The factories include two cooperative gardens being managed directly by the Tamil Nadu government, according to a message received by the Tea Board headquarters from its chief regional executive, Coonoor.

"Auction prices crashed to an abysmally low level and averaged at Rs 25 per kg for most of the tea placed at south Indian auction centres viz Coimbatore and Coonoor during last week. The level is much below the average cost of production in the state," the official said from Coonoor.

According to a Tea Board official, imported teas from Sri Lanka, Indonesia and Kenya amounting to 785,000 kgs, 1,842,000 kgs and 562,000 kgs respectively in April-August this year, have flooded the markets in south India.

"There is scope for more tea to be imported from Sri Lanka as the Union government has allowed import from the country to the tune of 11 m kg for the current year under the bilateral agreement signed between the two countries," the official said.

"Surprisingly, the bilateral agreement which was sorted out in 1999, was signed by Prime Minister Atal Behari Vajpayee himself without prior consultation with either the Tea Board or indigenous tea industry," the official said. These teas are affecting the price realisation of domestic teas at the auction centres and no effort was made to arrest this.There is also estimate of how much tea is being sneaked into Indian markets from other sources like Bangladesh, Nepal and Vietnam.

The Union commerce ministry, under tremendous pressure from DMK MPs and the United Planters' Association in South India (Upasi) decided earlier this year to provide subsidy to small growers - up to Rs 5 a kg whenever auction prices fell below Rs 55 a kg. The Centre has allotted Rs 10 crore on this account.

The already bad situation is believed to have worsened further and industry sources fear that if steps to curb imports are not taken soon, the state may witness a serious breach in its law and order situation.