Hundreds of workers have braved harsh weather conditions and attacks for about eight years to lay bridges and tracks across the mountainous region. An engineer and his brother were kidnapped in 2005 and later killed.
New Delhi says the train service is aimed at bringing development to the remote areas of the strife-torn region.
"However, connecting the Kashmir Valley with the rest of India still remains a distant dream," Abdul Wahid, an engineer on the project, said.
Roads were deserted except for security patrols on Saturday in Srinagar, Kashmir's summer capital, a day after at least two people were killed and about 75 wounded when police fired bullets and teargas shells to disperse demonstrators.
The strike was called by Kashmir's main separatist alliance, All Parties Hurriyat (Freedom) Conference.
Singh, who is ending a two-day visit to the state accompanied by Sonia Gandhi, leader of the ruling Congress Party, inaugurated a 450-megawatt hydro power project on Friday, and offered new dialogue with the separatists to end violence.
The latest round of protests come at a time when violence involving Indian troops and separatist fighters has declined significantly after India and Pakistan, which both claim the region, began a slow-moving peace process in 2004.