The story starts with a prologue, in the year 2008 in Mumbai, when a teenaged boy named Abdul runs from the police. Abdul’s father turns himself in so that Abdul has an opportunity to escape, since he is the primary earner for their family. Abdul and his father are charged with setting their neighbor Fatima on fire; later, the charge changes to encouraging her to set fire to herself. However, Abdul and the rest of the Husains, along with over a hundred witnesses and neighbors, know that Fatima, "the one-legged," set herself on fire in order to stir drama. The severity of her burns was an unanticipated mistake. In the morning, Abdul returns home and turns himself in at his mother’s request, choosing to believe that the police will do the right thing and not charge Abdul and his father because they are innocent.
The main narrative of the work jumps back several months and documents the events leading up to that fateful night. As the sun sets, Abdul puts the garbage he collected on a jalopy and makes his way to recycling facilities where he sells the garbage. Despite the hard and dangerous work, Abdul continues to haggle for and sort garbage every day, hoping that in the future his family will have enough money to move out of the slum and into a Muslim community outside the city, where they would be welcomed by people who share their faith.
The slumlord of Annawadi is a man named Robert Pires but he slowly loses his power and the person who hopes to become the next leader of the slum is Asha, Rahul’s mother. She hopes to become the first slumlady and to push her own agenda through her ties with the Maharashtrian party, Shiv Sena. Many people come to Asha as supplicants for advice, and she's willing to give it to them, for a price.
The first chapter presents events taking place in January 2008, a few months before Fatima set herself on fire. On that morning, Abdul is woken up by his mother Zehrunisa who tells him to go to work. Abdul does so obediently but keeps himself separated from the rest of the residents, working on his own. Abdul’s brother, Mirchi, is a good friend of Rahul's, a boy who works as a waiter in a luxurious restaurant and hotel. Despite the fact that Mirchi is a Muslim and Rahul's mother works for the Hindu supremacist party, Shiv Sena, the boys get along really well. Mirchi hopes to become a waiter one day as well, but Abdul thinks that his dream is foolish, choosing to focus instead on gathering as much garbage as possible. Mirchi continues to go to school and Abdul feels slightly jealous because he had to drop out years ago because his parents could not afford to pay for his education.
Some of the people living in the slums do not accept those who come from the north of the country, and there are even instances of violence carried out against the northerners. This makes things even harder for children like Sunil, a twelve-year-old scavenger who often sells his garbage to Abdul. Sunil works hard but he knows that he could one day die because of his profession and he grows frustrated when he sees that despite his hard work, he can’t earn enough money to feed himself properly. To earn more money, he decides to go pick trash from the river, a place avoided by the other boys because of its dangerous height.
By March, the slum is threatened by the people who own the airport because they want to demolish it and make way for airport expansions and luxury hotels. Inside the slum exists an unofficial hierarchy of professions, and thieves are considered one of the lowest groups, with a reputation for getting high on Eraz-ex. Abdul tries to warn Sunil to stay away from thieves, but one day, Sunil helps Abdul's friend Kalu steal some steel piping from a construction site. The money is better than garbage picking, but Sunil decides that he doesn’t want to continue stealing because the temporary access to disposable income doesn't bring him as much satisfaction as he thought it would.
Meanwhile, Asha's daughter, Manju, tries her best to understand concepts from foreign literature assigned by her college professor but finds it hard to do so. For her, the worlds and societies presented in the pages of the books she reads are nothing like what she is used to, and she can’t understand a world where women have the freedom to choose their own partners. Manju runs her mother’s school and she tries to offer a good education to her young students in the slum. She knows that for many of them, her afternoon classes will be the only education they ever receive because some families think that by sending their daughters to school, they ruin their marriage prospects.
In June, the monsoon season begins and so the inhabitants of the slum have to stay at home. Mirchi fails the ninth grade and his mother is angry that he was unable to finish school. Kehkashan comes to live with her parents after her husband cheats on her, and Karam is admitted into the hospital because of his lungs. Fatima’s behavior becomes even more erratic after her two-year-old daughter drowns in a bucket. While she claims it was an accident, many suspect Fatima of killing her own child.
Karam starts thinking about arranging a marriage for Abdul, believing that he needs a wife to make him happy. The family also thinks about moving to Vasai, a Muslim community, but Zehrunisa knows that if she moves there, she will have to stay inside all day and not let other men see her. In Mumbai, she can walk the streets and she thinks that she will miss the freedom she has now in the slum. She also tries to improve the house in which she lives with her family, thinking that in that way she will be able to keep her children healthier.
