Bangalore: Luxury auto maker Mercedes-Benz India Pvt. Ltd has an unlikely venue this month for a two-day event to display its cars, including its most expensive Mercedes-AMGs.

The German firm will be in the dusty town of Bellary in central Karnataka, home to the politically powerful Gali Reddy brothers and the state’s mining capital.

It will be Mercedes’ first such event in Karnataka though it has a showroom in state capital Bangalore.

“Bellary is a focus market in Karnataka. For the last two-three years, the steel and iron industry has been booming," says Debashis Mitra, director, sales and marketing, Mercedes-Benz India, which has sold at least 25 vehicles to mining tycoons in Bellary in the past two years.

Graphic: Yogesh Kumar/Mint

A spokesperson for Honda Siel Cars India Ltd said the Japanese car maker also wants to set up a showroom in Bellary.

While Mercedes and BMW are in the process of expanding their presence to small cities such as Jaipur, Bhubaneswar, Ludhiana, all state capitals or commercial centres, Bellary’s qualifications are different.

Since October, the district has been in the news mainly because of the Reddy brothers—G. Karunakara Reddy, the eldest, who is also revenue minister in the Bharatiya Janata Party-run state government, G. Janardhana Reddy, tourism minister, and G. Somashekar Reddy, chairman of the Karnataka Milk Federation—either for probes into their mining business or a rebellion against Karnataka chief minister B.S. Yeddyurappa.

In March, the Supreme Court put curbs on their Obulapuram Mining Co. Pvt. Ltd’s mining activities on the Andhra Pradesh border. It also appointed a committee headed by the Survey of India to investigate alleged large-scale encroachment of reserve forest areas by the company. The lawsuit is to come up for hearing on 9 April.

Bellary’s story is similar to the sudden rise of towns such as little-known Sanand, 8km from Ahmedabad, which saw frenzied real-estate activity when Tata Motors Ltd announced it would produce the Nano from there.

For mineral-rich Bellary, the climb began when India opened its iron ore reserves to the private sector in 1999. Surging demand from China, hastened by the 2008 Beijing Olympic Games, gave ore exports a sharp boost. Iron ore prices soared from Rs1,200 a tonne before 2002 to Rs6,000 a tonne in 2006-2007. The rates now hover at Rs6,800-7,000 a tonne, said two mining companies.

Bellary, the fifth largest iron ore contributor in the country, is estimated to have deposits of 2.5-4 billion tonnes, according to the Centre for Science and Environment, a non-profit organization.

In February, the state government cleared proposals for ArcelorMittal and Posco to build plants in Bellary, home to other large mining companies such as VSL Mining Co. and MSPL Ltd.

Prosperity coexists alongside poverty as elsewhere in India. Recent curbs on mining in the district has left labourers without work.

“In recent years, Bellary has seen wealth generation, health degeneration and environmental degradation simultaneously," says B. Seshadri, a retired economics professor who has lived in the town for the past four decades and is a member of a high-powered group that was set up by the S.M. Krishna-led state government in 1999 for implementing recommendations of the D.M. Nanjundappa committee report on regional disparities.

Bellary, with a population of around two million, has a per capita income of Rs47,607, higher than the state average of Rs41,901. The literacy rate of 57% lags the state average of 67%.

Apart from luxury cars, organized retail is also making an entry into Bellary. Levi Strauss (India) Pvt. Ltd and Celebrity Fashions Ltd, which owns the Indian Terrain brand, are both setting up shop, executives said.

“The emerging town shows all the positive signs to expand there," says Shyam Sukhramani, marketing director, Levi Strauss India. The brand looked at various surrogate indicators—a substantial consumer population wanting to spend, not much competition in retail, and high auto sales in the past year—before deciding on Bellary, he said.

The stores will save residents the long drive to Bangalore, some 300km away, to shop for branded goods. The rich of Bellary are even known to airlift expensive champagne and whisky from the state capital.

Raghavendra Rao, communications head for Baldota Group, which runs MSPL, India’s largest private sector mining company with 3,500 employees, says he was surprised to see Pepe and Reebok open showrooms in Hospet in the past five-six months. The prospect of rising disposable incomes may have drawn them.

“Our mid-level employees, who draw monthly salaries in the range of Rs40,000, have the money to spend but don’t know what to spend it on," Rao said.