The Satanic Verses has many different elements to it. The magical realism is particularly noticeable in the London sections of that novel, where he explores the condition of immigrant communities, particularly in the Brixton area, in the 1980s, when there was a great deal of social unrest, violence and tension between the police and those communities. This is the milieu in which Rushdie situates his magical realism.
He takes two aspects of racist language and he literalises them to explore their consequences for oppressed immigrants in South London. The first is the idea of the devil and diabolism. It is actually a fairly common element of racist language to associate the other with something diabolical or something evil. Rushdie takes that idea and literalises it by having one of his main characters turn into an almost satanic figure.
The second aspect of racist language that Rushdie explores is the idea of the animal, and associations between people and animals. This is a cornerstone of the discourse of racism that you’ll find repeated over and over in different parts of the world. Racist language typically makes use of animal imagery or animal comparisons. Rushdie takes that idea and says, ‘Okay, this is what you call us. Then let’s really take that idea and run with it.’ So, he has his main character, Saladin Chamcha, turn into a goat man – a sulphur-breathing, devilish goat man – while he’s staying in a bed and breakfast in South London.