"I simply can't understand how such a good player can be kept out of the side. Building up for the future is fine, but not at the expense of experience," Ranatunga told AFP.
India's Aussie coach Greg Chappell has often been blamed for the ouster of Ganguly, who last played for India in January this year in a Test against Pakistan, while his last one-day appearance was more than a year ago.
"I wonder whether it (his dropping) has got anything to do with performance. There can be issues within the side, but the country comes first and all these petty things are immaterial," said Ranatunga.
India, on a tour of South Africa, have conceded an unbeatable lead in a five-match one-day series. They lost two matches by over 100 runs with one match rained out. A three-Test series will follow the one-dayers.
"Ganguly is a match-winner and we had the utmost respect for him when we played against India," said 42-year-old Ranatunga, who led Sri Lanka to an epic World Cup triumph in 1996.
"As a captain he showed a lot of aggression as well, and it's he who showed recent Indian teams how to be ruthless. He certainly has been the toughest Indian captain in recent times," Ranatunga said.
"I feel sorry for India. It's a crime to keep out such a talented player, and I don't think India is picking its best team at the moment.
"The instances he must have missed out on personal landmarks, for the sake of the team, are numerous. I love those types of players and teams need them," said Ranatunga.
The former skipper also said India were capable of winning next year's World Cup in the West Indies.
"No team has such a batting line up. When you have Tendulkar, Sehwag, Ganguly, Kaif, Yuvraj, Dravid and Dhoni, you can chase any target.
"It's like our batting line up when we won the World Cup," said Ranatunga, a left-handed middle-order batsman who scored 5,105 runs in 93 Tests and 7,456 in 269 one-day internationals.