What kind of racism is going on in the book Kim?
Racism in Kim, and in Kipling in general, is a difficult question not because it does not exist -- it does -- but because it is a different racism than the type we are accustomed to.
Kipling definitely felt that there was such a thing as "race" or "blood," and that it made those of the white "race" superior. We are reminded all through Kim that the protagonist is white, despite his Indian acculturation, and that those with darker "blood" are lesser. Such an attitude is unarguably racist.
However, Kipling is better called a culturalist rather than a racist, with the remarks about "blood" and "race" a relic of the less sensitive way such concepts were bandied about in the pre-Nazi era. Kipling believed in English "civilization" more than in the "white race," and like many imperialists assumed it was a skill that could be learned by subject peoples. Kim contains many examples of the supposedly superior "white" English behaving like fools; for instance, the shallow and silly remarks the English soldiers make when they capture Kim (ch. 5 - 6). Kipling, in fact, makes many remarks that are incompatable with Nazi-like racial superiority. One only needs to try to rework the last lines of his notorious poem "Gunga Din" from the viewpoint of a Nazi speaking of a Jew to see what separates Hitler from a writer who ends by declaring "You're a better man than I am, Gunga Din."