Indian traders are set to export a record 4 million tonnes of basmati rice in the year to March on higher demand for the premium grade from the Middle East, bringing total sales to about 10 million for a third straight year, sources said.

More supplies from India, which toppled Thailand in 2011/12 to become the world's top rice exporter, could further hit Thai benchmark prices that shed 3.4% over the past week amid bulging supplies at other key suppliers Thailand and Vietnam.

While New Delhi does not allow exports of the grain from government warehouses, private traders have annually sold about 10 million tonnes a year over the past two years.

India&'s basmati rice exports rose 15% to 2.88 million tonnes between April and December, Vijay Setia, former president of All India Rice Exporters Association, told Reuters.

"A lot of deals are taking place due to a spurt in demand. Other than some parts of Iran and Afghanistan, where you can find some basmati from Pakistan, India's basmati is in huge demand," said Setia, also a leading exporter.

India and Pakistan exclusively grow long-grain, aromatic basmati in the foothills of the Himalayas. The superior variety carries a premium over non-basmati, or common grades of rice.

Setia expects basmati rice sales to Iran, the top buyer of Indian rice, to remain steady at about 1.1 to 1.2 million tonnes in 2013/14 due to relatively higher government stockpiles there.

But a rise in demand from buyers such as Kuwait and Saudi Arabia would help India push 2013/14 exports of the premium grade to a record high, said Rajen Sundareshan, executive director of the All India Rice Exporters Association.

Basmati rice exports have risen 15% so far this year, shrugging off a more than nearly 18% rise in India's export price. Last year's average rate was $100 (RM329) a tonne, said officials at two New Delhi-based rice mills.

"The trend clearly suggests that buyers are willing to pay more for premium rice varieties. Basmati is the most premium rice variety, giving India an avenue to raise exports further," Setia said.

Rising income levels in the Middle East have also helped boost demand for basmati rice, traders said.

With basmati rice exports likely to touch 4 million tonnes in 2013/14, India's total rice shipments are expected at about 10 million tonnes this year, Sundareshan said.

In 2012/13, India's overall exports totalled 10.1 million tonnes, including 3.5 million tonnes of basmati.

Rice output in India, the world's No.2 producer, stood at 104.40 million tonnes in the crop year to June 2013, more than sufficient to cover demand for its 1.2 billion people.

Summer rice crop had been estimated at about 92 million tonnes this year, on par with the previous crop year.