This may seem a strange statement coming from a man who writes about angels, children who communicate via built-in radio signals in their heads, and planets made of stories (which, in Rushdie's fertile imagination, resemble spaghetti). But Rushdie frames his plot-lines in the slippery confines of magical realism, and Slumdog takes place in the mundane confines of this world, despite its extraordinary sequence of events. Rushdie was particulary annoyed with the scene in which Salim and Jamal end up working in front of the Taj Majal, 1000 miles from their previous destination. His critique was part of a lecture on film adaptions of books, and the novelist was critical of The Curious Case of Benjamin Button and The Reader as well.

Perhaps Rushdie didn't realize that when they end up at the Taj Mahal, it is after they have just aged about 6 years. Does it take more than a 6-year train ride to reach the Taj Mahal?
Slumdog Millionaire itself does not operate in a totally mundane reality. A little boy meets the biggest star in India covered in feces and the god Rama appears to one of the boys during a riot. Also, what are the odds that Jamal would even be able to get on the show? I don't really know or care.
Mr. Rushdie must not be familiar with any of Boyle's previous work. He tends to mix reality and fantasy in quite a unique way (Trainspotting, Millions, 28 Days Later). I wouldn't describe it as magical realism, but he always mixes the fantastical with the everyday.
Salman Rushdie is a prick who showed his cinematic taste by appearing in Bridget Jone's Diary. He is apparently jealous that he wasnt involved in the Slumdog project based in his homeland.