Well all things considered the Dutch Army was not that big. In 1940 there were 4.400.000 men in the Netherlands. Out of those there were only 280.000 serving in the military. That is 6%. In Belgium that was 16%, almost triple. Now I must admit that I'm not sure if the number of 280,000 includes the Koninklijke Marine (and I'm 100% sure that it does not include the KNIL) but even if we correct for that it implies that there is still an untapped manpower pool of atleast 250,000 to 280,000 men. Manpower-wise one could double the Dutch Army.
Of course, as you said, the big problem was with equipping the Dutch Army. This was a problem OTL let alone in a scenario where the army is doubled. What has always struck me is the level of complacency in the pre-WWII Netherlands. The whole country looked at WWI and concluded that an effective defense was useless as neutrality was good enough, even though the effective defensive measures of taken in 1914 were themselves the reason neutrality was kept. Even after WWII had started in Poland didn't the defense industry work on full capacity, no night shifts or work done in the weekends. Bonkers!
It would be interesting to see what can be done to improve the Dutch military as much as possible in an Interbellum-wank though. Personally I think it should start with getting Colijn to let go of the golden standard at the start of the Great Depression, significantly shortening the economic crisis for the Netherlands, which should allow for a better rearmament in the '30s. To get that to happen one might need to go further back and stop Troelstra from making his greatest mistake in trying to start a revolution in 1918 though.
I agree with this mostly, though the term "quite large" means the army, or Koninklijke Landmacht, of early 1940 numbering around 270,000 total in the homeland excluding the troops in oversea territories, was large on a total domestic population of around 4+ million, compared to a normal peacetime size of around 80,000 - 100,000 in this period in history. Even this peace time sized army was not that well equipped with supplies and munitions. In the whole territory of the Netherlands, prior to 1940, there were just 32 armored vehicles of the wheeled type armored car and not a single active tracked tank. (the only one it had possessed had been disposed of in an pre-war test.)
The main problem was the interbellum political climate of passifism, where the succeeding governments refused to invest large amounts of budgets in the defenses of the nation (as well as the oversea territories). With a more military orientated type of government the defenses could have been much more organised, better equipped and prepared for whatever threat there was, though still unlikely to withstand a full blown assault of the much larger neighbor on its eastern border. At best it could have delayed the attack of the Wehrmacht a bit longer, but in the end still succumb eventually due to the much larger military resources Germany could throw in.
The best thing the Dutch could have done was not to split the defense budget between homeland and oversea defenses, this would indicate the homeland would likely be left mostly undefended with military hardware and heavily rely on its diplomacy and its "strength" in neutrality. Focusing on the Dutch east Indies was more logical as the colony was the primary source of the Dutch economy in this time, as well as political thinking. Besides this, a stronger defense in the East Indies was also likely to attract more goodwill with the other colonial powers UK and France (pre-1940). In terms of military strength, the East Indies likely would be taken still by Japan, but with somewhat more difficulties, due to a stiffer potential of the defending Dutch Navy especially.
