 27 percent from a year ago, she said.
India's cotton consumption in the new season expected to edge up 1.7 percent to 32.3 million bales, she said.
The state-run Cotton Corporation of India (CCI) spent 160 billion rupees ($2.44 billion) to buy 8.7 million cotton bales at a government-set minimum support price (MSP) in the marketing year that ended on Sept. 30, up from just 400,000 bales in the previous year.
This year too the government has asked the CCI to buy cotton from farmers as and when price drop below the MSP level.
The government is planning to transfer the difference between the MSP and market price directly to farmers' bank accounts, she said.
"We are planning to start a pilot project in Maharashtra. Under the project, if farmers sell cotton to traders below the MSP, then the government will pay the difference directly to farmer," Gupta said.
($1 = 65.6997 Indian rupees)
1 Indian bale = 170 kg Reporting by Rajendra Jadhav, editing by William Hardy