Faber & Faber, £12.99, 292pp. £11.69 from the Independent Bookshop: 08430 600 030

Narcopolis, By Jeet Thayil

If you were to write a story set in Bombay, as the poet Jeet Thayil prefers to call the city now known as Mumbai in his outstanding debut novel, you don't have to work too hard. Much of it can write itself if you connect the dots of history: a city made of islands reclaimed by the British, a polyglot culture where all of India's languages, faiths and castes mingle, where the prevailing currency is money and its dreams are told, nay, sung, in those schmaltzy, kitschy Bollywood movies, and which lives on an edge, periodically blown up when terrorists set explosives, but returning to life the next day, resilient and resigned.

The ingenuity of Thayil's novel lies in how he has squeezed this entire universe into an opium pipe. And when the narrative dissipates into smoke, it leaves a deceptively addictive odour, with memorable characters at the margins of society. There is Dimple, the eunuch keen to read and learn; the Bengali who pretends to know more than he does (or maybe he does); and Rashid himself, who runs the opium den with disdain that's at once sardonic and laconic. There are others too, given peculiar names drawn from Bombay slang, but most try to do no harm, and often show heartwarming humanity. The unobtrusive narrator is Dom, whose soul-killing job is as a proof-reader of publicity material in a pharmaceutical company (with easy access to chemical substances). Just alongside the den are other vices - prostitution and crime.

Thayil is a gifted poet and a man of courage - he was among the four authors who read from Salman Rushdie's The Satanic Verses, whose import is banned in India, at the Jaipur Festival, and who now may face charges. He tells this story through the city's microcosm – an opium den in Sukhlaji Street, whose existence was known only to those who needed to know. Disparate characters meet at the den, leaving behind the complications the world outside presents.

Broader events, like the 1993 bomb blasts that rocked the city, sound like a faint thud. We experience the attacks through the closed shops, the climate of fear, the single shoe discarded on the street. Thayil presents a credible portrayal of the emerging divisiveness in the city. The addicted, sadistic businessman Rumi's rage against Muslims builds up slowly; Rashid tries maintaining the old decency, and yet his own son Jamal gets politicised by the images of the wars in Afghanistan and Iraq.

In between are exceptionally funny sections, such as a long rant against various communities, and caricatures of well-meaning Dutch tourists. The most striking section is in the middle, when Thayil introduces us to Lee, the elderly Chinese man who gives his pipes to Dimple. Lee has come to India escaping Mao's cultural revolution. Thayil provides an engrossing account of the trance propaganda can produce, as he shows how the party destroys the lives of Lee's parents, his girlfriend, and many, many more.

India's opium links with China are old. Amitav Ghosh's Ibis trilogy, of which the first two novels, Sea of Poppies and River of Smoke, are already published, traces those links. British traders got China addicted to opium grown in India, and transported it on ships owned by Indian merchants.

As historian Amar Farooqui has shown in Opium City, Bombay's prosperity owed much to that trade. Narcopolis is set at a time when the popularity of opium is waning, and more dangerous drugs are about to invade the city. It makes the opium den look like a piece of innocent nostalgia. Thayil completes the story that began in the 19th century through Lee's pipe, as it becomes the instrument of escape for the city's tormented souls.

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