Nehwal was named the recipient of the Rajiv Gandhi Khel Ratna award after a string of impressive performances that saw her become the first Indian to win a Super Series title when she triumphed at the 2009 Indonesia Badminton Open.
"I am really happy. It's unbelievable, a dream come true for me," she said. "I have done well in the last two years and the three titles that I won recently have really boosted my confidence.
"I am now preparing for the World Championship and hope to win the title," she said.
Nehwal, this year's All England Championships semi-finalist, is now a serious threat for next month's World Championships in Paris.
"I am not thinking of becoming No 1 this year. I know that I should win more tournaments to be numero uno," the Hyderabad 20 year-old said.
"I am optimistic of a better show in France and my main aim will be to win Commonwealth gold in India. I am not going to leave anything for that.