Media playback is not supported on this device
Smith maintains there was "no reason" for Rangers to have to re-enter the league in the lowest tier.
"It'll be a massive motivation for Rangers. It would certainly be a motivation for me," said Smith.
He also believes the Ibrox board "have to find a way" to back manager Mark Warburton to compete in the top flight.
With the club mired in debt, Rangers entered administration and then liquidation in 2012 and had to re-enter the Scottish football pyramid in the fourth tier.
Smith feels Sunday's Scottish Cup semi-final against Celtic will not be an accurate gauge of how Rangers will fare next season and accepts Celtic are "the favoured team".
However, the former Rangers boss believes Warburton's men go into the tie in a "far more optimistic frame of mind than last season" when Celtic were comfortable winners in the League Cup semi-final.
"Four years ago, the club was at its lowest level ever," said Smith. "We were nearly starting a season, or were five days away from starting a season with only five players, no Rangers manager has ever been in that circumstance before.
"And no Rangers manager has ever been in the circumstance that he [Smith's successor Ally McCoist] was in for the next three years.
"I think it [ill feeling towards Rangers] will always be there.
"There was no necessity for Rangers to be put down into the Third Division and I think that's the thing that will always stay in Scottish football.
"I think there'll be a bitterness in the Rangers ranks that that's happened.
"There's no doubt it was the wrong move in my eyes. Scottish football has been worse off and a lot of the teams who were happy to see Rangers go down have suffered and found themselves relegated or in the process of being relegated.
"So, there will be that bitterness. How can they forget what happened to them there? You can't forget that."
On the prospect of providing a title challenge in the top flight, Smith said: "Celtic look as though they're going to get five in a row; it's a big thing.
"That's them closer to getting to the nine or 10 in a row. So, Rangers will have to show a reaction."

The incident happened outside the Black Bull pub on Lockerbie's Station Road at about 22:25 on Saturday.
A 26-year-old man who was in the beer garden was approached by two men and an "altercation" ensued.
The victim was knocked to the ground by one of the men and the pair then made their way from the scene towards the High Street.
The man had been knocked unconscious and was taken to Dumfries Infirmary for treatment to cuts to his face.
PC Mike Briody said: "This was a nasty assault and could have resulted in the victim being very seriously injured as he was unconscious after the attack.
"As it was he required hospital treatment and received stitches as a result."
The men police are trying to trace have been described as:
Police said CCTV had shown a number of people in the area at the time and asked them to come forward.
Former Rangers manager Walter Smith believes a sense of bitterness about the way the club was treated remains as they gear up for Premiership football.
[NEXT_CONCEPT]
A man was left in hospital after being knocked unconscious in a south of Scotland beer garden.