In the second chapter of Midnight's Children, as well as throughout the novel, Rushdie concentrates on the motif and conflict of changing identities, primarily the Western versus Eastern identities. He signifies this once through Aadam being covered in the blood of Indians, and another through Aadam being covered in the Western mercurochrome. While the two may make Aadam look the same, in the former he is covered in something native (though horrible), and in the latter he is soaked with something artificial and foreign. Coming home to Naseem, once covered in one substance and then the other, confuses and irritates Naseem, showing a subtle way in which Rushdie identifies the conflict between the East--tradition--and the West--progress (on at least a hygienic, medicinal scale).
Also interesting is Rushdie's choice of medicine. Mercurochrome contains mercury compounds, and mercury is one of the few metals to be a liquid at room temperature. Because of its changeable, intriguing nature, the word "mercurial" in English indicates something or someone that is inconstant or changing. Just like the people; just like the nation.