Barter trade across the Line of Control (LoC), which divides the disputed Himalayan region between the nuclear-armed rivals, began in 2008 as part of peace efforts.
Mounting tensions and deadly skirmishes along the heavily militarised LoC in recent months have seen the trade come to a standstill for more than three weeks.
Violence flared on August 6 when five Indian soldiers were killed in an ambush Delhi blamed on Pakistan, and on Thursday militants stormed an army base on the Indian side, killing 10.
Mohammad Ismail, the chief of the Trade and Travel Authority in Pakistani Kashmir, urged the two leaders to try to cool tensions to end the trade impasse, which he said was costing traders millions of rupees.
"We're not expecting any major breakthroughs in the talks, but we want them to move the peace process forward," he told AFP.
"People-to-people contacts between the two countries should be held so trade may resume."
Singh condemned Thursday's "heinous" attack but said it would not deter him as he seeks to resolve problems with Pakistan through dialogue.
Yesterday however, he toned down expectations for the meeting, saying Pakistan remained an "epicentre of terrorism".
Ejaz Ahmad Mir, vice president of the LoC trade union told AFP: "We appeal to the international community and also the two premiers to ensure that the peace process does not derail.
The barter arrangement sees goods including rice, jewels, sandals and fruit leaving Pakistani Kashmir and carpets, shawls, dried fruits, and spices amongst others coming from the Indian side.
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