Twelve years after he directed Trainspotting, Danny Boyle has made another pacy, critically adored tale of a young man mired in urban squalor who is trying to choose a new life.

But whereas his classic adaptation of Irvine Welsh's novel was set in the grimy streets of 1980s Leith, in Edinburgh, Slumdog Millionaire was shot in one of Bombay's biggest slums.

The film, named yesterday as the closing night gala for The Times BFI 52nd London Film Festival, is being hailed as a return to peak form for Boyle and was the hit of the Telluride Film Festival in the US last weekend.

Loosely based on the bestselling novel Q and A by Vikas Swarup and with a screenplay by Simon Beaufoy (who wrote The Full Monty) the film is the fictional story of Jamal Malik, an 18-year-old orphan, who finds himself one question away from winning the jackpot on India's version of Who Wants To Be A Millionaire?. Arrested on suspicion of cheating, Jamal tells the police of his life on the streets and of the girl he loved and lost, who, he hopes, will see him on the quiz.

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Boyle, whose other films include Shallow Grave, The Beach and 28 Days Later, is the third leading Western director to take on a major project in India in the past two years.

Michael Winterbottom's A Mighty Heart was set mostly in Pakistan but largely filmed in Bombay and Wes Anderson's The Darjeeling Limited was shot aboard a train in Rajasthan. Hollywood heavyweights, including Brad Pitt, George Clooney and Steven Spielberg are also forging links with the Indian industry as barriers break down.

Filming in one of the planet's most crowded cities had presented challenges for Boyle but had also given him a vision of the future, he told The Times.

“We're going to have to live like that. In 100 years there's going to be as many people on top of each other here as there are in Bombay now. What are you going to do with them? Where are they going to live? Where are they going to s***? Where are they going to get water from? They're going to be here, and if you don't find a place for them, then they'll find it themselves.

“And that's how the slums begin. We are going to have to learn to share resources and somehow live together like they do. It's not futuristic, it's a mess, but astonishingly it works and as a director you have really to embrace it. If you try to resist it you might as well go home.”

Two of the main cast were non-actors found in temporary housing in Bombay. Most of the actors will be unfamiliar to Western audiences, apart from Dev Patel, of Skins fame.

The project has had a troubled route to the screen. Warner Brothers closed the independent division that was to release Slumdog and the film looked as if it was going to make it only on to video. However an unusual distribution agreement between Warner Bros and Fox Searchlight enabled Boyle to accept invitations to Telluride and this week's Toronto Film Festival at the last minute, to the film's benefit.

Todd McCarthy, a reviewer for Variety, the industry newspaper, said that the film had a “fantastic energy” and looked likely “to catch on in a big way with young, adventurous and merely curious viewers”. A critic writing on the film website Cinematical described it as “Boyle's best film to date”.

Last night Sandra Hebron, the London Film Festival's artistic director, said the film pulled together a wealth of talent. “We're thrilled to be closing our festival with this latest film from one of the UK's most talented and versatile directors.” Frost/Nixon will open the festival, which runs from October 15 to 30. The full programme will be announced on Wednesday.

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