Thanks guys. Its clear now.
When I read the below statement in the config document, I just assumed when I set Inactive to false, it would also delete the user. Because, setting a user to inactive in IdM, does delete the user in the backend systems.
By default, the web-enabled task Inactivate Identity is configured to only deactivate a user in the identity store and not delete it. In this way, the history of the user can be retained. If you want to actually delete the identity, adjust the pass accordingly. (Set MX_INACTIVE to FALSE in the Destination tab for the Inactivate Identity pass.)
Cheers
Murali