Rangers last featured in the top division in Scotland in 2012 and are in the Scottish Championship at the moment.
Walters, who won the league title with the Gers three times in the 1980s and 1990s, has suggested that Celtic have missed their Glasgow rivals.
"I'm sure most Celtic fans would say the worst thing that has happened to the Premiership over the last four years is Rangers being out of the game,” the former Aston Villa and Liverpool attacker told Sky Sports.
“And that's not only from a financial point of view but also from an atmospheric point of view in the matches. I don't think it's been good for Celtic and the standard of the football in the league has also dropped, which was a big criticism before anyway.”
Walters has predicted the standard of the Scottish Premiership to rise when Rangers get promoted from the Scottish Championship.
“I think the standard will increase when Rangers go up and hopefully they will be able to recruit some good players of a similar standard to Celtic's, and that will help the league get the recognition it deserves,” said the 51-year-old.
Rangers are at the top of the Scottish Championship table at the moment with 59 points from 23 matches. Mark Warburton’s side are eight points clear of second-placed Hibernian, who have a game in hand.
The Gers are favourites to win the league title and gain automatic promotion to the Scottish Premiership at the end of the season.
Meanwhile, Celtic are at the top of the Scottish Premiership table at the moment with 55 points from 24 matches. Ronny Deila’s side are level on points with second-placed Aberdeen and have a game in hand.