Fiat was amongst the first foreign automobiles companies to enter the Indian market. It began selling its vehicles in India in 1905 through a sales agency - Bombay Motor Cars Agency. In 1959 Fiat entered into a license agreement with the Indian automobile company, Premier Automobiles Limited (PAL).The agreement involved the license production of the Fiat 500 and later the Fiat 1100.Though this agreement expired in 1972, the model continued to be built in India under the brand name Premier Padmini. In 1981 Fiat signed its second technology agreement with PAL, which further strengthened the relations between the two partners. In the 1990s, with India's market opening up for foreign investment, Fiat identified a huge potential in the Indian car market. In 1995 it announced its 'World Car Project' that was specifically designed for emerging markets and included India as a production hub. Against the background of its longstanding connection with PAL and its World Car Project, Fiat opted for a two-pronged entry into the Indian car market.

It entered into a technical collaboration with PAL in 1996 for the import and assembly of the Fiat Uno from completely-knocked-down (CKD) kits.The Fiat Uno assembly was conferred to PAL and established at PAL's manufacturing site in Kurla in Mumbai (Maharashtra). Simultaneously, Fiat set up its wholly owned greenfield plant for the production of its World Car model range. To realise this project, Fiat founded a new subsidiary, Fiat India Auto Limited (FIAL), and bought a factory site in Ranjangaon near Pune (Maharashtra).The project entailed manufacture of 100,000 cars beginning by end of 1999.