Maybe they believe, rightly or wrongly, that the lower cost of labour is their strongest asset in getting hired by a Western company.
If their salary were raised to SV levels, sure, they might go from "well-off" to "fabulously wealthy" - but they might also get replaced with Western or Eastern European engineers. If they're not absolutely confident of their value to the company, it's not a gamble worth taking.
Here's a data point that may help put things into perspective – one of our employees in India lives in what would be considered a mansion when compared to silicon valley housing. His family has the best private medical insurance, and his kids go to the top private school in the city. He employs a driver to take him to work everyday. He has multiple full-time household help. His disposable income puts him in or close to the top 1% in India. And he does all this on a single staff+ level engineer's salary (his wife doesn't work).
Is it too hard to see why he would be satisfied with his work conditions?
If I had that kind of money ratio locally, I would personally blend in eg. "stealth wealth" to avoid being a target. Probably self limiting to feel that way.
I read that in some places there is an expectation that (wealthy compared to the locals) western expats employ lots of staff or pay for services they might carry out themselves in western countries (e.g. laundry, cleaning, but also things like grocery shopping). It’s seen as a necessary amount of ‘giving back to the community’.
Because if you have to pay SV salaries, why bother hiring in India and deal with the hassle of timezone disparities? Companies would just hire in SV...
This is the ugly truth people in first world do not understand or willfully ignore: someone in a third world country would kill for what you consider as table scraps. The low cost of labor IS their competitive advantage.
If their salary were raised to SV levels, sure, they might go from "well-off" to "fabulously wealthy" - but they might also get replaced with Western or Eastern European engineers. If they're not absolutely confident of their value to the company, it's not a gamble worth taking.