When the family begins working on their house, they are forced to put their belongings in a cart and take them outside. There, their neighbors pass them and Zehrunisa is proud to show her family’s possessions. Fatima complains that Abdul’s family makes too much noise, but Abdul continues to work, trying his best to ignore her. A fight breaks out between Fatima and Zehrunisa and Abdul runs outside to break them up. Fatima takes a rickshaw to the police station to file a complaint against the Husains. Zehrunisa follows after her. The police tell Fatima to leave but keep Zehrunisa at the station in order to extort money from her. Zehrunisa's daughter, Kehkashan, simmers with rage as she watches Fatima move about her home, knowing that her mother is sitting in a police station because of her. Kehkashan confronts Fatima and the confrontation escalates to a screaming match in the maidan. Later that night, Fatima lights herself on fire.
Fatima is taken to the hospital where she enjoys being looked after and being given to opportunity to sleep on a bed for the first time in her life. Fatima blames Abdul and his family for her burning, even though Asha offers to settle things for them. Fatima refuses, claiming that she already filed a complaint. When Fatima’s daughter reveals the truth about her mother, Fatima changes her statement claiming that the Husains drove her to light herself on fire. Fatima stays in the hospital for three days and her husband is forced to buy her all the medications she needs, since the hospital has no resources.
At the police station, Abdul is being beaten by the police who warn him that if Fatima dies, he will be charged with murder. Abdul and his father are kept three days in an unofficial cell where they are beaten and interrogated by the police. Abdul thinks that they will have to bribe the police and put some money away in case Fatima dies and they need a lawyer. Abdul is beaten daily for a period of almost a week and then one day he finds that Fatima has died because of an infection.
In August, Abdul and his father are still in prison, and Zehrunisa tries to raise enough money to get her husband and son out of jail but is unable to do it. Karam’s health is failing because of the harsh conditions inside the prison, but Zehrunisa is happy when the police decide to judge Abdul as a child. Abdul is sent to Dongri where he is treated better than at the police station and spends his days doing nothing. A doctor examines Abdul but decides to claim that Abdul is 17 even though Abdul has nothing to give him in return for protecting him. In prison, Abdul meets a teacher the boys call "the Master," who preaches about living a virtuous life. Abdul decides to become even more virtuous than he was and vows not to buy stolen goods.
Asha is concerned with her daughter’s marriage prospects and in July she travels with her children to her former village where she hopes to find a suitable match for Manju. Asha acts like she is royalty and looks down on everyone in the village, deciding in the end that none of the boys in the village are suitable for Manju. Asha instead finds a job for Manju, selling life insurance to rich people. She refuses to let her daughter teach the slum children every day. Manju spends her free time as a volunteer for the Indian Civil Defense Corps where she meets Vijay. Manju realizes, however, that Vijay will never consider her a suitable match for him since he is from a higher social class.
In the slum, people die every day, and Sunil is struggling to make enough to have something to eat. Sunil befriends another scavenger named Sonu and together they go searching for trash at the airport near the slum. Abdul is released from the prison and starts to work again, rebuilding the lucrative business he once had. Abdul spends his time with Kalu and Sunil as they all work to get more trash. However, Kalu dies shortly after Abdul returns, and his body is discovered on the airport’s grounds. Because of this, the other slum boys are forced to keep their distance from the airport as the police threaten to send every child found near the airport to prison.
While the official report states that Kalu died of tuberculosis, the truth is that he was killed by a gang for informing on them to police. After Kalu’s death, some boys decide to leave the slum, fearing for their lives, and Abdul and Sunil become even closer as they ponder the reason why Kalu was killed.
Asha becomes a slumlord in September. In the year following Fatima’s death, more women follow her example and set themselves on fire. Manju continues to focus all her energy on studying and tries to forget that she was rejected by Vijay. The slum prepares for a grand annual festival. Meanwhile, Meena and Manju discuss killing themselves as well but think that maybe poisoning themselves would be better than setting themselves on fire. Meena ingests rat poison on the day of the festival and even though some women come to her aid and make her throw up the poison, she still dies a few days later in the hospital.
Towards the end of the year, circumstances become harder as tourism drops in the area due to a string of terrorist attacks. The people in the slum find themselves in the situation of eating frogs and rats to survive, and Sunil turns to thieving to sustain himself financially.
In April, Abdul’s father and sister are judged, and many witnesses are called to tell what they know. Some of their testimonies end up being worthless because they are caught lying.
Asha loses her influence as it becomes clear that the slum will be destroyed, but she still continues to try and make money out of the people’s suffering. Because of this, Asha has the reputation of being a ruthless woman who doesn’t care about anything except monetary gain. Asha pockets large sums of money after claiming to open schools for poor children. Manju however is certain that the worst is yet to come and that they will be punished for their wrongdoings.
At the end of July, Kehkashan and Karam are declared not guilty are allowed to walk free. Abdul’s trial is postponed, and he is forced to wait a few years until he receives his verdict. The narrative ends with Abdul meeting Sunil while scavenging for trash. They both decide to take each day as it comes and try to focus on surviving, one day at a time.
