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According to rugbyleagueproject we only used 28 players this season in NRL, including Peats and Paulo *and Foran (how could I forget him?)*.
So 40 player squads are helpful for two grades, but you don't usually need to dip too far down to fill your first grade.
The thing is you can't guarantee you'll have the exact second tier player available when you need him. Look at this year - both our backup halves were injured when we needed them. Likewise with backup centres. If you only have one backup at each position you could find yourself with nobody available at a specialist position when you need them.
Well you could always play second rowers on the wing or in the centres, or even in the halves.